Bank of Mum and Dad

P

Purple

Registered User
Messages
13,995
I keep reading articles which talk about 'The Bank of Mum and Dad' in the context of people buying their first home. Can we ban that phrase and talk about Intergenerational Wealth instead?
The Bank of Mum and Dad presupposes that parents have worked hard and been frugal and saved and now can slip a few bob to their feckless children. The reality is that Mum and Dad are probably beneficiaries of two stock market booms, caused by quantitative easing, and two property booms. They may well have inherited wealth themselves from their parents and their parents might have bought their council house for a pittance in the 80's.

'The Bank of Mum and Dad' is better described as a concentration of wealth in Capital and away from labour, capital that is overwhelmingly owned by older people. We couldn't be doing a better job of constructing a two tier society if we tried. We are treating income as if it was wealth and wealth as if it has no material impact on the lives of those who own it. The only political party which acknowledges this is Labour, which is reasonable since they are the only party which is actually socialist.
 
Purple said:
I keep reading articles which talk about 'The Bank of Mum and Dad' in the context of people buying their first home. Can we ban that phrase and talk about Intergenerational Wealth instead?
The Bank of Mum and Dad presupposes that parents have worked hard and been frugal and saved and now can slip a few bob to their feckless children. The reality is that Mum and Dad are probably beneficiaries of two stock market booms, caused by quantitative easing, and two property booms. They may well have inherited wealth themselves from their parents and their parents might have bought their council house for a pittance in the 80's.

'The Bank of Mum and Dad' is better described as a concentration of wealth in Capital and away from labour, capital that is overwhelmingly owned by older people. We couldn't be doing a better job of constructing a two tier society if we tried. We are treating income as if it was wealth and wealth as if it has no material impact on the lives of those who own it. The only political party which acknowledges this is Labour, which is reasonable since they are the only party which is actually socialist.
Click to expand...
My Gawd Purple, it has always been this way. So Mom and Dad were frugal and avoided the bookies, the booze, the wimmin, the men, that house move that would put them up there with the "insecure,"- can't you just acknowledge their right to spend the money any way they wish? They earned it.
 
Leper said:
My Gawd Purple, it has always been this way. So Mom and Dad were frugal and avoided the bookies, the booze, the wimmin, the men, that house move that would put them up there with the "insecure,"- can't you just acknowledge their right to spend the money any way they wish? They earned it.
Click to expand...
But that is not what's happened. Almost all of the wealth has been accumulated through capital appreciation, not savings from earned income. That's what is fundamentally different in the last 10 years. What you are saying is the myth that is commonly peddled because it makes people feel virtuous; "look at me and how smart and hard working I was! Ooohh, aren't I great!" It's a very seductive spiel and who doesn't like flattery. The problem is it's rubbish and is fundamentally damaging to society.
Until we acknowledge this we'll not solve our housing issues because current Government policy only exacerbates the problem.

And @Leper, I'm one of those people who is on the right side of the problem. I have the capital assets. Why? Because of my age, not my intellect or moral fortitude.
 
If you want to talk about the consequences of those booms and quantitative easing on the housing market, the effect of the 'bank of mum and dad' pales into such insignificance in comparison with the effect of 'capital' in other forms, it seems like a sideshow to me. It seems really strange to me to attack the bank of mum and dad and not quantitative easing itself?

There are swings and roundabouts in the property market but also in the labour market... depending on whether you first come into the workforce in a time of growth or recession, or how your chosen career is remunerated by society as your move through it, or even in the natural talents you imherit by birth.

In general, I think the majority of people think it is reasonable that parents can pass on the majority of their wealth to their children, this is also an incentive to marshal that wealth and not do an 'escape to the continent' or whatever.

I'm reminded of this quote, which is Steven Pinker paraphrasing Plato:

“No society can be simultaneously fair, free, and equal. If it is fair, people who work harder can accumulate more. If it is free, people will give their wealth to their children. But then it cannot be equal, for some people will inherit wealth they did not earn.”

― Steven Pinker, How the Mind Works


​

 
@odyssey06, yes, when I say that it's due to capital appreciation that appreciation is almost entirely due to quantitative easing. A massive increase in money supply can only result in a corresponding increase in capital values. The wealth we generated is a result of monetary policy. If it had been decided not to bail everything out then the people on fixed incomes who owned capital would have faired worst. Houses would be cheap and labour would be worth vastly more relative to capital.

We should never seek to build a society which is fair in the sense of equality of outcomes. That is fundamentally evil. We should strive for one which offers equality of opportunity. That requires redistributive taxation on both income and wealth.
 
