How to financially come of age in a crisis

As the first teenagers start to gain access to their child trust funds, here’s the advice they need

Many child trust funds will begin maturing (Getty/iStock)

Despite every disruption, cancelled event and altered circumstance, certain milestones are still being reached. Across the country, school leavers are preparing to enter the workforce or head to university, graduates are preparing for their next steps, and every day teenagers are turning 18.

For the current crop of teens there’s something that might sweeten the bitter pill of coming of age in the current crisis. That spoonful of sugar is their child trust fund (CTF).

All children born between 1 September 2002 and 2 January 2011 qualified for these accounts, receiving £250 from the government at birth and then a further £250 at the age of seven, plus whatever contributions their friends and family were able to make. The first of these accounts will begin maturing next week.

Even if parents and guardians did not open an account for a baby, the emergent adult hasn’t missed out as HMRC automatically opened them if no action was taken. If you have no record or have lost track of a CTF then don’t panic, you can locate it via the .gov website.

It’s well worth doing so. CTF provider Unity Mutual surveyed 2,000 16- and 17-year-olds and found that 46 per cent will be receiving more than £5,000 when they get access to their funds. In fact, 27 per cent will receive more than £20,000.

But as they come of age amid an economic crisis deeper than anything in living memory, being financially capable is more important than ever. And contrary to popular belief, today’s youngest adults are particularly financially responsible. Survey after survey shows that, perhaps battered by the doom and gloom messages about housing affordability, student debt and non-existent long-term savings, they would immediately save any windfall, adding to their nest egg wherever possible.

So what advice can we share with school leavers and graduates keen to make the most of their money? What financial wisdom will those teenagers gaining access to their child trust funds need as they mature into a situation that would have seemed unthinkable when those accounts were opened?

Make the most of now

This might be a weird time for everyone but there are some potential financial benefits if you look hard enough.

Laura Laidlaw, head of customer communications at Standard Life, says: “At the moment you probably aren’t spending as much on shopping or socialising with friends, so now could be the perfect time to put some extra money into savings before you head off to study or start a new job.”

There are also lessons that can be learned from this crisis. Steve Code, insurance director at Unity Mutual, says: “Attitudes have certainly changed due to coronavirus. We’ve realised we can’t know what’s around the corner and it’s important to have savings for a rainy day.

“CTFs were set up in 2002 to teach children about responsible finance, and the past few months have provided our steepest learning curve yet.”

Learn to budget

One of the essential financial lessons is learning to budget. Doing so will allow you to be in control of your money and makes it less likely you’ll accidentally slide into debt.

There are lots of online spreadsheets and tools designed to make this easy but you can equally just do it with a pencil. Write a list of all your monthly incomings and outgoings, plus the amount you spend on socialising and subscriptions like gym memberships and online streaming. Make sure this tallies up with your income and try to also factor in an amount for saving.

Laidlaw says: “Budgeting is a perfect way to give yourself an overview of your finances and allows you to see how you are set to achieve financial goals. It’s a great motivation to seek out ways to perhaps keep costs down – switching mobile phone provider, for example, to save even more money every month.

“Once you know how much money you should have left at the end of each month, consider setting up a direct debit to squirrel most of this away into a savings account at the start of each month. If it’s not sitting around in a current account, you will be less tempted to spend it.”

Think about your goals

OK, if you’re about to begin or start searching for your first job or you’re heading off to uni for the first time then you may not have many long-term goals just yet.

But giving some thought to your financial targets early on can help shape your money habits.

Andy Parsons, head of investments and product proposition at The Share Centre, says: “When we have money earmarked for a particular life goal, we become much less tempted to dip into it as it means compromising or delaying these big events. Think about what you want this money to help you with, is it a deposit for your first home? A new car? Or perhaps even an early retirement?

“Keeping these goals front of mind can help you remain committed and focused.”

Learn from your parents’ mistakes and successes

Parents wondering what advice to share with their newly adult children should consider discussing their own experiences, according to Maike Currie, investment director at Fidelity International.

She says that’s particularly true when it comes to talking about savings and debt. “Older children will benefit from knowledge about student loans and the interest rates associated with these financial products.

“Discuss your pension arrangements and how important it is for young people to save for their future as early as they can. If you teach them nothing else, make sure they have a firm understanding of the two Cs: compounding and the benefits of earning interest on interest, and credit cards and the cost of paying interest.

“If they understand the power of the former and the dangers of the latter, you are halfway there.”

Don’t beat yourself up if none of this is possible

A lot of financial wisdom assumes you will have enough money to put some aside. But in order to be sensible with money, you need to have enough that some is actually spare.

For some of the people coming of age in the strange year of 2020, this may not immediately be possible.

George Charles, spokesperson for the website MoneySavingHeroes.co.uk, says: “It can be easy to become bogged down with saving, especially at younger ages as social pressure to travel the world, buy a house young or get a car is rife. However, it is more important to ensure you are financially comfortable in the present before getting carried away with the future.

“You need to ensure you have enough to buy food, pay bills and retain a social life; saving may not be a possibility right now and you shouldn’t feel bad about that. Focus on what is best for you and try not to pay any mind to what others are doing.

“If you find you have money left over after making sure you have enough to get by, then you can put this extra money into a savings account, whether it be for a rainy day, travelling fund or for a mortgage or rent deposit in the future.”

This time is unprecedented and even people who have had decades to establish their finances are coming unstuck. If these first few years are challenging, it doesn’t mean your financial future will be.

Be hopeful. And arm yourself with knowledge.