We need to talk about money early
It’s amazing the thoughts you have when riding through the lovely local parks
I can’t remember exactly when it started, but I have more and more clients coming to me in their retirement years, seeking to release money from their home to fund retirement, repay mortgages and debts, and in a number of cases it’s for their children and grandchildren
Mortgage providers will now lend up to age 75 and beyond!
There are many reasons people have credit card debt and/or a mortgage in their latter years, tough times, started late, Interest Only mortgage with no repayment vehicle……
- If asked, most of us would say it’s the bit left over after bills, food, rent/mortgage, debts
- How many would include regular savings in necessary expenditure?
- How many include car, holidays, Christmas, birthdays, socialising in necessary expenditure?
Cost of debt
- Interest rates are the headline, who can explain what an APR is?
- To be honest, this is just the long-term physical charge you pay for access to the money you borrow
- The real lesson that doesn’t appear to be taught, is that if you are borrowing because you cannot afford your lifestyle, the following month, you will have even less income, due to your new monthly debt repayment.
- This is the start of the cycle. Seek zero interest cards, pay nothing for 6-months, repeat
Interest might be zero, the debt remains the same as it did 6-months ago
While some are fortunate enough to have willing parents and grandparents, the next generation is likely to find the cupboard bare. Longer lives, longer retirements, much more hedonistic parents seeking thrills post-retirement, the funds are evaporating much quicker
“Nothing but books, learning and education, that’s why you’re no good at snooker, Rodney”
My 14-year old daughter has taught me a lot about the instant access, want it now, deliver it tomorrow generation.
I set tasks (brush teeth, clean room, communicate with parents) and if she completes them, monetary bonuses are awarded (by said parent)
If we rewind a bit, I have a pre-fund Visa card (aimed specifically at giving parents some oversight and control). It is App based and the child has a debit card, on to which, I put her allowance on it
Both of us have an App, the parent side shows balances, spending, savings. Tasks are confirmed by me and I can set the maximum she can spend online, in store and withdraw at an ATM, in a single transaction or in the course of a week.
More importantly, the funds are linked to my bank account, so a direct debit arrangement automatically funds the card at the limits I set. She can also set savings goals and the App shows graphically how close she is to her target
What have we learned so far?
The main lesson for me, is that when she is saving for something, she won’t spend her own money – that’s a good thing, right?
Well, like all learning curves, we’re still on the climb! Occassionally, I get something, “I can’t buy (it), as I am saving up, can you put more money on or buy (it) for me
Now in some respects, she’s getting the delayed gratification ideal, but not to the extent where she feels there is other money to be had
So, this leads to our next lesson………
Money doesn’t grow on trees
Young adults (and actual adults, in some cases) can easily believe that there is an infinite source of money, with the plastic in the pocket. I have advised too many who only experienced the finite element, once the repayment burden overtook income
My daughter is great at telling me she needs that new thing, normally goes like this, “but I have wanted it for ages / always wanted one of those” – (insert since I saw it on Insta / TV / snapchat about 5 minutes ago)
According to Livingwage.org, the London living wage is £10.20 per hour
I think that a good lesson for children (and it has to be age appropriate to resonate), is to drive home the correlation between time given and money earned
For instance, next time you are asked for money, tell them to switch off the electronics for 1 hour and see how important that purchase is
Having visual goals is really important to make them consider an instant purchase or delayed gratification
It doesn’t even have to be a thing, could be spending money for holiday or plan a family trip and each person has to put in a specific amount to the communal pot
Jobs and chores for extra money drives home the relationship between work, effort and reward. Teaching some respect for striving for something
Saving on a regular basis is a great way to instill a sense of discipline to one’s habits and as the fund grows, the attachment to it often makes it harder to spend. Many clients evolve their habits so that they want to nurture their savings pot and start to hold it with something more than just physical value
Share the wealth
Generation mine, mine, mine has created many Instagram / Youtube channels where the Veneer is one of a lifestyle most can only dream of
I believe that the hardest lesson is giving money away, as it teaches you that you have the power to make someone’s life better and you are in a better position than others
Want to see a confused child? Give them some money and tell them to give it to someone else or put it in a charity box
Sow the seeds
Parents have a great opportunity to teach children the value of saving for the future
We have helped many parents invest and save money for their children and we are now at the stage with some, that it is time to hand the money over!
To help with this process, we sit down with the child (adult really) and explain how their parents accumulated it, with consistent application, sacrifices of income, so that the relationship is more than just a lump of money, it is work of years
We then discuss the expectations of the recipient and help them decide where best to use it. We find that most don’t skip off to the Honda showroom, but actually engage with it and do their own research on where they might wish to invest it and continue to build
Who is it really for?
Engaging my daughter has worked for me, I have looked the businesses she supports (Apple, Instagram, YouTube), talked to her about the new industries that she finds interesting (Robotics, AI, fashion etc)
I have then invested some of her nominated money in these areas, which makes it much more exciting and starts the process of correlating that these are businesses, beholden to shareholders and not some mystical App built by the users
- HMRC receipts from Inheritance Tax are at their highest level
- I have extolled the virtues of ‘Family money’ for many years.
- Individual family members do not share their accumulated savings, so the first time children know their parents wealth, is when they calculate the tax due on it
- Why bother saving, why seek the best rates, when you intend to give 40% of it to Tax?
- While parents are getting 1% on their savings, their children are paying interest on their mortgage of 3% and credit cards at 18%. Worse still, they are paying rent, essentially, buying a property for their landlord
Time to think differently, time to teach children how to save
We need to halt generation debt, challenge generation rent and build generation financially aware;
- Open a savings account, put a portion of birthday and Christmas money in it – start the process of saving from income
- Match their contributions to teach benefits of pooling resources
- Invest in a Junior ISA – if they are old enough, discuss where it is invested – engage them
- Set tasks and chores for monetary reward
- Help them set their own tasks and negotiate the reward
- Visualise the return – show them statements – picture the final outcome
- Make sure goals are short, medium and long-term – to maintain their interest