Parents are 35% more likely to struggle with saving

Are young parents missing out on targeted financial support? We take a look at some of the unique struggles faced by this overlooked demographic…

Our research reveals people aged 25-44 with children are 35% more likely to struggle with saving than those of the same age without.

At first glance, you might think this stands to reason. The cost of raising a child is expensive after all.

However, trends such as the rising cost of living, reduced savings and cuts in government-funded child support – not to mention the cost of childcare itself – are only widening the financial gap between parents and non-parents.

To get a better understanding of this growing struggle, let’s take a look at some of these factors in more detail…

UK rents have increased by an average of 13.9% over the past five years.

The rent trap

It’s relatively unsurprising that younger households are more likely to rent privately than older ones. In 2017, those aged 25 to 34 represented the largest group of renters (35%), followed by those aged 35-44 years (22%).

What’s perhaps worrying, is the rising proportion and aging demographic of those in rented housing. Data from the Office for National Statistics shows the number of UK households in the private rented sector increased by 63% between 2007 and 2017, from 2.8 million to 4.5 million.

This includes an increasing number of families. In 2017-18, 35% of households in the private rented sector included dependent children – 1.6 million households, up 37% from the recorded 1.1 million in 2010-11.

These trends indicate a rising struggle among young people to successfully break the rent cycle before starting a family – and the rising price of rent is certainly a contributing factor.

According to HomeLet, UK rents have increased by an average of 13.9% over the past five years. Which, combined with knowledge that two-thirds of private renters have no savings whatsoever, makes it easy to see how an increasing number of young families have found themselves unable to break the rent cycle and move onto the property ladder.

Lower wages give already struggling parents even less leeway when it comes to savings.

Lower earnings

According to statistics from The Money Charity, the UK has seen a -5.9% change in the average real wage since pre-crash peak in February 2008. While this will have impacted on both parents and non-parents, those with children will undoubtably be feeling the burden a lot more – not only because there are more mouths to feed, but because they can’t usually make the same compromises in terms of budgeting and lifestyle.

Lower wages give already struggling parents even less leeway when it comes to savings. Indeed, our most recent findings show those with household incomes of less than £40k are 20% less likely to say they’re regular savers than those on higher combined incomes. Meanwhile, households earning less than 30k are 67% more likely to rent than own a property, making them even less equipped to save.

As of 2019, the overall cost of raising a child to age 18 amounted to £185,000 for lone parents

Cost of raising a child

The cost of raising a child is accelerating. A recent report by the Trades Union Congress (TUC) reveals the average cost of childcare rose four times faster than wages between 2008 and 2016 – in London the cost rose seven times faster.

There are a number of factors at play here, including the rising cost of living in general. However, the government has also made a number of cuts in recent years, including changes to child benefit and free school meals schemes, with new criteria leaving thousands of parents ineligible to claim.

The cost of university is surely another major concern, with research revealing that over one in five parents (21%) are subsidising their children’s studies at university with over £400 a month, with over half (55%) giving over £200 a month to help support their child through further education.

As of 2019, the overall cost of raising a child to age 18 amounted to £185,000 for lone parents (up 19% since 2012), and £151,000 for couples (up 5.5% since 2012).

Single parents

In 2019, there were 2.9 million lone parent families in the UK, making up 14.9% of all family households.

For single parents, the financial struggle of raising a child is even more urgent, with child-related costs coming in 22.5% higher than for couples.

Take for example, a lone parent working full-time on the ‘national living wage’. They’ll be 20% short (£74 per week) of what they need to achieve a minimum standard of living. Meanwhile, even those on median earnings will still fall 15% short (£56 per week) due to the cost of childcare.

For a lone parent family, the cost of raising a child comes to £27.90 per day.

Children are dependent for longer

Even when children reach 18, many are still financially dependent on their parents. Latest ONS statistics show a 46% increase in number of young people aged 20-34 living with their parents compared to two decades ago – that’s 1.1 million more young people now living at home.

In many cases, this comes down to parents’ inability to save for their children’s future. A study by Nationwide shows British parents usually save around £45 a month for their children, but less than a third do so regularly, as money is often too tight.

Meanwhile, 21% say they aren’t saving a penny for their children, with the majority admitting they can’t afford to do so.

Over the course of the pandemic, this is an issue we can only expect to worsen. Many recent school graduates are now unable to go to university or enter the jobs market – with latest ONS figures showing a staggering 408,000 people in the 18-24 age group are currently unemployed.

In 2017, around 6.5 million adults in the United Kingdom had no cash savings.

No savings

In 2017, around 6.5 million adults in the United Kingdom had no cash savings. And parents it seems, prove to be all the less likely to be able to save.

In England, 50.5% of parents aged 25-44 have less than £5k of savings compared, with 45.2% of their peers without kids.

This goes up to 62% of parents when looking at Wales.

For single parents, average savings are even lower. Around 63% of single parents and 46% of divorced or separated parents have less than £500 put away.

The impact of COVID-19

Needless to say, the pandemic has had an adverse financial impact on individuals of all ages and demographics.

Among these is a group of newly “pinched” households that report both a fall in income and an increase in expenditure, making up 14% of those directly affected by coronavirus.

While this in itself is not so surprising, it’s surely worth noting that a huge 44% of this group is made up of parents with dependent children (compared to 24% of the adult population), indicating an association with the cost of supporting children during the pandemic.

Are financial providers missing a trick?

It’s apparent from our research that, while many financial services companies do offer family products, the young parent demographic still seem to be falling through the gaps. So much so, that nearly a quarter (23.4%) of all people who say they struggle with saving are parents aged 25-44.

But if the need is there, why are parents being neglected?

Well, a lot of it seems to come down to image and target marketing. Take 2020’s trendy competitor banks as examples. Monzo proudly targets its marketing at millennials – but a certain type of millennial. You only have to browse through its social media or watch its latest campaign to see that Monzo is primarily out for a young, socially-active (dare we say, parent-free) audience.

Competitor bank, Starling, has a similar issue – despite marketing itself as unbiased around age, gender and geography, it continues to feature mainly young, single people in its advertising and online spaces.

And the same goes for budgeting apps. Plum, MoneyBox, Squirrel and Emma all have a very young online presence and marketing tone-of-voice, even if some of the functions their apps provide might be perfect for our forgotten parent demographic.

On that note, we leave you with a closing thought – is it better for financial providers to market broadly, or might there be real opportunity in offering more targeted support with tools that help parents bank and save? So earning the trust and loyalty of young families who will, after all, be shopping for financial products for a long time to come.