@Purple is that what we would have? Or would we just be even more in hock to 'absent landlords'?
Are we talking about the bank of mum and dad in general, or the bailout?
If that's what would have happened with capital, then redistributive taxes and no bailout would to a large extent have 'killed the golden goose', because in your scenario, houses would be cheap... so the wealth you want to redistribute wouldn't be there anymore?

So is the aim to reduce house prices? Or reduce taxes on labour? Because they seem to be in conflict.

The wealth tied up in property (and shares perhaps) is 'static' or notional until it comes to be realised.
By the time it comes to realise sale of the asset, the asset could be worth a fraction of what it has been redistributively taxed on.
So not sure if I agree with redistributive taxes on wealth in that way.
It is different in kind to labour which does not fluctuate to the same extent.
Although also with labour there is risk of higher taxes creating a disincentive to work.

CGT type Inheritance \ stamp type transactions is different, but that is an unpredictable basis to form a tax base on.
It could be properly used to fund capital projects \ pay down debt.

Specific proposals on re-balancing the tax burden one thing.

I don't see any good outcomes in Ireland from a government going down this route in a major way. Governments have shown they don't have that fiscal discipline and will start using such windfall gains to fund day to day spending to promise more goodies which most voters seem to lap up. So you have a transfer to the unearned and the rent seekers one way or another. One of the goodies might be... an increase in the state pension!
So most people react defensively and want to pass it on to their loved ones.

Equality of opportunity sounds good in theory, but what does it mean in practice?
Who are you redistributing to? And how does that not create a disincentive to labour and acummulate wealth?

There will be an overlap between what is 'equality of opportunity' and 'equality of outcome', because if you consider children as being those most in need of equality of opportunity, then by necessity that may mean transfers of wealth to their parents. Who have done nothing to 'earn', or be 'frugal' to warrant such transfers themselves.
You seem to be concerned about a two tier society between those with capital and those without.
There is also a different kind of two tier society, those who labour and those who do not.

I've probably contradicted myself over the course of this, but it is a wide ranging topic.
I think you would have more traction with this on specific proposals... rather than a wholesale 'call to arms' because I (and suspect am not alone) do not trust governments with that kind of enterprise.
 
odyssey06 said:
@Purple is that what we would have? Or would we just be even more in hock to 'absent landlords'?
Are we talking about the bank of mum and dad in general, or the bailout?
If that's what would have happened with capital, then redistributive taxes and no bailout would to a large extent have 'killed the golden goose', because in your scenario, houses would be cheap... so the wealth you want to redistribute wouldn't be there anymore?

So is the aim to reduce house prices? Or reduce taxes on labour? Because they seem to be in conflict.

The wealth tied up in property (and shares perhaps) is 'static' or notional until it comes to be realised.
By the time it comes to realise sale of the asset, the asset could be worth a fraction of what it has been redistributively taxed on.
So not sure if I agree with redistributive taxes on wealth in that way.
It is different in kind to labour which does not fluctuate to the same extent.
Although also with labour there is risk of higher taxes creating a disincentive to work.

CGT type Inheritance \ stamp type transactions is different, but that is an unpredictable basis to form a tax base on.
It could be properly used to fund capital projects \ pay down debt.

Specific proposals on re-balancing the tax burden one thing.

I don't see any good outcomes in Ireland from a government going down this route in a major way. Governments have shown they don't have that fiscal discipline and will start using such windfall gains to fund day to day spending to promise more goodies which most voters seem to lap up. So you have a transfer to the unearned and the rent seekers one way or another. One of the goodies might be... an increase in the state pension!
So most people react defensively and want to pass it on to their loved ones.

Equality of opportunity sounds good in theory, but what does it mean in practice?
Who are you redistributing to? And how does that not create a disincentive to labour and acummulate wealth?

There will be an overlap between what is 'equality of opportunity' and 'equality of outcome', because if you consider children as being those most in need of equality of opportunity, then by necessity that may mean transfers of wealth to their parents. Who have done nothing to 'earn', or be 'frugal' to warrant such transfers themselves.
You seem to be concerned about a two tier society between those with capital and those without.
There is also a different kind of two tier society, those who labour and those who do not.

I've probably contradicted myself over the course of this, but it is a wide ranging topic.
I think you would have more traction with this on specific proposals... rather than a wholesale 'call to arms' because I (and suspect am not alone) do not trust governments with that kind of enterprise.
Click to expand...
The problem isn't wealth per say, it is the distribution of wealth between capital and labour. At present, largely due to money printing, wealth is being concentrate more and more in capital. That makes for a very unequal society and instability and, in my view, is unfair.
The aspiration should be to accumulate wealth through retained earnings from labour. In other words retain earned wealth. We don't do that. We encourage the retention of unearned wealth (inheritance, capital appreciation etc) while taxing the bejeses out of earned income. We conflate income and wealth but we've devalued income by inflating wealth with quantitative easing.

