‘Bank of Mum and Dad’ helps kids also get ahead in education and business start-ups
Adult children inheriting or gifted wealth from their parents are more likely to start businesses, hold bachelor’s degrees and have more money in the bank, says a new study.
The report A new look at the channels from housing to employment decisions, by RMIT University and Curtin University researchers working on behalf of the Australian Housing and Urban Research Institute (AHURI),
The report was authored by Melek Cigdem-Bayram and Gavin Wood of RMIT University and Rachel Ong of Curtin University.
explored how inter-generational wealth transfers, which are typically financed through housing wealth, influence the education and work careers of beneficiaries.
The report shows that although the proportion of beneficiaries in the labour force is roughly the same as non-beneficiaries, a significantly higher proportion of beneficiaries are self-employed, said Professor Wood.
“Young Australians that receive inherited wealth and parental cash transfers financed from housing wealth are being helped by booming house prices,” Professor Wood said.
“They have more financial assets that can act as a buffer to meet income shocks, and collateral to relax borrowing constraints. Therefore, they may be more likely to take risks, like financing their own business ventures.”
Nearly 1.8 million Australians inherited money at least once between 2002 and 2012, with the average amount of each inheritance being $79,000.
Beneficiaries of parental cash transfers also have average bank deposit account balances that are more than double those of non-beneficiaries, and their average net investment income is roughly one-third higher, the report stated.
Children who received cash transfers or bequests from their parents are also more likely to hold a bachelor’s degree.
While this may seem like good news for young Australians lucky enough to be recipients of housing wealth, this could entrench and even exacerbate inequality in lifetime economic opportunities, says Professor Wood.
“Intergenerational transfers are an important feature of contemporary family life and housing wealth is an important direct or indirect funding source for these transfers,” Professor Wood said.
“The evidence presented in this report confirms expectations that intergenerational transfers help beneficiaries to ‘get ahead’.
“But if intergenerational transfers become increasingly important as a pillar supporting educational, housing and business start-up opportunities, policy-makers will need to heed the consequences for those children of less well-off parents who are bypassed by the intergenerational circulation of housing wealth.”