How to help adult children financially without harming your future

“Knowing where you stand enables you to make an informed decision,” he explains. “For instance, you may decide you’re happy to continue working longer than anticipated if it means taking a massive bite out of your child’s university debt or helping them to buy a home.”

Starting saving as soon as you can means you have more time for money to grow. Rickman points out that saving £100 a month from the day your child is born would grow to almost £35,000 by the time they reach age 18 (assuming 5% annual growth net of fees).

“In contrast, if you waited until your child is 10 years old, you’d have to commit £300 a month – three times as much – to accrue to the same sum,” he says.

If you have some time before your child needs money, Rickman suggests parents consider investing in the stock market rather than saving.

“While the eventual sum isn’t guaranteed and the money can move up and down in value, history tells us that over long periods investing gives you a better chance than cash savings of growing your wealth – or in this case your kid’s wealth,” he says.

Hill says one way to make financial support from the bank of mum and dad work harder is to consider investing in a Junior Stocks and Shares ISA. “Contributing to an account like this can allow your kids’ investments to grow over time, [it] teaches them about investing, and helps them see the value of long-term planning,” she advises.

“But remember, with investing your money can go down as well as up, so it’s always wise to only invest what works for your family’s budget.”

The key to intergenerational wealth planning, which sits at the heart of the bank of mum and dad, is to use the family’s finances in the most effective way, stresses Rickman.

Intergenerational conversations about money can help with financial planning (PA)

“It could be that your parents have surplus cash or assets and perhaps have an inheritance tax problem and would be more than happy to support their grandchildren to meet key financial goals while they’re alive, instead of passing on the money on death,” he says.

If you plan to contribute toward larger expenses in the future, Hill says transparency is key. “Be clear about what you can realistically offer and where you expect your kids to contribute themselves,” she advises.

In an ideal world, parents have sufficient money to give their children a financial head-start without compromising their own financial goals, but this isn’t the reality for many parents, who risk leaving themselves short in retirement by making outright gifts, warns Rickman.

He says one way around this is to loan the money instead.

“While it might be an uncomfortable thing to do,” he says, “it’s important to set clear terms of repayment, ideally drafted as part of a legal agreement, helping to avoid any friction or misunderstanding down the line.”

Knowing the tax rules before gifting is key to making sure you or your loved ones don’t get tripped up down the line, explains Rickman.

“This includes grasping the inheritance tax gifting rules and understanding how capital gains tax works, should you wish to pass on an asset such as a second home,” he says.

“If you plan to raid pension assets to support your children, learn about the possible tax implications here too, as well as appreciating the impact any withdrawal might have on your future lifestyle in retirement.”