Sunday 16 December 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

OVERVIEW

Young people and finance have hit the headlines this week in the build up to the holiday season, because of the expenses attached to present buying and party going: apparently, many young people are struggling to afford even the basics of living. Renting and its associated expenses have almost dominated, as younger people continue to find themselves shut off the property ladder.





EMPLOYMENT AND EDUCATION

A poll of almost 400 NEETS (young people not in education, employment or training) by advice service Future You, found that many of them, not surprisingly are struggling to make ends meet. 63% say they cannot afford the dentist, 67% find it hard to pay for food, while 70% are having trouble paying their bills. Moreover, 82% found meeting the cost of travel difficult. And as for Christmas, 47% felt they wouldn't be able to pay for Christmas dinner, while 92% couldn't afford to buy gifts.

They were less than cheery about their future chances of employment as well: 60% didn't feel confident about their prospects of employment in 2013.

As for education, figures this week from the admissions body UCAS found that there has been a record fall in the number of people taking up places at UK universities this year. Nearly 54,000 fewer people than last year started courses this autumn than in 2011. Reasons for this are thought to be down to the rise in tuition fees to a maximum of £9,000 per year in England. However, there was some good news. Apparently, this 'correction' has led to more applicants being accepted at their first choice institution, and those from disadvantaged areas are increasingly winning places at the top universities.




SAVINGS AND INVESTMENTS

Housing woes continue this week for young people. Yet another survey, this time by the IPPR think-tank has shown a significant gap between young people's aspirations of owning a home, and the harsh reality they find themselves in. According to the survey, 51% of young people aged between 18 and 30 no longer believe that they will be able to afford to buy a house in the next 10 years, even though 88% wish they could. The survey also found that being shut out of the property market was affecting young people in other ways too, now that 3 million people aged between 20 and 34 are still living with their parents. 26% felt that their housing situation prevented them from being able to achieve important life goals, such as starting a family. 17% feel that their housing issues have a negative impact on their relationships. It seems that not only is the lack of affordable mortgages preventing young people from building financial assets, it is also preventing them from moving forward in life.

Another piece of research found that over the last five years, parents have provided over 228,000 first time buyers with more than £1.31bn in deposits, with parents giving or loaning, on average, £13,000 - up from £10,000 five years ago. And as if that wasn't bad enough, another survey has found that servicing an interest-only mortgage on an average property in the UK is £1,080 per year cheaper than renting. If only...

Savings accounts have also suffered a blow, as it was found that 351 savings accounts have disappeared from the market entirely this year - with 191 being withdrawn in November alone. This has been put down to the Funding for Lending scheme, which was introduced to help reduce the costs to banks and building societies of providing loans to people looking to get on the housing ladder, since the interest rate is no longer sustainable on some of these accounts. However, I wonder if, in the long run, this might make savings accounts more simple: after all, too much choice can often be a bad thing.

Meanwhile, the Huffington Post (US) is encouraging younger people to make riskier investments, contrary to what their parents might tell them. It seems they should take the amount of time they have until retirement into account, as well as the possible returns on riskier, higher yield investments.



FINANCIAL LITERACY

There was concrete proof this week that a lack of financial literacy can have serious implications both on personal finances and on a national scale. A survey for moneysavingexpert.com by the Centre for Economics and Business Research found that financial illiteracy costs the UK up to £3.4bn a year.

It claimed that better financial literacy could reduce the risks of unemployment by 10% and help reduce the unemployment subsidy by taxpayers by £600m, as well as helping reduce the levels of personal indebtedness in the UK and helping people to plan more effectively for their retirement. A separate study by Skills for Life found that one in four adults has the mathematical skills of a nine year old, struggling with even basic sums.





PENSIONS

About a million low paid workers - mainly women - are set to miss out on vital employer pension contributions after the government again raised the threshold for the minimum income at which autoenrolment applies, this time to £9,440 per year. Women - and young people - are most likely to be affected by this change, as they are more likely to take on low-paid or part-time jobs.

More encouragingly though, a Standard Life survey revealed that 54% of young British employees are keen to know more about autoenrolment. Those aged up to 35 are significantly more keen to learn about it than their older counterparts - just under a third of 35 and overs say they are interesting in finding out more - perhaps, the survey writers feel, because they felt they had already "missed the boat", while those aged under  30 felt they "had all the time in the world".

