Are You A Baby Gloomer?- Help Is At Hand

I refer to a recent article in the Daily Telegraph. It states that more than 3m people are having to help their parents financially “as the savings crisis engulfs a generation of Britons.” The Daily Telegraph survey highlighted the economic burden being forced on Britain’s so-called “baby gloomers” defined as those who are having to support both their own children and their parents.

It appears that almost one in ten adults is having to contribute to their parents’ upkeep the research, conducted by Norwich Union, found. The results suggest that more than 1.3m adults aged between 17 and 65 are paying their parents more than £250 a month and with some paying up to £1,000. The article goes on to say that many pensioners have had to turn to their children for help as their income from savings has virtually disappeared following the fall in interest rates. Baby gloomers are being stretched to the limit as they struggle to cover family costs which often also include growing children who cannot afford to leave home.

Financial experts noted that a “sandwich generation” of adults squeezed between their parents and their children has become one of the most striking phenomenon’s of the credit crisis. They warned that it is expected to become more pronounced as the economic downturn worsens.

The problem is, of course, that some 18 months ago it was possible to earn 6% gross interest on a cash account and now that figure is down to around 2% gross. It also means that in some cases current accounts now offer better savings interest rates than savings accounts. Of course many people will have locked-in to better rates of interest in 2008 but those rates will end over the next 6 months to 3 years.

So what can be done? My view is that if a child is asked to support a parent financially, that child needs to know more about the parents’ savings and investments. In many cases it’s possible to generate income from investment bonds (without affecting the Ago Allowance) and, as you know, I am a keen fan of higher yielding fixed interest securities. Following a sharp fall in their value in late 2008, several of them now earn more than 10% and that is 10% tax free within an ISA. Of course capital is at risk unlike (hopefully) cash but “baby gloomers” may have to push their parents to give up the safety and certainty of cash- and so some of their inheritance- for a much higher income via, for example, high yielding corporate bond funds. So if you are a baby gloomers, try to sort out your family’s finances before you start committing large sums of cash to their well being for many years to come. Remember also that one of the attractions of Peps and Isas is that they can be switched to higher income yielding funds at little or no cost.

If you would like a specimen portfolio of higher yielding fixed interest bonds (commonly called corporate bonds) to help reduce the income gap, please let me know.