Young adults are struggling to manage their money effectively.
NatWest’s Financial Capability and Young Workers Report shows that 44% of young workers struggle to stay on top of their financial commitments. In addition, more than half of employers (55%) have experienced their younger employees facing financial difficulties and 45% have been approached by struggling young staff members.
On average, 17% of UK adults have trouble sticking to a budget. But, among apprentices, who are usually young adults, this figure rises to almost a quarter (23%).
The FCA Financial Lives Survey 2017 showed that 18-24-year olds are the least financially resilient age group among UK adults, as:
- 79% are not highly confident in their ability to manage their finances
- 32% have unsecured loans
- 20% have no cash savings
- 5% would struggle if their outgoings increased at all
How can parents help?
Talking to children about money earlier in life could increase their financial skills and ability to handle money better in adult life. The four most important topics to discuss with teens are:
1. Credit score
Understanding how credit scores work, what can affect them and how they will impact the interest rates offered, is a vital part of financial education. Your credit score shows lenders how trustworthy you are and how well you can handle credit. It’s important to start learning the importance of maintaining good credit early. For instance, what happens at uni doesn’t necessarily stay at uni and could remain on their credit report for up to six years, cropping up when they try to access credit to buy a house.
A common assumption is that you are better off by not accessing credit at all, but this is not true. A lack of credit history fails to show whether you make payments on time.
If you are conscientious enough, taking out a small amount of credit that you diligently repay, demonstrates your credibility to a lender.
2. Borrowing
Not all borrowing is bad, but it can be easy for anyone with limited financial understanding to quickly fall into debt or turn to the wrong type of lender.
For example, payday loans should always be avoided. They have extremely high interest rates and accessing them can result in future lenders looking unfavourably on that type of debt, particularly when buying a house.
It is important to talk about limiting borrowing to the amount necessary and comparing interest rates to ensure that your children are accessing the best deals and can afford the repayments.
3. Budgeting
Actively thinking about monthly or weekly spending will help young adults to maintain a healthy balance between their income and outgoings, in addition to making sure that they are living within their means and putting enough money aside for the future.
When discussing budgeting, it is important to ensure that the targets set are realistic and to mention the options that are available if things start to feel a bit tight, including:
- Shopping around for better rates on bills
- Cutting back on non-essential spending
- Using online applications to track spending
4. Saving
Saving money will be an essential part of your children’s lives at every stage. Begin by discussing both short and long-term reasons for savings, such as:
- Maintaining an emergency fund
- Buying a house
- Making other large purchases
- Retirement
- Holidays
Then move onto the factors which can make savings more effective, such as interest rates, the available government schemes and saving account types.
ISAs (Individual Saving Accounts) are probably the most relevant type to discuss at this point, as there are a range of accounts available for young people, including:
- Junior ISA
- Help to Buy ISA
- Lifetime ISA
For more information about savings, please visit our best buy savings table.
5. Planning
Throughout adult life, your children will face a variety of challenges and events. All of which can be overcome with a bit of forethought and financial planning.
Talk to your children about the importance of planning ahead; making sure that the funds are available when they are needed and that they have a little bit extra tucked away in case of emergencies.
Alternatively, you could bring them to see a financial adviser to find out why it is important for themselves.
For further information or to book an appointment, contact Sarah or Bev on 0115 9338433.
