According to the Debt Advisory Line’s Craig Gedey, a report by the Aviva insurance group strongly suggests that UK insolvency figures were being artificially stabilised through significant financial transfers within families. According to the findings of the survey, a third of British families are providing their extended family and friends with an average annual monetary support of £442. Although the underlying motivations may be altruistic, they may also paint a misleading picture of the general debt situation. Aviva has also pointed towards some of the problems associated with these subsidies, noting that, within the cash-supplying families, “debt repayment, savings and pension contributions all suffer“.
The Aviva report doesn’t condemn interfamilial financial support as such. As Paul Goodwin, director of workplace savings at Aviva stressed, “In the current economic climate, families are clearly willing to support members of their extended network of family and friends. However, while it’s good to see how families are pulling together, people need to ensure that they are not sacrificing their own financial wellbeing, particularly in the long term.“ To put the numbers into perspective, an annual subsidy of £442 may not seem an awful lot, amounting to just £36 each month. And yet, as Goodwin observed, if calculated over a longer period of time, these all but puny amounts actually add up to a significant chunk of money: “The stark truth is that people are not saving enough for retirement. By providing their families with £442 annually, over a working lifetime of 40 years they could effectively be giving away two thirds of the typical UK pension pot.“
Even more worryingly, according to Gedey, by turning towards family members rather than trying to find a sustainable way out of their problems, many of those in debt were compounding, rather than improving their situation in the long run: “It is more than understandable that one should be looking for help with one’s closest friends. And yet, there is a problem with systematically spending too much over an extended period of time. One should never forget that many of those who are supporting their loved ones with cash injections are facing extensive financial difficulties as well.“
What mattered, according to Gedey, was that families started looking for advice on how to bring down their monthly outgoings and to improve their spending patterns. “By working closely with a professional debt management company, households will not only be able to help themselves get back on track again, but also to put some money aside for their pension and in case something unforeseen happens in the future.“