Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Remember when your parents told you ‘money doesn’t grow on trees’ or Granny was on hand to teach you that ‘every penny counts’ and a sharp warning not to ‘throw good money after bad’?
Well, as a parent or grandparent now yourself, it’s time to do your duty and let your children and grandchildren in on a few gems that will help them navigate their way through the world of money. And as this is “My Money Week” in the nation’s primary and secondary schools, it is a good opportunity to extend their learning with a conversation around the dinner table.
Here are five financial nuggets to pass on. Who knows, they might even thank you for it one day.
1 Save for a rainy day
If anything, the pandemic has shown us that being prepared for ‘anything’ is something more of us could well have done with. And the younger you are, the tougher the past year-and-a-bit has been, financially speaking.
New research by Fidelity1 has shown that the past year has been particularly difficult for young people, with UK adults aged between 18 and 34 most likely to be worried about their financial position due to Covid-19 (51%), compared to 46% of 35-54-year olds and 21% of over 55s.
Today’s school-age youngsters need to know that having something set aside for tougher times is a shrewd move. None of us knows what life could throw at us; least of all financially, so it always pays to have something to fall back on.
With a stocks and shares ISA you can save as little as £25 a month into a range of funds, including our preferred funds in the Select 50, which given time can grow into a decent nest egg to help them cope with come what may.
2 Don’t expect anything to be handed to you on a plate
With the state pension age going up, anyone under the age of 35 today needs to make sure they look after No. 1 if they’re to stand any chance of financial security in their later life. According to the Pensions Policy Institute, the majority of 20 and 30-year-olds will lose out as a result of ongoing changes to the state pension. Approximately three quarters of people in their twenties are set to lose a notional average of £19,000 over the course of their retirement and approximately two thirds of people in their thirties are set to lose on average £17,000.
This is where their self-survival skills need to step in and fill the gap. Pop as little as £20 a month into a SIPP and the government will top that up by 25%. Thanks to the generous tax relief that pensions attract, this means that to pay in a total of £1,000 into your SIPP, you would only need to contribute £800, and the government would pay the other £200. If you pay income tax at above the basic rate, you can claim even more tax relief through your tax return or by writing to HMRC.
3 All those little things add up
That daily latte, the magazine that arrives through your letterbox each month, gets a cursory glance and ends up in the recycling box, all those little ‘pick me ups’ we treat ourselves to – they all add up. If any of us were to keep tabs of where every penny went in a month we’d probably be surprised at how much we effectively throw away on unnecessary spending. And the pandemic has forced us to make changes, which in turn have shown us just how much money we used to fritter away.
For example, it has become all too clear that by ditching your daily shop-bought coffee at £2.50 a day, five days a week, you have £50 a month you would not have otherwise had, which you can now invest. Make that a fiver that you would have spent on a daily basis before, without giving it a second thought and there are even greater easy wins to be had. Keep that up for five years and you’ll have a cool £6,000 which you could invest and get working for you. Small sums really do add up.
Start saving today and keep the taxman’s hands off your profits by using this year’s ISA allowance. Our calculator will help you see how much you could have with a little diligent saving.
4 Seize the day
If they think they can’t afford to save, tell them to think again. If they think they’re too young to start a pension, tell them you’re never too young to start saving for your retirement.
In fact, time is your best friend when it comes to building up your financial security and time is most definitely on the younger generations’ side. The sooner they start, even if the sums involved are very small, the higher the chances they will have of making their money work hard.
5 Look after the pennies
Harking back to true old school values, this one is still appropriate today. While the pennies may not buy nearly anywhere as near as much (if anything) as they used to, save them up and you can soon amass a decent sum of money.
Teach them to develop a savings habit and they’ll see how quickly those pennies can turn into something more substantial. Encourage them to set up a standing order that goes out of their account every pay day. It doesn’t have to be much - £10 or £20 a month will start to go largely unnoticed and will add up nicely. Especially given time, thanks to the power of compounding.
1Research conducted by Opinium research between 7th January and 12th January 2021 among 12,038 men and women in the UK, Germany, China, Taiwan, Hong Kong and Japan. UK-specific findings taken from the global study are based upon sample of 2,004 (990 men and 1014 women).
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment on ISAs and SIPPs depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
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