Basic financial advice for a youth

[numtumfutunch]

Hi

Eldest son has just received his first pay packet

Hes 22 and has no financial ambition other than drinking in pubs other than 'spoons and having a decent holiday in a month or so

We had a chat today about financial planning and Im wondering if folks have anything deep they would like to share

Buying a flat in Mayfair is not an option for a number of reasons, a modest salary being the main one but the fact that his job involves moving around various company sites in the UK for 2y every 3-6 months being equally important

Since school he has had an account with Revolut and Im wondering if its time to move

Monzo appear similar and are competative and also have the advantage of having their own credit card which is probably a good thing for building a decent rating for when he eventually applies for a mortgage. Other banks are obviously available and so I/we would be happy to hear whats best. He has a PAYG mobile contract which has been in his name and taken from his Revolut account at £10/month whilst at uni because I/we thought this would be a good idea.........

A life time ISA is probably something he should look into. Its on him if he decides to risk exposure to the markets or fix a rate at a bank but a free £1000 each year if he can spare £333/month would seem to be good value. He is very employable globally and whilst the missus and I are happy his first job is in the UK its possible he might naff off somewhere else in the future. As far as I can see a LISA would be a safe wrapper if he does this

Thanks in advance for any financial gems

PS the above assumes he has significant student loan baggage after 3y at university

[kestonian]

This is the best advice I’ve ever seen for young folks about money. The book of the same name is a brilliant read but this covers most of it.

https://collabfund.com/blog/the-psychology-of-mone...

I describe it as the advice people in their 40s wish they’d taken in their 20s. The tough part is making the 20 year olds read it.

[LooneyTunes]

If he’s on a potentially decent career track, the best financial investment he can make is almost certainly in accelerating his career.

I’ve employed a lot of recent graduates and the ones who take ownership of their own professional development nearly always do better. They progress further and faster than those who wait for the company to spoon-feed them training: partly because they take their development more seriously but also because people notice that they’re raking their career more seriously and can unlock other opportunities as a result.

Getting the qualifications/skills he needs in order to get promoted a couple of years ahead of his peers will pay off month after month after month… and increased earning makes it easier to save/invest more money in absolute terms later on, easier to access leverage (I.e. mortgage), etc…

[Pit Pony]

Does he currently live at home. Has he ever not lived at home?

I say this because if he lives at home, you need (for his learning) need to start charging the actual going rate for the services you provide.

Either his share of all the bills. Or check spareroom.com and see how much he'd pay fir a similar room.

This will encourage him.to understand the cost of living.

You can save the whole lot and give it him back as a wedding present or a house deposit, when the time comes. Or use it to take a trip to South East Asia.

[mikeiow]

Pit Pony said:

Does he currently live at home. Has he ever not lived at home?

I say this because if he lives at home, you need (for his learning) need to start charging the actual going rate for the services you provide.

Either his share of all the bills. Or check spareroom.com and see how much he'd pay fir a similar room.

This will encourage him.to understand the cost of living.

You can save the whole lot and give it him back as a wedding present or a house deposit, when the time comes. Or use it to take a trip to South East Asia.

That is good advice. It is very easy for young people to fail to appreciate the cost of things that contribute to their lifestyle when they live at home.

We did that when our son was doing ‘temp’ work between his degree and his masters. He had very consciously made the decision not to drift into a masters degree directly….which paid off for him - his choice of course changed dramatically & the masters has led him to a reasonably well-paid (& satisfying) role now.
In the meantime, we took a chunk of his temporary wage, and were able to offer that back at a more useful time (to him) a few years later. Our trip to Asia will have to wait!

More broadly - I wonder if the OP encouraged things earlier to get the appreciation for money.
Not a helpful comment (sorry), but I feel that getting offspring into a “spend some, save some” mindset probably needs to start before they are in their 20s.

My advice when ours got jobs was to maximise what they put into their work pension schemes, particularly to get maximum company matching benefits, & also to pay a little attention to any choices they might have inside those schemes.
Also to split other savings between LISA & ISA pots.
If they end up abroad, their LISA pots might prove useless for house-buying, & perhaps it will end up giving them additional pension benefits at 60, which is less interesting to a young person, but they might still thank me later. Whether I will be here to thank is another unknown question.

In the meantime, a ‘Spoons & holiday mindset might be tricky to change…but young people mature & develop in different ways. I remember spending all my first wage packet - Saturday holiday camp job spaffed away in the games arcade I got home & realised I had nothing to show for my day, & adjusted the rest of the season to only allow myself to throw away about 15% of it for fun

Or watch Little Miss Sunshine, & follow the grandads advice!

[Panamax]

kestonian said:

This is the best advice I’ve ever seen for young folks about money. The book of the same name is a brilliant read but this covers most of it.

https://collabfund.com/blog/the-psychology-of-mone...

That's a fascinating read, thanks. Recommended. One key takeaway = the long term power of compounding, even in an unpredictable world.

[wyson]

Not sure what format he would like as a young man? I guess it will require repetition and immersion.

Videos, in person conferences, books and other sources.

Can you drag him around one of the big investment conferences, make a day of it?

Teach him how to fish, rather than cook him a meal sort of thing.

[craig1912]

Pit Pony said:

Does he currently live at home. Has he ever not lived at home?

I say this because if he lives at home, you need (for his learning) need to start charging the actual going rate for the services you provide.

Either his share of all the bills. Or check spareroom.com and see how much he'd pay fir a similar room.

This will encourage him.to understand the cost of living.

