In a time of mounting financial pressure, the impact of the ongoing cost of living crisis in the UK is becoming more apparent. A recent study by Direct Line Life Insurance uncovers an unsettling trend that reveals how parents and grandparents are managing to keep afloat financially. Alarmingly, the research shows that one in five of these individuals have turned to children’s savings accounts since the dawn of 2022, dipping into these funds to offset mortgage payments and other essential costs.
- Recent research from Direct Line Life Insurance shows 19% of parents and grandparents have dipped into their children’s savings accounts to manage mortgage payments since 2022 began.
- The ongoing cost of living crisis has seen parents and grandparents withdraw nearly £13 million daily from their children’s savings in 2023.
- Projections indicate an additional £2.1 billion will be withdrawn by the year’s end, with each adult withdrawing an average of £408.
- The UK’s family savings culture is at risk due to the crisis, with 53% of parents and grandparents considering reducing or ceasing savings for their children.
- In addition to mortgage payments, childcare, clothing, and food costs are among the reasons prompting families to tap into children’s savings accounts.
Withdrawals from Children’s Savings Accounts Increase Amid Economic Crisis
As the financial year of 2023 unfolds, the daily withdrawal rates from children’s savings accounts have soared to almost £13 million. This startling figure suggests an increased reliance on these savings as families struggle to navigate the financial uncertainties presented by the cost of living crisis.
On average, each parent or grandparent withdrawing funds has taken out £433. Based on the current trends, it is projected that an additional £2.1 billion will be withdrawn before the end of the year, at a rate of £408 per adult.
The Threat to Family Savings Culture in the UK
The sustained crisis is posing a significant risk to the family savings culture in the UK. There’s a lot of pressure on families trying to balance the essential expenses alongside savings and including some finances in the budget for some family fun time.
Faced with rising inflation and interest rates, over half (53%) of parents and grandparents who save for their children have already cut back, or plan to reduce their contributions. The average reduction in savings contributions stands at £123 per month, signalling a severe contraction in savings efforts.
The Decrease in Savings Levels for Children
There are approximately 18 million children and 6.1 million grandchildren in the UK for whom parents and grandparents are saving. However, these numbers are dwindling rapidly. In just 12 months, there’s been a 15% decrease in the number of children whose parents are saving for them.
Moreover, the total savings pot across the UK has fallen by 15%, from £94.1 billion in 2022 to an estimated £80 billion in 2023.
Top 9 Reasons for Tapping into Children’s Savings
Beyond mortgage costs, other financial pressures are leading families to dip into their children’s savings accounts. The top three reasons for this is childcare, clothing, and food costs, all of which place families under enormous pressure to find the necessary funds to cover these essentials. Other reasons to dip into savings are included in the table below:
|% Dipping into Children’s Savings
|Paying for a pet
|Pay for school related costs (new uniform, trips)
|Debt payments, such as credit cards
The financial challenges confronting families across the UK are undeniably steep. As the ongoing cost of living crisis continues to erode the family savings culture, parents and grandparents are left with tough decisions. Ultimately, these are challenging times for families, and these findings provide a stark reminder of the pressing need for effective financial solutions.
Hannah Donnison, Communications Manager at Direct Line Life Insurance, commented: “With interest rates rising significantly families are having to make tough choices regarding their finances and even having to raid their children’s savings to cover costs. With inflation remaining high and continued pressure on household budgets, it is important to remember the value of protection should the worst happen and life insurance can provide a valuable safety net for families.”