Spending the children’s inheritance – Living the high life vs saving for the next generation

Spending the children's inheritance - Living the high life vs saving for the next generation, Capital Asset Management

For many years, it’s been traditional for parents to pass down wealth to their children after they die. Clients often set financial goals around leaving a financial legacy or supporting their children when they are no longer around. However, a new breed of parents has arrived. Ones who are determined to live life to the full in retirement, and spend every penny of their money in their golden years.

This has led Capital to the question of where we sit on this point. Do you skimp on life in order to have the peace of mind that your loved ones will be supported when you die? Or do you live life to the full and let your children and grandchildren fend for themselves?

Spending the children’s inheritance

There are plenty of famous faces leading this revolt against inheritance. Celebrity chef Gordon Ramsay’s four daughters will not be the heirs to his  £122 million pound fortune.
TV personality and music producer, Simon Cowell, said in an interview with Esquire in 2013: “I don’t believe in passing on from one generation to another. Your legacy has to be that, hopefully, you gave enough people an opportunity so that they could do well, and you gave them your time, taught them what you know.”

Gordon and Tana and Simon and Lauren want their children to live meaningful lives. They don’t want their financial fortunes to harm or create a sense of entitlement in their children. Could knowing they’re the heir to millions of pounds prevent their children from working hard to get that promotion? Saving money to buy a house? Or putting money away for their retirement? Would they develop a sense of entitlement and lose sight of reality? Does being born with a silver spoon in their mouth hinder their own achievements and motivation?

Other than worrying about spoiling your own children, many parents believe they should enjoy the fruits of their labour. Dull pipe-and-slippers ‘retirements’ are a thing of the past. The latest generation of baby boomers is using the post-working period to embrace life and do what they love. They are staying healthy and active far longer than previous generations. Therefore, they are spending more money on eating out, exotic holidays and leisure activities and hobbies. After a lifetime of hard graft, why shouldn’t you enjoy your golden years?

On cue appear an army of hard-done-by millennials, crying out: ‘But what about us?’

Saving hard for a larger inheritance to pass on

According to research, this attitude is in the minority, with only 5% of British parents believing it’s better to save their money for their children.

Baby boomers and Generation X members have been financially successful compared to later generations. Benefiting from good salaries, free education, rising property and investment values, and final salary pensions. By contrast, their children have been hit by the rising cost of university fees, lower wages, expensive property prices, a competitive job market and low interest rates.

When the baby boomers and Generation X members enter retirement with bulging savings accounts, mortgage-free homes and gold-plated pensions, millennials won’t be so lucky. A quarter of millennials believe they won’t be able to afford to retire. To add insult to injury, it is estimated a third of millennials will be renting in retirement. This leaves this generation hoping for a sizeable inheritance to become financially secure in retirement. In fact, researchers found that 75% of 20 to 35-year-olds expect to receive an average nest egg of £78,000 when their parents die. Most children will receive an inheritance in their 60s-70s (if any at all). This may be the financial boost they need to help them in their retirement years.

Doting parents in this category are building an inheritance for their children into their financial plan.

The middle ground

Of course, there is the safe middle ground where many parents sit. These parents are planning to fill their retirement with travel and other wonderful adventures, but modestly. However, they do have a decent nest egg earmarked for their children. This usually takes careful financial planning to achieve the perfect balance.

Many parents are now choosing to gift their children some of their inheritance early. On average, people in their late 20s to 30s tend to need the most financial help. It is still early on in their career, they are trying to get on the property ladder, and wanting to start their own family. These are the times in people’s lives when a financial gift from their parents/grandparents can make a life-changing difference.

A Government report shows that home-ownership among 25-29-year olds has fallen 63% since 1990. And the lucky ones able to climb onto the housing ladder are relying heavily on the bank of ‘mum and dad’ (30%) or lump sums of inheritance (10%). Giving children this head start will mean they can focus on building up their own savings. Plus, it may help them avoid spending hard-earned money on rent.

At Capital, we call this – “Giving with a warm hand is much better than giving with a cold hand.”

Whichever camp you find yourself in, Capital is here to help you. Our chartered financial planners can help you define your life objectives. They will then work with you to create your personal financial plan to achieve them. If you would like to speak to one of the Capital team, contact us today.

At Capital, we believe in dancing to your own tune.

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