I suppose you could say it was inevitable. And this month it happened. The first of our children ceased to be a child. And along with the sanctioned alcoholic bubbles (plus the reluctant acceptance that, this year, there would be no party) came the arrival of The Letter.
Emerging from its juvenile status
This was the letter that informed our grown-up daughter that her Child Trust Fund could – like her – no longer call itself a Child-Anything, and that it had emerged from its juvenile status as a fully-fledged, adult Individual Savings Account. Oh, and that it was worth some thousands of pounds.
The Big Talk
This letter was addressed to her, but I have to say that, aside from the salutation and the given amount of money, nothing in the letter made the remotest bit of sense to our Young Adult.
“Are you sure this is meant for me? It doesn’t use any words that I understand.”
“Lucky you’ve got a Mum who knows about finance, then…”
Sensing a Big Talk coming on, Daughter-The-Younger made a swift exit, declaring that “she’d wait until it was her turn, thanks” leaving our Eldest with no place to hide.
As it happens, The Big Talk went rather better than I’d hoped and, for those of you driven to read this purely for the outcome, I’ve put a summary table of what we decided upon at the end. If you want to know how we got there… read on!
Tempted to lay out all our expertise
First, though, a tiny bit of musing… I’ve noticed over my adult decades that when we consider ourselves knowledgeable on a topic and a novice asks us for help, we are often tempted to lay all our expertise out on the table. If there is a problem that we think we can solve, we will try to solve it – it makes us feel (and look) good. And it was indeed so very tempting to sit my novice down with the Child Trust Fund letter and talk it through – providing detailed definitions and explanations along the way that would invoke hideous business-speak phrases like ‘taking a deep dive’ and ‘getting under the bonnet’ (ugh).
Talking about Her
However, any of you living with a ‘cut-to-the-chase-just-tell-me-what-it-means-for-me-right-now’ Teenage Brain will know how such an exercise would end. And I feared for the crockery. So we took a blank pad of paper and a couple of hot drinks and biscuits up to her room and cosied up on the bed like a scene from Mama Mia The Movie and talked about Her.
Turning over to draw buckets
First of all, we rounded up all the bits of money that belonged to her (barring the piggy bank – that would have meant getting up off the bed). We noted where the different pots had come from (most came from the Child Trust Fund but some had been left or given to her while she was a child, and some she has earned and not-yet-spent), then we added them all up, made a mental note of the figure (around £12,500) and turned the piece of paper over.
On the fresh side, we drew some buckets that we named:
- The here and now
- The next few years
- Five years plus
- Beyond that
What the money in the buckets is for
And then we spoke, not about which buckets to put the existing pots of money in, but about the sorts of things she might need money for. For example, in ‘The here and now’ she put things like:
- Having a ‘lit’ summer (don’t’ ask me), and
- Being able to say ‘yes’ to things (I didn’t ask her)
In the ‘Next few years’ bucket she put future holidays, a second- (or more like fifth-) hand car, rental deposit and post-grad learning. While in the ‘Five years-plus’ bucket we got to property purchase deposit, big-life events (marriage, children (really??)) and time out to retrain. Recognising that buying a property might not happen for a good while yet, she also put ‘purchase deposit’ in the final ‘Beyond that’ bucket, to which she then added ‘retirement’.
No jargon and no mention of accounts
The advantage of tackling things this way around was that, so far, that had been no jargon and no mention of types of account. We were half an hour in and I still had her. Result! The next step was to take each bucket in turn and get her to think about what features she would need from an account – so that she could use the money in it for the things she had identified. Here’s what she came up with (okay, so there was a bit of prompting from me…)
- The here and now: Can get to it when I want; can pay wages into it; has an app that lets me ringfence money for different purposes so that I a) don’t accidentally spend the rent, and b) can put some aside for unexpected things (good and bad); the money will be safe and won’t go down; a bit of interest would be good to help cover inflation (learnt about inflation in history: Germany between the world wars) but accept that there may not be any
- The next few years: Can get to it easily but not so easily that I would ‘accidentally’ use it on a night out; want to be able to put money into it, either when I feel like it or on a regular basis (eg when I am a regular earner); some interest would be good – if I can get a bit more interest I don’t mind if it is not as instantly accessible as the ‘here and now’ account
- Five years-plus: Money in here needs to grow so that inflation doesn’t harm its value and, also, I don’t know if I can save enough to buy a flat, for example, without it growing; definitely not ‘easy’ access because it is for my future, but want to be able to take some money out before retirement for ‘big’ life events; will probably involve investing so there will be the risk that it isn’t always worth what I put in (would prefer not to have an app for this as I don’t want to be scared if there is a major catastrophe) and I want to look at my options for investing in a good way for the planet and society – Mum, I’ll need your help with this!)
