WE NEED TO TALK ABOUT MONEY EARLY
Posted by Michael Aspen on 27 Sep 2018
We need to talk about money early
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 later years, tough times, started late, fell into the Interest Only trap and so on.
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.
Gathering debt, starts like this – seek zero interest cards/loan – pay nothing for 6-months – repeat.
While the interest rate 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.
If we rewind a bit, I invested in one of those pre-fund Visa cards (aimed specifically at giving parents some oversight and control). I put her allowance on it weekly, I can set tasks (brush teeth, clean room, communicate with parents) and if she completes them, monetary bonuses are attached.
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. 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, it doesn’t stop her asking for other money, but it is teaching her one of financial planning’s most important lessons – If you spend it – It’s gone!
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
Money doesn’t grow on trees
Young adults (and actual adults in many 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. This can be utilised by parents as a great lesson in reality.
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 (Obviously the task has to be age relevant to resonate).
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 instil 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.
This time next year, Rodney
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 (although, they have reached adulthood 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 down 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.
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 – how excited would they be if they had shares in Apple or YouTube?
- 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
I hope you’ve found this information both useful and informative.
Aspen Financial Services