This month marks Teen Self Esteem Month in the UK, a chance for all of us to engage positively with teenagers, opening, and nurturing, effective channels of communication.
Our teenage years can be tough, with physical and emotional changes exacerbated by external pressures – from parents, friends, or wider society.
We can all help the teenagers in our lives, whether by setting a good example, communicating frankly, or simply taking an interest. You might also find you want to offer guidance, imparting your knowledge to help aid their decision-making.
One area in which your, and our, help might be particularly useful, is around money management, helping to give our young people the best financial start in life.
Keep reading for your look at three important lessons to teach your children or grandchildren now. Plus, how best to save for their future.
Financial guidance means imparting some key lessons
From managing pocket money and bank accounts to student loans, and eventually a credit card or mortgage, the lessons learned in their teens will stay with your loved ones for the rest of their lives.
Your guidance, on the value of money, saving versus investing, and the different types of good and bad debt could make a huge difference to a teen’s financial confidence and competence.
Three of the most important money lessons are:
- The difference between saving and spending
- What budgeting is and how to do it effectively
- The importance of long-term savings and a rainy day fund.
Instilling the importance of saving can begin with a piggy bank, saving enough money for a much-coveted toy. Later in life, your child or grandchildren might get a paper round, earning their own money. Understanding how to manage this is key.
So too is budgeting. Putting money aside for the future can be a difficult lesson to learn, but having a goal is key. Saving for a future gain (the latest trainers or even a first car) makes budgeting easier, putting money aside first before spending what remains.
Taking responsibility for our own possessions is also important, which could mean replacing lost or broken possessions. To this, they’ll need an emergency fund set aside.
Not having this kind of safety net could lead your teen into debt, another valuable lesson to impart.
But you might not want to limit your lessons to financial lessons. You might want to give financial too.
2 simple ways to help your teenager get a stable financial start in life
1. Opening and managing a Junior ISA (JISA) could provide valuable financial lessons
You can open up a JISA for a child under 18 who lives in the UK and there are two main types, both of which offer tax efficiencies.
- A Cash JISA is a great way to save as there is no interest to pay on the interest made, but returns might not be high
- A Stocks and Shares JISA invests in the stock market, meaning there is the chance of greater returns, but with additional risk attached. There is no tax to pay on capital growth or dividends.
You can make one-off or regular payments on behalf of your child or grandchild, up to the JISA Allowance, which stands at £9,000 for the 2023/24 tax year.
The money you contribute belongs to the child, who can take control of the account from age 16. From aged 18, they can choose to withdraw the money or convert it into an adult ISA.
A JISA could be a great option to help a child contribute to the cost of their private education, which could run to between £15,000 and £36,000 a year.
2. Opening a pension for your teen could be a great long-term option
A pension can be opened for anyone under the age of 18 but funds can’t be accessed until the pension holder reaches pensionable age. This currently stands at 55 but is rising to 57 from 2028 and is likely to be higher still by the time today’s teens retire.
You can contribute up to £2,880 a year, with government tax relief topping up your contribution to £3,600.
Control of the pension passes to your child or grandchild when they reach 18 but could instil the benefits of starting to save early. If they choose to maintain contributions (or increase them to the full pension Annual Allowance of £60,000 for the 2023/24 tax year), they could build a huge nest egg for later life and the foundations for a very comfortable retirement.
Get in touch
If you would like help setting up a pension or JISA for your child, or you have any questions about providing financial education to your children, speak to us now. Get in touch by emailing firstname.lastname@example.org or calling 03452 100 100.
The value of investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.