You can save the whole lot and give it him back as a wedding present or a house deposit, when the time comes. Or use it to take a trip to South East Asia.

I disagree but it all depends on the attitude of your son. Ours is 25 has a Masters degree and is taking his accountancy exams so is on track for a decent career. He lives at home and doesn’t pay us a penny. He is however very astute with money and puts every penny he has into saving for a house.
He puts max in a LISA each year and as much as he can into a ISA aswell, as paying into a decent pension scheme.
He has had a pension since he was 16 which I paid for until he got a job, but I left the investment choices to him.
I’d get him the book mentioned and help educate him on all matters financial.

[Bazil Bush]

Pit Pony said:

Does he currently live at home. Has he ever not lived at home?

I say this because if he lives at home, you need (for his learning) need to start charging the actual going rate for the services you provide.

Either his share of all the bills. Or check spareroom.com and see how much he'd pay fir a similar room.

This will encourage him.to understand the cost of living.

You can save the whole lot and give it him back as a wedding present or a house deposit, when the time comes. Or use it to take a trip to South East Asia.

We did this for both our daughters.
10% of take home pay, I believe the suggested is about 20%.

Invested it for them and they’ll get it back for something such as a house deposit or the like.

We also helped them to finance car purchases with interest free loans for the car purchase and the insurance.

We’re in the fortunate position of not having to charge them rent but I’m hoping it’ll get them on board with managing their own money effectively.

I don’t know whether it’s still the case but it amazes me that there’s no form of education on finance in schools, particularly as the kids get towards going out in the real world.

[LooneyTunes]

Panamax said:

kestonian said:

This is the best advice I’ve ever seen for young folks about money. The book of the same name is a brilliant read but this covers most of it.

https://collabfund.com/blog/the-psychology-of-mone...

That's a fascinating read, thanks. Recommended. One key takeaway = the long term power of compounding, even in an unpredictable world.

It is however worth noting that the compounding example given (the growth of PC storage) isn't actually an example of compounding at all. It's an entirely unrelated example of technological change.

[TwigtheWonderkid]

numtumfutunch said:

Hi

Eldest son has just received his first pay packet

Hes 22

Does his employer have a pension scheme? Do they match his contributions or whatever? Boring, and very long term, but the miracle of compound interest will mean he won't regret it.

My son's scheme means he pays 8% (6.4% after tax relief) and his employer pays 13%. So 21% of his salary goes into his pension and it costs him 6.4% of his salary. Free money.

[simon800]

The Psychology of Money is an absolute must read, it should be part of the school curriculum!

[NowWatchThisDrive]

Another +1 from me for The Psychology of Money and Morgan Housel's writing generally. Take onboard that and LooneyTunes' point about owning and investing in his own skills and earning potential, and he won't go too far wrong.

[okgo]

Revolut totally fine by the way, they also do credit cards.

[RizzoTheRat]

TwigtheWonderkid said:

Does his employer have a pension scheme? Do they match his contributions or whatever? Boring, and very long term, but the miracle of compound interest will mean he won't regret it.

My son's scheme means he pays 8% (6.4% after tax relief) and his employer pays 13%. So 21% of his salary goes into his pension and it costs him 6.4% of his salary. Free money.

This definitely! Even if he's not that interested in money or the future the concept of free money will surely get his attention with both his employers and the government putting more in the more he puts in. Plenty of compound interest calculators online to show how much that will grow by the time he retires. I certainly wish I'd paid more attention to my pension when I was in my 20's.

[Truckosaurus]

TwigtheWonderkid said:

Does his employer have a pension scheme? Do they match his contributions or whatever? Boring, and very long term, but the miracle of compound interest will mean he won't regret it.
...

Indeed. I don't think you need to get too complex about 'money'. Just make sure you are maxing out the employer's pension contributions (ie. free money)and being savvy enough to not just spend all their credit card limit just because they can, or sign up to an expensive car finance agreement because all their friends have new cars.

I'm sure, now more than ever, the best financial move anyone can make is just buying a property as soon as possible - so that's probably the first step, getting them to put some money into an ISA and leaving it there until there's enough for a deposit etc.

(I know that when I started putting money into an Stocks and Shares ISA and you could see the value going up that was the incentive to keep the money invested)

[ukwill]

The paradox of life - telling youngsters to fire up a pension and contribute as much as they can into it.

Typically they don't listen until they're around 40ish. And then they wish they'd listened 20yrs previously.

[NorthDave]

I think pensions will be a tough sell and as long as he is contributing via the company I would mark that box as ticked.

You could suggest investing a percentage of his income in to a S&S ISA which should make him realise the benefits of compounding. After that I'd be telling him to enjoy himself, you are only his age with no responsibilities for a short time.

I dont understand why he should bin Revolut? I'm 47 and its my only bank account.....

[mikeiow]

NorthDave said:

I think pensions will be a tough sell and as long as he is contributing via the company I would mark that box as ticked.

You could suggest investing a percentage of his income in to a S&S ISA which should make him realise the benefits of compounding. After that I'd be telling him to enjoy himself, you are only his age with no responsibilities for a short time.

I dont understand why he should bin Revolut? I'm 47 and its my only bank account.....

Worth maybe trying Monzo so he can later get a credit card to build up his credit worthiness.
Get him to check his credit score. Our lad mentioned he had done that with friends a year or so back: most of them were woefully low versus his score. Target is 999

[bitchstewie]

Main things IMO are just get him interested and thinking about it and hopefully get him to see that you get rich slowly and time is on his side.