Bank of Mum and Dad: The new norm for borrowing money

The bank of Mum and Dad is a Western term that came to prominence around the 2008 financial crisis and has been growing wider adoption across the globe ever since. Sponsored by RL360

It is a phrase used to describe the financial support parents or guardians give their children. This support can take many forms, including help with tuition fees, living expenses, or even a down payment on a house. 

For many families, the bank of Mum and Dad is a way to give their kids a leg up. Studies have shown that children who receive financial assistance from their parents are more likely to go to college, start businesses, and buy homes.

In other words, the bank of Mum and Dad can be a powerful tool for helping kids achieve their dreams. Of course, not every family has the resources to tap into the bank of Mum and Dad. But for those who do, it can offer invaluable support.
 
Whilst the term itself is relatively recent, the practice of gifting or loaning money within families is almost as old as currency itself. However, in the eastern hemisphere, particularly in Asian countries, these types of financial transactions have been part of various cultures for centuries.

In India, for example, Kuri Kalyanam is a party thrown by a family in which guests donate a cash sum to help contribute toward events such as weddings or elder sons and daughters buying their first property.

In other Asian countries such as China and Vietnam, there is a tradition in which parents are expected to help their sons buy their first property. Without a home of their own, men in these countries are considered less eligible for marriage.

Having an unmarried son past a certain age can be seen as shameful for a family, giving an extra incentive for parents to lend a fiscal hand to their sons in the hope that he may marry sooner if he owns his property.

Having survived hundreds of years, such traditions of passing money through the generations have typically been performed without the appointment of a financial adviser. This, in principle, could mean a wealth of untapped clients for financial advisers to offer their services. 

For example, a financial adviser employed by an Eastern family classified as ‘high net worth' and that subscribes to a particular cultural tradition, opens the door to managing wider family finances. 

Arguably, even more so than in Western families due to common practice of multi-generational households and traditions ingrained into their culture. 

For HNIs, the vast sums of money that would potentially be exchanged would warrant the oversight of financial experts.

Furthermore, once money distribution has been overseen between the family members of an HNI, there is subsequently a whole new range of potential clients that are created and with whom the financial adviser is already in close contact, making offering their services even easier.   

We see an opportunity here for financial advisers to become involved in these cultural traditions in which the role of an outside financial mediator, is a relatively new phenomenon.

Financial advisers could add critical advice for families deciding on whether money passed through generations should be gifted or loaned. 

Whilst some families may be more willing to gift money to their children, others may be more up for debate about whether the money given will need to be repaid or not. In these instances, the financial adviser may step in and help mediate these discussions and help normalise the concerns of each party.

Repayment plans could be the way to minimise friction within the family once money is borrowed from the bank of Mum and Dad.  

This also provides an opportunity for financial advisers to offer their services in planning how this will be managed over time. Financial advisers can interject as an independent body that brings fairness, objectiveness and peace of mind in a discussion that many families may find delicate.

As with any business, it is important to change with the times and adapt to make the most of any opportunity that presents itself or risk getting left behind whilst your competitors make gains. Here is no different.

In many ways, this is a lovely opportunity for financial advisers to further integrate themselves into a wider family network, grow their client base and offer a specific service that not all others are packaging up in such a manner. 

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