Who gives and receives substantial financial transfers in Britain?

Abstract

We document key patterns in the flow of significant gifts and loans between friends and family in Great Britain, using newly-available data from the Wealth and Assets Survey. We identify a number of new stylised facts. Gifts and loans are generally intergenerational transfers: 83% of the value of gifts and 68% of the value of loans is made by parents to their children. Transfers increase inequality in economic resources over the early years of adult life. Over an 8-year period, cumulative transfers received are worth 0.5% of income for those in the bottom quintile compared to 2.6% of income for the top quintile. By contrast, they are larger as a share of current wealth for those with lower wealth levels, illustrating the importance of heterogeneous savings rates. Transfers strengthen the transmission of inequalities across generations. More than half of the value of gifts is given by the wealthiest fifth of individuals, and transfer receipt widens the gaps in resources between those with higher and lower socio-economic status parents in both absolute and percentage terms. There are substantive differences in the receipt of transfers by region and ethnicity. While much of the regional differences in giving appear to be driven by regional wealth differences, those in the South of England are substantially more likely to give gifts for a given wealth level.

Intergenerational mobility in the UK

“…reported to be received from a spouse, sibling or non-relative. Boileau and Sturrock (2023a) show that the vast majority of the flow of inter vivos transfers is from parents to children.…”

“…The annual flow of inter vivos transfers is worth around one-fifth of the annual flow of inheritances (Boileau and Sturrock, 2023a). Transfers made during life are, therefore, a modest part of intergenerational wealth transfers and their direct impact on lifetime income mobility is likely to be relatively modest.…”

“…Transfers made during life are, therefore, a modest part of intergenerational wealth transfers and their direct impact on lifetime income mobility is likely to be relatively modest. Boileau and Sturrock (2023a) use the WAS to quantify the total value of inter vivos transfers received over an eight-year period in early life. Their study finds that when they were in their 20s and early 30s, the children of those who did not own their own home received on average £100 per year, or less than 1% of other annual income, in inter vivos transfers per year.…”

“…We already observe differences in intergenerational wealth transfers received by those of different ethnicities. Figure 22, reproduced from Boileau and Sturrock (2023a), shows that the probability of receiving a substantial gift strongly varies by ethnicity and that White young people are substantially more likely to receive a financial transfer than Indian, Pakistani or Bangladeshi, or Black young people. It is likely that the well-documented ethnic differences in wealth at least partly explain these differences and that this will partly transmit these ethnic wealth gaps down to the next generation.…”

How important are defined contribution pensions for financing retirement?

“…In particular when looking at the youngest group (aged 55-59), we can see that those who had taken out a pension pot in full were twice as likely to have given a gift or loan to others over this period. Boileau and Sturrock (2023) show that most gifts of this kind are given to children, suggesting that some people may be using their DC pension pots to help family members.…”