Family debt is a burden that many households carry, but few rarely discuss openly. When people face severe financial hardship – job loss, unexpected medical bills, rising rent – they often turn to the most accessible lifeline, which is family. Borrowing from parents, siblings and extended relatives can provide immediate relief with more flexible payback options and no worries about creditworthiness. However, it can also put a massive strain on relationships between family members.
Studies have found that as much as 33% of people owe money to family and friends. A third of us have also lent money to a friend or family member in the last year. However, this practice of lending to relatives and friends is often considered a taboo subject of conversation, with few of us talking about it except with those who it involves. As a result, the scale of the issue and what it means for society has been largely ignored.
The generational divide
While people of all ages can experience debt, there is currently a generational divide when it comes to family debt. Gen Z and millennials increasingly rely on support from Gen X and boomer parents to bridge the wealth gap created by rising costs of living, stagnant wages and precarious work.
Much of this debt is small and to fund emergencies, but many young people are also having to borrow larger amounts of money simply to afford to move out. Buying property almost always relies on family support: in many regions, very few young people can afford a down payment for a mortgage on their own. This pushes families into tough choices with many parents raiding retirement savings or tapping into home equity to help children have a chance of getting on the property ladder.
This has a widespread impact on the ability to build and inherit wealth. As financial expert Alex Kleyner notes: ‘debt, in this sense, is not purely a personal issue. It’s a societal one shaping everything from consumer behavior to long-term patterns of wealth transfer’.
Young people who cannot rely on their parents for financial help are often now forced to delay milestones like moving out, marriage and having kids. Meanwhile, older generations are entering retirement with less money for themselves and less wealth to hand out – with more individuals delaying retirement and selling assets to financially cope.
The solution to family debt
Both individual and societal changes are necessary to reduce growing reliance on family borrowing. Financial education needs to be increased from a young age – individuals need to learn about budgeting, credit and long-term planning early to prevent crises and build resilience. At the same time, communities need to come together to provide solutions like credit unions, down payment assistance programs and employer-back housing initiatives.
Access to affordable housing is meanwhile key to reducing reliance on borrowing for down payments. This is something that only government policy can change. Increasing access to financial aid for those in debt can also provide another lifeline to turn to – this includes debt relief options with low or no fees, and advisors that can also act as counsellors to reduce fear of judgement.