This is a good paper from the World Bank on how to handle debt. It more than touches on this issue and points out how difficult it is to deal with this problem given the structures we have to work with.
I think there is very little Ireland can do to fix this problem as we are a twig floating in the sea of global capital.
 
odyssey06 said:
Equality of opportunity sounds good in theory, but what does it mean in practice?
Click to expand...
Investment in early childhood education. Massive investment. Then taper it down as kids get older but keep it high. More phycologists, more Speech Therapists, more Career Guidance, more SNA's, better teacher training, all that stuff. That's the most important thing.

If people are no good at parenting (often through no fault of their own) giving them more money won't really help.
 
Purple said:
The problem isn't wealth per say, it is the distribution of wealth between capital and labour. At present, largely due to money printing, wealth is being concentrate more and more in capital. That makes for a very unequal society and instability and, in my view, is unfair.
The aspiration should be to accumulate wealth through retained earnings from labour. In other words retain earned wealth. We don't do that. We encourage the retention of unearned wealth (inheritance, capital appreciation etc) while taxing the bejeses out of earned income. We conflate income and wealth but we've devalued income by inflating wealth with quantitative easing.

This is a good paper from the World Bank on how to handle debt. It more than touches on this issue and points out how difficult it is to deal with this problem given the structures we have to work with.
I think there is very little Ireland can do to fix this problem as we are a twig floating in the sea of global capital.
Click to expand...
I don't think the split between unearned wealth and earned wealth is as clear as you make it out to be... yes, people have benefited from the asset boom but at least some of the people bought those assets with earned income. You would now be taxing the asset\wealth they paid (perhaps overpaid for).

I take your point though that quantitative easing, a deliberate act of policy has changed the nature of the game to some extent, although the body responsible is also least responsible for the consequences. And that some measures to re-balance things may be needed, but what though, without unravelling things further... especially as you note we can't control the tides only steer through them.
 
usually the ppl who go to the bank of mum and dad that want it renamed or person lucky enough to have parents with enough cash to be called a bank......so just count themselves lucky :D and maybe be grateful
 
Some have rich parents, some have poor parents. Mine were the latter. Nothing wrong with that, but it was very awkward.
 
Purple said:
But that is not what's happened. Almost all of the wealth has been accumulated through capital appreciation, not savings from earned income. That's what is fundamentally different in the last 10 years. What you are saying is the myth that is commonly peddled because it makes people feel virtuous; "look at me and how smart and hard working I was! Ooohh, aren't I great!" It's a very seductive spiel and who doesn't like flattery. The problem is it's rubbish and is fundamentally damaging to society.
Until we acknowledge this we'll not solve our housing issues because current Government policy only exacerbates the problem.

And @Leper, I'm one of those people who is on the right side of the problem. I have the capital assets. Why? Because of my age, not my intellect or moral fortitude.
Click to expand...

Where did the capital come from? Usually from earned income. That is what you are supposed to do to build wealth, get your money working for you so you don't have to do all of the heavy lifting.

Being a business owner was traditionally the other way of building wealth. People taking a risk in themselves and creating a business, often creating employment for others while they are at it. Instead of putting money into capital markets, they put money into themselves. It usually takes decades for them to get a return from this high risk investment.

Relatively new to Ireland is share option wealth. Those working for multi nationals who get share options as part of their package. Being in a bull market for over a decade has seen people's wealth rise exponentially with the continuous vesting of shares over that period in high performing companies. The share option wealth generation tend to be younger, so do not have children old enough to require money from their parents yet.


Steven
www.bluewaterfp.ie
 
Steven Barrett said:
Where did the capital come from? Usually from earned income.
Click to expand...
Yes, usually, but not in the last 10 years. During that time it's come from just increasing the money supply globally. That money has flooded into the capital markets. 85% of the wealth in this country is in pensions and property. None of the increases in their value over the last decade have come from earned income.
Steven Barrett said:
That is what you are supposed to do to build wealth, get your money working for you so you don't have to do all of the heavy lifting.
Click to expand...
Yes, but if your earned income is being taxed at a marginal rate of over 50% and a massive chunk of what's left is going on rent there's not much for you to invest. There's income but no wealth.
Steven Barrett said:
Being a business owner was traditionally the other way of building wealth. People taking a risk in themselves and creating a business, often creating employment for others while they are at it. Instead of putting money into capital markets, they put money into themselves. It usually takes decades for them to get a return from this high risk investment.
Click to expand...
Agreed. That's an excellent use of capital as it actually creates wealth.
Steven Barrett said:
Relatively new to Ireland is share option wealth. Those working for multi nationals who get share options as part of their package. Being in a bull market for over a decade has seen people's wealth rise exponentially with the continuous vesting of shares over that period in high performing companies. The share option wealth generation tend to be younger, so do not have children old enough to require money from their parents yet.
Click to expand...
That's their slice of the quantitative easing bubble. It's usually a small slice, dwarfed by the costs they incur for access to the inflated capital asset they need most; housing.
 
