Prudential has calculated that the Bank of Mum and Dad is potentially the most lenient lender in the country.
Its relaxed approach means it ends up writing off a large numbers of loans each year, the insurer said.
Every single one of the more than 1,000 parents interviewed on behalf of Prudential said they had already loaned money to their children or grandchildren to cover major financial commitments, or hoped to do so in the future. However, 19% said they had taken money out of their pension fund or sacrificed saving into their pension to help their children.
Others have had to cut back themselves as a result, with 19% saying they’ve had to go without certain things, while one in 10 admit they have ended up being short of money for emergencies since giving the loan to a family member.
However, despite the potential costs to their own finances, 59% of those who have lent money to their offspring have subsequently decided to write off some or all of the debt – with 34% having written off the whole lot.
Part of the reason could be that more often than not, applying for a loan at the Bank of Mum and Dad doesn’t involve any onerous terms and conditions – 75% of parents who have loaned money did not impose any conditions or specific repayment terms on their loans, despite the fact that 77% of them initially expected to be repaid in full.
Only 14% lent the money with an agreement of fixed monthly repayments and just 8% put a written repayment agreement in place. However, 7% of creditor parents take a tough line and have a written agreement in place specifying exactly what the loaned money should be spent on.
In addition, many parents admit to lending money their children can’t repay. Of those who have written off some or all of their loans, 41% did so because their child simply couldn’t afford to pay them back, while 15% said their child never had any intention of repaying them at all.
Kirsty Anderson, a retirement income spokesperson at Prudential, said: “I’m sure every parent would love to be in a position to help their families when they’re faced with significant financial challenges and our research shows that many are doing just that.
“Whether it’s helping with a deposit to buy or rent a house, or clearing student debt, the Bank of Mum and Dad plays a vital role in the finances of younger people.
“However, it is important that parents remember to consider their own futures when deciding on making loans to their families – for example, money taken now from savings and investments intended to provide for retirement could make a real dent in your income when the time comes to give up work, especially if you eventually have to write off all or some of the loan.
“But of course, family life is not always straightforward and many parents who are considering dipping into their pension savings or stopping saving altogether could benefit from a consultation with a professional financial adviser before making any decisions. Pension saving is for the long term and for most people is most effective when they save as much as possible for as long as possible during their working lives.”