When it comes to navigating an increasingly cashless world, financial literacy has never been more crucial. Yet for many young people it remains a glaring blind spot. That’s why The Times has launched its Smarter With Money campaign.
More than two thirds of teenagers said they felt high levels of anxiety about money, according to research by the London Foundation for Banking & Finance, an educational charity. Its Young Person’s Money Index, which has been tracking the attitudes of 15 to 18-year-olds for more than a decade, found that financial capability among teenagers remained concerningly low.
Kevin Mountford from the savings platform Raisin UK said: “Money can feel invisible when everything is paid by card, phone or online. Short, jargon-free financial content on social media is easy to consume, but it isn’t always reliable.”
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The plethora of in-app gaming purchases, ads for bitcoin and torrent of financial boasts on Tik Tok are making it even harder for young people to make good financial decisions. So, what would help? Here are our tips.
Build good money habits
Many young people lack the basics. One of the best ways to learn about budgeting and saving is by handling money yourself. Whether it’s birthday cash, earnings from a part-time job or shares in a company, watching what you spend and how your money grows is the first step to financial confidence.
Parents can help teenagers to develop the right money mindset by encouraging them to save or invest towards something they genuinely want to buy, such as concert tickets, a new phone or a gap year. The key is to get them to set a clear goal and explain that even small regular amounts of £5 or £10 at a time can build up over time.
For example, if you put away £25 a month in a tracker fund returning 6 per cent a year investment growth after charges, you would have £1,793 after five years and £4,191 after 10 years, according to the investment platform AJ Bell.
Alice Haine from the wealth manager Evelyn Partners said: “Once those saving foundations are in place, it becomes much easier for teens to grasp more complex financial concepts.”
Start saving
Most banks offer junior or youth accounts and opening one is usually straightforward. You will need proof of identity, your address, and if under 16 you will usually need a parent or guardian to sign paperwork.
An online easy access account is a sensible first option because it’s easy to check your balance on your phone and watch your money grow.
For those looking for a straightforward savings account, top picks include Kent Reliance, which pays 4.18 per cent interest on its Demelza account for under-18s, and HSBC which has a MySavings account for seven to 17-year-olds, paying 4 per cent on up to £3,000.
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Halifax’s regular saver account pays 5.5 per cent, but has to be opened by an adult on behalf of a child under 15 and you have to pay in between £10 and £100 a month by standing order, with no withdrawals for a year.
Before opening any account be sure to check the terms and conditions and eligibility criteria. Accounts might, for example, have a bonus that boosts the headline rate but then drops away after six months or a year, leaving you with a much less competitive rate.
For longer-term savings it is possible to set up a pension for your child. Once it’s up and running, grandparents and friends can also contribute. It is tax-efficient but the money will be locked away for decades — the minimum age for withdrawing from a pension is set to rise from 55 to 57 in 2028.
Children have an annual gross pension allowance of £3,600 and their contributions attract 20 per cent tax relief. This means a parent can invest up to £2,880 into a child’s self-invested personal pension (Sipp), which will be topped up by the government with £720 in tax relief. Get your child involved by keeping them updated about the pension’s progress.
Alice Haine from the wealth manager Evelyn Partners said: “While a child might not fully appreciate the value of you setting up a pension in their teens, if you have educated them well on the power of compounding they may grasp that by starting early they can set themselves up for a healthy retirement.”
According to Evelyn Partners, if you invested £2,880 every year from birth in a child’s Sipp, topped up with government tax relief of £12,960 over 18 years, the total contributions would be £64,800.
Haine said: “If those contributions grew 5 per cent a year then in their 18th year the child’s pension would be worth just over £107,000. Even if no further contributions were ever made, the pension would tip over £1 million by the age of 63, just in time for retirement.”
Learn about investing
If you have set up a stocks and shares Junior Isa for a child, use this to demonstrate to your teenager how their investments have grown over time, hopefully sparking an interest in the stock market.
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Haine said: “Focus on why, over the long term, money invested in the financial markets has the potential to outperform cash and beat inflation. Historically, it has consistently done so.”
Point out that while cash may seem safer, money is likely to be devalued if it doesn not keep up with inflation.
According to the investment platform AJ Bell, if you had invested £10,000 into the FTSE all-world index accumulation fund 10 years ago you would have £35,497 today. If you had left that money in cash earning 2 per cent a year you would have had £12,190. In other words, investing would have left you more than £23,000 better off.
You could suggest that your child helps you pick shares for their Isa, and consider familiar names such as McDonalds, Pepsico (owner of Pepsi), Domino’s Pizza, M&S or Tesco. If they don’t have an Isa, you could create a mini portfolio within your own Isa where they can have a go at investing.
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Once your son or daughter starts to show an interest in investing, it’s important to warn them that even though investments such as cryptocurrencies can seem appealing, they can be highly volatile, unregulated and risky. And that even investing in shares can be a bumpy ride.
Encourage teenagers to take a long-term approach through regular payments into balanced investments, helping to build a nest egg for later life.
Understand how borrowing works
By understanding the concept of interest, teenagers will have a knowledge gateway into the risks that can arise from taking on unsecured debt such as credit cards.
They should understand that interest can work for you when you save, but against you when you borrow. Haine said: “It’s important they grasp how debt can spiral quickly if it isn’t managed carefully. Without a solid understanding of the risks, young people can find themselves in financial difficulty very quickly.”
While teenagers cannot apply for a credit card, build up an overdraft or take out a loan before 18, those options will become quickly available once they reach adulthood. It’s important to know the difference between credit cards, debit cards and buy now, pay later schemes, and their risk levels.
Don’t blindly trust AI and social media
Warn teenagers about the dangers of using AI tools and social media for financial advice, and explain that they won’t always tell the truth.
Mountford said: “AI tools can explain concepts well, but they don’t understand your personal circumstances and can confidently present outdated or oversimplified information.”
Urge your children to be sceptical of so-called finfluencers — financial influencers on social media. A review of TikTok finfluencer posts in December by the promotions compliance platform Adclear found that 68 per cent breached at least one of the set by the Financial Conduct Authority, the City regulator. The breaches included exaggerating claims and failing to warn of risks.
Watch out for scams that target young people. While you need to be 18 to buy bitcoin and other cryptocurrencies, it’s never too early to learn about the risks associated with get-rich-quick schemes.