We already have one of the highest CGT rates in the world and very high inheritance tax rate kicks in at a low threshold. Just look at UK, Germany , Austria and many European countries.
 
Purple said:
Yes, usually, but not in the last 10 years. During that time it's come from just increasing the money supply globally. That money has flooded into the capital markets. 85% of the wealth in this country is in pensions and property. None of the increases in their value over the last decade have come from earned income.

Yes, but if your earned income is being taxed at a marginal rate of over 50% and a massive chunk of what's left is going on rent there's not much for you to invest. There's income but no wealth.
Click to expand...
You are making huge generalisations on these points. I speak to lots of "millionaires next door" type, (a lot of who are on this forum), who have decent jobs, save diligently and build up wealth over decades. They aren't into outward displays of wealth but are extremely wealthy and are financially independent because of it. They don't drive Bentleys or live in big houses. They saved, invested and grew wealth. It was a continuous thing.

The more earned income you put into capital markets, the better you will do from them. There's a good guest blog on my site that explains it very well.

Steven
www.bluewaterfp.ie
 
Brian McD said:
We already have one of the highest CGT rates in the world and very high inheritance tax rate kicks in at a low threshold. Just look at UK, Germany , Austria and many European countries.
Click to expand...
This list shows substantially higher inheritance tax rates in UK, Denmark, France, Spain, Germany, Belgium, Greece, Netherlands, Slovenia, Switzerland
taxfoundation.org

Estate, Inheritance, and Gift Taxes in Europe

The rates applied to estate, inheritance, and gift tax often depend on the level of familial closeness to the inheritor as well as the amount to be inherited.
taxfoundation.org taxfoundation.org
 
Steven Barrett said:
You are making huge generalisations on these points. I speak to lots of "millionaires next door" type, (a lot of who are on this forum), who have decent jobs, save diligently and build up wealth over decades. They aren't into outward displays of wealth but are extremely wealthy and are financially independent because of it. They don't drive Bentleys or live in big houses. They saved, invested and grew wealth. It was a continuous thing.

The more earned income you put into capital markets, the better you will do from them. There's a good guest blog on my site that explains it very well.

Steven
www.bluewaterfp.ie
Click to expand...
No argument with those people or any of that but the wealth they have generated due to capital growth over the last ten years is due to quantitative easing and for many that constitutes a very large portion of that wealth. Those who are entering the market now are on the wrong side of the political decisions which caused that equity and property growth.
There are people on relatively average incomes, say €80-€120k a year, who are accumulating half their gross earned income in net wealth each year in the form of capital appreciation, due to those political decisions. They are very comfortable and in a position to set their children up for their future, even if those children are on far lower incomes.
The people starting out now who don't have parents with wealth are screwed. If they earn €80k a year they pay €28k a year in tax, €24k a year on rent, make provision for their pension, pay their health insurance, save for a deposit for a house and feed themselves on the remaining €28k. Hardly a recipe for a comfortable future.
The child of the millionaire next door has to do much of the same but they can look forward to help with the rent and a couple of hundred thousand towards their first home. That's a bit of a game changer, isn't it?
 
Brian McD said:
We already have one of the highest CGT rates in the world and very high inheritance tax rate kicks in at a low threshold. Just look at UK, Germany , Austria and many European countries.
Click to expand...
This thing I'm talking about is a problem across the Western World.

The Monopoly analogy works well here. Imagine there are 4 people playing Monopoly. They give out the money as per the instructions and play away for an hour, buying property and passing Go. A fifth person wants to join after the first hour. If they start off with the same amount of money as the other have it is likely that they'll catch up or will they just end up landing on propertied which the others own, losing their money and getting dumped out of the game within a few rounds?
They all started off with the same amount and they all played by the same rules but was it fair?
 
RetirementPlan said:
Your 'relatively average incomes' are 2x or more actual average incomes.
Click to expand...
Yes, thanks. I'm making the point that a young person who earns a really good income is still worse off than someone on an average income who owns their own home.
Look at the Monopoly analogy above. If the fifth player starts off with twice as much money as the others, if they get twice as much for passing go, can they win? Can they even catch up? Or will they just be a cash cow for the other four players?
 
You must log in or register to reply here.
Back
Top