The big four banks and the so-called Bank of Mum and Dad have a new rival — the Bank of Ma and Pa. Well, to be more accurate, the Bank of Mum and Dad is morphing into a ‘subsidiary’ called the Bank of Grandma and Grandpa, as the housing crisis and other social trends leave baby boomers in a rescue role for their adult children and, ultimately, their grandchildren.

Personally, I think Granny Bank is a better name so I’ll run with that.

The Adelaide Advertiser tells us that this ‘new’ participant in Australian financing was revealed “in an in-depth study of 30 middle-class families in Victoria with at least one child aged 18 to 25 has found over half of the ageing parents are factoring the ongoing support in their retirement planning.”

Lead author Julia Cook from the University of Newcastle and the study made the following conclusions:

1. Most parents were keen to support their young adults with investments and commitments.
2. They were prepared to do it beyond the adolescent years.
3. They didn’t want their offsprings to suffer a “real possibility of downward class mobility”.
4. Help on offer included renovating homes to enable their offspring to live at home rent-free for longer.
5. They bought cars, paid for medical insurance and their weddings.
6. They let adult children live at home, rent-free, to help them save for a deposit for their own home.

But these parents who were often progressing into the grandparent stage of their lives, refused to bankroll their entertainment, clothing and takeaway food outlays!

Dr Cook said such ongoing support well beyond age 18 “may initially appear to be at odds with the desire to cultivate greater independence that many of the parents also articulated”.

Cook said it wasn’t all excessive over-protection news as there was a notable trend that supports tended to loosen over time, so their ‘dependent’ adult children could “stand on their own two feet.”

Susie O’Brien, The Adelaide.com.au journalist, pointed out that this study “comes as Productivity Commission data shows those aged 18–34 are in a weaker financial

position than any other living generation were at a comparable age.”

Of course, most of this financial assistance was the domain of the Bank of Mum and Dad but as these unofficial ‘bankers’ age, they’re becoming Granny Bank!

Dr Cook points out that “just over half of the participants’ retirement planning actively accounted for the financial needs of their children, whether this was renovating their home to facilitate prolonged

cohabitation or setting aside funds to assist with entry into home ownership.”

Stockhead.com.au looked at this trend of the emergence of grandparents funding school fees. “Over the past 20 years, private school fees have risen by more than double the rate of inflation, with the most prestigious grammar schools costing well into the $40,000 range for year 12 and some above $50,000. Remembering that school fees are not tax ­deductible, a family with two children in private schools on the highest marginal tax bracket needs to generate pre-tax income of close to $200,000 a year just to pay school fees before even thinking about mortgage repayments and other living expenses.”

One financial advisory group reported 70% of its clients were grandparents paying school fees and are making sure that these clients were doing the maths on their commitment.

Dr Cook said the parents in the study were mostly “aware of the structural challenges facing

contemporary young adults and viewed their support as a necessary means of ensuring that their children would be buffered from the impact of these challenges”.

One interesting issue that’s often ignored is that parents and grandparents who assist their adult children are in a sense providing a bridge of support so they can say own a home or educate their kids. But Generations X and Y will retire with very big super balances. And they’ll need them because many of these funding parents of today might blow their super and sell their properties if they live too long.

These assets — super and property — used to be what parents and grandparents left their children when they passed. But given all this current bankrolling of their offsprings, it might be a case of “Honey, we’ve shrunk the kid’s inheritance on them!”