Friday, 30 November 2012

Modern young finance: weekly round-up

A weekly round up of all the developments in the world of young people and financial services. @SophieRobson2


The Share Foundation, with the backing of the Department for Education, has this week launched a new Junior ISA (JISA) for all children in the UK who have been in care for at least a year in a bid to combat any disadvantages they might face when they enter the 'real world'. Each JISA will initially be credited with £200, and after this, private donations from members of the public will be sought. The Share Foundation will take care of the running of the accounts, and will offer financial education to JISA holders at the age of 18 to make sure this money is used efficiently.
Also, in savings, it is worth mentioning a report published earlier this month by the IPPR think-tank, "Young people and savings: a route to improved financial resilience". The report, which is based on the findings of a series of workshops and interviews with people aged between 16-29, looks at the financial resilience of young people today, their attitudes to saving and their future aspirations for financial security. It shows how many of the difficulties young people face today are compounded by their lack of savings - not only is this preventing them from getting onto the housing ladder, it also means that many of them have no buffer against financial hardship.


There have been some international initiatives this week, as schools in Australia have been trialling a new financial education resource called MoneySmart teaching. This has been developed by the Australian Securities and Investment Commission, and is part of a $10 million scheme to educate young Australians about effective money management. It teaches young people how become savvy consumers, by explaining some of the financial jargon and showing them where to go for assistance - and is designed to complement the Australian Curriculum rather than add to an already overcrowded syllabus.

Over in Malaysia, Umno Youth (Umno is Malaysia's largest political party) has called for more effective financial education for young people - after it emerged that 32% of the bankruptcy cases since 2005 have involved young people. Umno wants the laws on discharge from insolvency to be less stringent, to help young people who might otherwise be prevented from buying a house or doing business because of this.


Two new payments platforms targeted specifically at young people were launched this month: Roosterbank and PKTMNY. Ostensibly, both aim to help young people manage their money, although in practice, they rely greatly on parental input. Roosterbank uses virtual credit, which is transferred from the account of the child's parent (both parent and child set up an account). The child's balance is displayed whenever they are they are on the site, and they can either spend this - via Amazon, with which Roosterbank has an affiliate programme - or they can leave it in their account, or donate it. The parental supervision part comes in at the online checkout, when a parent has to approve a purchase before the transaction goes through.

PKTMNY, on the other hand, uses real money, and offers a debit card (a prepaid Visa), so it has the feel of a fully-functioning account. Parents can transfer money into the account - and there is the option to do this by standing order. Apart from this though, the young person then has the option to supplement income by setting tasks, including washing cars or helping with household chores.  

It remains to be seem whether either of these will have much traction with young people (or their parents), beyond their novelty value.


Barclays, Pret a Manger and Procter & Gamble are at the forefront of tackling youth unemployment, with each taking on hundreds of apprentices. At Barclays, these apprentices receive the same salary as other entry level employees and get help towards basic financial services qualifications - and, crucially, no previous experience is necessary. Pret offers constant mentoring from the branch manager, training in public speaking and private counselling, while P&G's schemes offer professional training in finance and R&D roles, as well as manufacturing. 

This is a positive step away from the mentality that apprentices are to be used as cheap labour, and gives some young people who might ordinarily be excluded from the job market the opportunity to develop their skills and experience.


There was welcome news for indebted young people and families this week after a last-minute change to the Financial Services Bill gave the incoming Financial Conduct Authority (FCA) powers to cap the interest rates charged by payday lenders. Payday loan companies, such as Wonga, currently charge as much as 4,214% APR on their loans, and this is worrying, given the increasing amounts of debt carried by young people. It remains to be seen though how much these interest rates will be capped by.


Again, an international feel here, as Standard Chartered in Brunei has reported an increase in young people enquiring about investment products - especially those who are in the 20 - 30 year old age bracket - who make up about 20% of the customer base. There seem to be several reasons for this: many of these are looking ahead to retirement and trying to ensure an adequate level of income once they stop working. Secondly, savings rates are low, and they are aware that to beat inflation, they have to be prepared to actively invest, and not just leave their money to languish in low interest cash savings. They also recognise that by starting now, they will see the biggest gains on their investment in years to come. A salutary lesson for the young people in the UK perhaps...

Young people and mortgages have come under the spotlight lately, as it was revealed that for the first time in recent history, fewer properties are owner-occupied than rented, a sign that ordinary people are being priced out of the market. Research this week by the Council of Mortgage Lenders also found that 66% of first-time buyers have had to rely on their parents to fund the deposit on their mortgage, as banks remain reluctant to lend to those without substantial savings.


A study this week, commissioned by Blackrock, found that a third of young Britons expect to retire on a pension of £30,000 a year, despite just 12% of them actively saving into a pension fund, and just 4% of these actively investing. In order to do this, a pension pot of £600,000 would need to be accumulated. The problem seems to be that, although many in this age group do save, putting away an average of 18% of their salary, they tend to focus more on short-term goals, such as saving for a holiday or new car.

And there was further bad news for the future of investing this week, when it emerged that the number of companies offering Save as You Earn (SAYE) has fallen to just 510 nationally. The scheme, which allows employees to buy discounted shares in the company they work for has suffered as a result of the HMRC's cutting of investment rates in a three year SAYE scheme from 4.23% five years ago, to 0% today - in effect, making holders of these shares lose money in real terms because of inflation.

But, finally, a bit of encouraging news to take us through to next week. According to a survey by the Department for Work and Pensions (DWP), nearly 70% of workers eligible for auto-enrolment plan to stay in the scheme rather than opt out - which is a step forward for many who had put off pension contributions due to inertia. However, the same report did find that many found the system too complex: 59% of those surveyed claimed not to know enough about pensions to make an informed choice about where to put their money.

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