The “Bank of Mum and Dad” is driving increasing economic inequalities among people in early adulthood, a new report published by the Institute for Fiscal Studies (IFS) has suggested.

An estimated £17bn is gifted or loaned informally each year, almost all from parents to their adult children.

These funds mostly help with buying a house or is gifted at the point of marriage, with the transfers “very unequally spread”, according to the IFS.

Most transfers come from parents over the age of 50 to children in their late twenties and early thirties. The IFS report has revealed that around 30% of young adults receive at least one substantial transfer, of £500 or more, over any eight-year period.

As a result, the IFS has warned that these gifts are increasing inequality among the younger generation. 

Young people with wealthier, home owning parents tend to have higher incomes than others, and also get more often and bigger gifts from their parents. Figures from the report revealed that over half of the value of transfers is given by the wealthiest fifth of adults – almost exclusively homeowners and disproportionately living in London and the South East.

Over an eight-year period in early adulthood, the report highlighted that those in the highest-income fifth of young adults are over three times more likely to receive a transfer than those in the lowest-income fifth.

Furthermore, the amounts received by the highest-income fifth are 26 times bigger than those received by the lowest-income fifth. The highest-income fifth receive an average of £6,300, or 3% of their income over the same period, while the lowest-income fifth receive an average of £240, or 0.5% of their income over the same period.

Research economist and author of the report, Bee Boileau, said: “Substantial intergenerational transfers happen when people – particularly those with richer parents – are in early adulthood and are buying their first home or getting married. While these transfers are important assistance for some, they are very unequally spread.”

The IFS report has also revealed that white young adults receive substantial gifts much more often than black or Asian young adults.

Its findings showed that one in 10 white young adults receive a gift in a two-year period, compared with one in 25 black African or black Caribbean young adults, and less than one in 30 Pakistani or Bangladeshi young adults. The IFS suggested that differences in parents’ wealth between these groups is a “key driver”.

Boileau added: “The children of university-educated home owning parents receive around six times more in wealth transfers during their twenties and early thirties than the children of renters, while white young adults are three times more likely to receive a substantial gift than Pakistani or Bangladeshi young adults.

“As well as the benefits these transfers can provide, policymakers should therefore keep in mind these transfers’ potential to pass on inequalities from one generation to the next.”

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