- Beyond that: As above, but can’t get to it at all unless I’m, like, really old or have a very specific reason for taking it out
A spreadsheet will help
At this point, there was nothing for it and we had to start talking ‘types of account’. Some of the names were already familiar to her but others less so and I worried about jargon overload. However, the fact that she could relate the names of accounts to bits of her life made it more palatable and I’ve promised a spreadsheet for when all the accounts are set up so that she can, over time, get more familiar with the terms.
We identified the following types of account that might suit each of her buckets:
The here and now
- A current account that has mobile/online banking and a good app
- A student account that offers benefits (eg free Railcard, cash incentive, overdraft facility)
The next few years
- A savings or deposit account that offers ‘instant’ access or, for a slightly higher interest rate, ‘easy’ access such as a notice period where you have to tell the bank you want to take money out one, two or three months in advance
- A fixed-term deposit account, where you know the interest rate you will get as long as you leave your money in the account for a length of time such as one, two, three or five years
- Premium bonds (you won’t get any interest but your money is safe, you can withdraw your money when you like but you can’t get to it at a cashpoint and you just might win something)
- A Stocks & Shares ISA* (where you don’t have to think about whether you have made enough gains or been paid enough income to have to pay tax on your investments)
- An investment account (where you do)
- A pension
- A Lifetime ISA* (either cash or Stock & Shares). This is limited to £4,000 a year that you can pay in, but the government will top up your deposits by 25% (you can only withdraw money from a Lifetime ISA to use as a deposit on a first-time property purchase or when you are 60)
*The total amount that can be put into ISAs in the current tax year is £20,000
The fun part
The final part of ‘Listen to Mother’ was the fun bit. We went back to the piece of paper with the existing sums of money on it and chucked these sums around a while until we were happy with where they landed. Strictly speaking (from a financial planning point of view), the ‘how much goes where’ exercise should be driven by what is needed in each bucket and – to some extent – it was. But we also felt that, where the money had been given or left in a will (or scrupulously saved every month by mum and dad), we should give some nod to the fact that this money was not really meant for squandering.
She will make the final decisions
Summing it all up, the end result is shown below. I’ve volunteered to do the initial research on comparison websites for her as to which banks/providers will be the most suitable ones for the types of account that we have settled on (no part having a dog and barking yourself, says she). But I will pin her down in a chair and explain the result of my research once it is done so that she can make the final choices – especially when it comes to investing her money according to her social values.
Key to all this, I think, was the decision not to use the (to her) incomprehensible Child Trust Fund letter as our starting point. And key to its continued success will be keeping a spreadsheet that she can refer back to on a regular basis once she knows exactly where these pots of money are going to live.
Break it down to take away the fear
Becoming an ‘adult’ in the eyes of the financial world brings its own set of complications that teenagers don’t necessarily feel prepared for. As a young woman, this could well be the first of a number of crossing points in her life that will demand a proper think about her finances and how to prepare for the future. Hopefully breaking it down like this has helped her to see that a) an organised approach can take away some of the fear; and b) as ever, Mother Knows Best.
|Here and now||Next few years||Five years-plus||Beyond that|
-Say “yes” to things
-Extra driving lessons
-Big life events
-Can pay in wages
-App that allows ringfencing
-No risk, so low interest
|-Easy (but not instant) access
-Easy to add to
-No risk, so low interest
|-Growth at or above inflation
-Will involve some risk
-Choice of ‘good’ investments
-Access if required
|-Growth at or above inflation
-Will involve some risk
-Choice of ‘good’ investments
|Types of suitable account||-Current account with mobile/online banking
|-Deposit or savings account
-Notice period or fixed term
|-Stocks & Shares ISA
|Amount allocated and why||£2,500
(enough to have a holiday with friends (if allowed), more driving lessons (if allowed) with a cushion for starting uni – plus any earnings she has over summer)
|£2,000 to premium bonds
(she already has some premium bonds and likes the idea of maybe ‘winning’ some interest. If interest rates rise, she can move to a savings account)
|£4,000 to a Stocks & Shares ISA
(she can consider moving this to the Lifetime ISA next year depending on circumstances)
|£4,000 to a Lifetime ISA
(the maximum allowed in one tax year, to which £1,000 will be added by the government under current rules)
firstname.lastname@example.org 30 March 2021
Talking Finances is a trading name of Talking Finances Ltd. Talking Finances Ltd is an appointed representative of Beaufort Financial Planning Limited, Kingsgate, 62 High Street, Redhill, Surrey, RH1 1SH, which is authorised and regulated by the Financial Conduct Authority, FCA Registration No. 583233
This article represents the personal opinion of Carole Haswell only and does not represent any opinion of Beaufort Financial Planning Limited. Financial decisions should not be made on the basis of this article