As parents, we want to help our children to stand on their own two feet and manage their finances successfully. However, this is not easy for them. The economic climate is tough for many young adults causing them to rely heavily on their parents.

They are growing up in an entirely different world to the one we grew up in. They can buy things with just one click without thinking. The modern consumer world is full of traps luring them into buying things they don’t really need. It seems to be all about instant gratification with a pay later attitude. Also, offering words of wisdom may fall on deaf ears!

Navigating this financial landscape is complex so here are a few ideas to help children manage their finances more effectively.

Have a Budget
Having an awareness of the unnecessary purchases that are made and being aware of how they are spending their money is important. Writing down all the things they spend for a period of time (for example one month) could help with this. This may free up more cash for the things that are really important to them.
Pay off Debts/Overdrafts
Prioritise paying off debts/overdrafts over saving or investing. This is because the ongoing cost of debt will be at a higher rate than can be achieved through most savings and investments. If they have multiple debts, they should prioritise those incurring the highest interest first.

Many banks offer students interest free overdrafts. However, following their graduation there is usually a “grace” period before they have to pay back interest and a monthly charge on top. If they don’t pay off these overdrafts before the end of this period the charges can be hefty.
Saving for a first home
Getting a foot on the property ladder can be a challenge, with a reliance on the bank of Mum & Dad to help fund the hefty deposits that are required. With house prices having risen significantly being accepted for a mortgage can be difficult.

There are some incentives for the younger generation to save for a house and one of them is the Lifetime ISA (LISA).

This is an effective way for 18 to 40 year olds to save for a deposit. Each year £4,000 can be deposited or invested into a LISA, and HMRC will add a 25% bonus, giving an extra £1,000.
If the account holder does not use the money to purchase a property then it can be used towards their retirement. Any withdrawals from the account will result in a 25% penalty unless it is used to buy a first home or withdrawn from age 60.

It is worth remembering that anyone purchasing their first home for less than £300,000 is exempt from paying Stamp Duty.
Investing
When your grown up children have greater financial security they may be in a position to invest. Investing is for the longer term (typically 5 years plus). It is important they understand the core principles around risk and return, investment fees and the power of compounding.

Although retirement may seem like a long way off, for the younger generation to have enough in later life it is best to start early and let the power of compound interest do the heavy lifting work. This may be via a Workplace Scheme or Personal Pension but with the addition of tax relief (and “free” money from an employer) it should be considered as part of a more holistic plan.

As parents, you can help to guide your children through this complex landscape and to help them decide what is the most effective solution for their situation. We are here if you feel you need a little help.