Growing out of a culture of borrowing

How do you get teenagers to start saving? Carol Knight, of Tisa, shares strategies.

This month, the first cohort of child trust fund recipients turn 16. This means that until their 18th birthday, when they can access the cash that they have accrued, they will have a unique opportunity to manage their own fund. These funds may have started at just £250, but in some cases are now worth up to £1,600.

To mark the occasion, we recently carried out some research among 14- to 16-year-olds – and the findings were surprising.

We learned that the culture of borrowing is starting at a much earlier age than we had anticipated. Almost nine in 10 of those we surveyed look to their parents for some extra cash and more than one in 10 ask friends for a loan, even though a third have a regular part-time job and four in five receive regular pocket money.

While this debt might not be ‘formal’, in the sense that it isn’t in the form of an overdraft or a bank loan, it’s still borrowing. This is something that needs to be addressed, quickly.

We need to instil money management skills among the next generation. We must ensure that young people understand the value of saving and make the most of the unique opportunity that they are about to be in charge of.

Our research also uncovered the fact that young people feel that they have significant confidence in their money management skills – interesting, given the above. It is clear that there is a disconnect between the way that teenagers act with their money and what they think constitutes good financial management.

When I was growing up, my friends were by far the biggest influence on my life, and I don’t think that’s changed when I look at today’s teenagers.  

We have learned that three-quarters of 14- to 16-year-olds regularly talk to their friends about money, while many more teenagers, 90 per cent in fact, discuss money with their parents. I find it interesting that so many teenagers are talking to their parents about money, yet more than a quarter do not save money.

I wouldn’t be surprised to learn that the conversations with parents revolve around the topic of borrowing money as opposed to saving it. In my view, parents have an opportunity to use such discussions to encourage their children to develop long-term savings habits.

Sharing the right information and anecdotes to illustrate the benefits of saving is a great way of bringing to life the advantages of saving money and influencing someone’s attitude to money. I like to do this by using smaller numbers to demonstrate the benefits of saving.

Healthy saving habits

For example, saving a sum of money equivalent to half your age is a good way to get into the habit of saving. For example, if you are 16, you should put away 8 per cent of your income each year for the rest of your life.

In contrast, if you did not start saving until you were 30, you’d have to put away 15 per cent of your income each year in order to achieve the same results. One thousand pounds, invested early on, could be worth about £100,000 by the time that you retire  – so it’s much better to start saving from a younger age.

Such examples are important to share with children, the younger the better, particularly as we know through the work that we do with KickStart Money that financial habits can form in primary school. While financial education is currently, and rightly, included on the secondary school curriculum, I worry that such lessons are delivered a little too late.

From our research, we also know that those who have received formal financial education at school are interested in learning more. We should build on this and help them to further their knowledge.

I know that timetables are overflowing and teachers are overwhelmed, but financial education is arguably one of the most important skills that the next generation needs to master if they are to have a healthy relationship with money throughout their working lives, as well as a comfortable retirement.

For all the children born between 1 September 2002 and 31 January 2011, their child trust fund could make a huge difference to their financial situation when they eventually begin their working life.

I am passionate that we do all that we can to help this generation make the most of their money throughout their lifetime, and child trust funds are just the start.

Carol Knight is chief operating officer of Tisa. 

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