Friday 7 December 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


OVERVIEW

The Chancellor's Autumn Statement this week was greeted with mixed responses. Although slight increases in personal tax allowance (which will rise to £9,440) and increases to the ISA contribution limit (to £11,520) and for businesses, a 1% cut in corporation tax were welcomed, these changes were thought to be too small to really have an impact on people's working lives, especially those of young people, who are increasingly being squeezed by a lack of employment opportunities and steadily rising rental costs, amongst other things.





SAVINGS AND INVESTMENTS

It was also reported this week that even second time buyers are turning to the Bank of Mum and Dad for help in upgrading their homes, as upgrading to a house with a second bedroom can set buyers back an average of £91,000. So even if you do manage to buy that first home, your troubles are far from over.

The Autumn Statement brought some relief for first-time buyers: although there was no mention of a return to the stamp duty holiday, the Chancellor did promise to continue with the Funding for Lending scheme, which enables banks and building societies to borrow from the government in order to accept more mortgage applications from first-time buyers who might not have built up substantial deposits. However, the deposits that most mortgage lenders require are still too high for most first-time buyers, so it is unlikely that this will have much impact in the short to medium term.

The government will also increase the amount of bankable annual gains from investments by 1%, and is also set to expand the number of investments which might be included on a list of stocks and shares lsas - which could be good news for young people who already have investments - as they are the group most likely to be investing in higher risk categories, and stand to benefit the most over the longer term.





FINANCIAL EDUCATION

Some welcome news from the world of financial education, albeit from the United States, as a recent report suggests that young people (aged between 16 and 29) may actually be one of the most financially literate age groups, because of the importance that they place on getting a decent report on their savings accounts. Recent research found that 25% of people in this age group put saving as their top personal finance priority, compared with 9% in the over 65s category.

Nebraska's board of education proposals for standards in social studies has put new emphasis on personal finance, as a result of the struggles many young people have faced as a result of the recession. 

Over in Malaysia, a new financial literacy programme, "My Finance Coach" has been launched by Allianz. This initiative was founded in Germany in 2010 and  aims to improve the money management skills of young people, by training volunteers to be My Finance Coaches and getting them to run classes on money and finance for people aged between 11 and 18.




PAYMENTS

Last week, we discussed several new payments platforms designed specifically for children. This week, a similar system has been set up in the US, called Virtualpiggy.com. This website allows parents to control the money their children can spend online, while allowing children to manage money to buy things online. Crucially for the parents, it doesn't actually hold any money, which means that no personal information is needed for registering, but instead it operates as more of a management system, so that children can see how much they have saved and how much more they need to save. In turn, parents can keep track of how much money is in the account and decide on the items that their children can buy. A number of merchandisers have already signed up to the scheme, including Claire's, a jewellery store.



EMPLOYMENT

A poll by law firm Irwin Mitchell found that more than half of businesses want to see the default retirement age reinstated to free up employment opportunities for able younger employees. The default retirement age was scrapped in April 2011 in an attempt to eliminate age discrimination and increase tax receipts. Many of the firms surveyed were finding that many younger employees were leaving to join rival firms because of the bottle neck that was being created in their current firms by older workers staying on past the traditional age of retirement.



DEBT

The growing problem of debt amongst young people was again brought to our attention by the story of Toby Thorn, 23, who took his life when he ran into debt as a result of student and credit card debt. This is compounded by increasing rental costs - by some estimates, these have risen by 20% in some parts of London, while wages for under 30 year olds have fallen by between 6% and 10% over the last decade.

Payday loans once again made the headlines this week - for the wrong reasons - as it emerged (in research by Insolvency firm R3) that nearly one in ten people were considering taking out a payday loan to help meet the costs of Christmas. Step Change Debt Charity also reported that the number of people seeking help with debt from payday loans has soared by 300% in the past 2 years. It might be worth taking a closer look at how this problem develops once the new interest rate caps are put into place...

There was some good news this week though for those who pay out regularly on train fares. The government agreed to cap fare increases at 1% above the rate of inflation rather than 3%, which should help to ease the burden on regular commuters.





Tuesday 4 December 2012

Kidtrepreneurs: making business work for children

When 11 year old Jack and 9 year old Lucy had some time on their hands during the last school holidays, they decided to use it wisely. Spurred on by their idea to create an app, they eventually came up with Mooey and his Mates, an interactive iphone app based around Lucy's cuddly toys. Their father, a graphic designer, then put it into action, and the app went live.

But they have since taken the idea further. They decided to promote their app at a local trade fair, but knew that they would need more than just an app to sell it, so they came up with the idea of making Mooey merchandise, including mugs, aprons and iphone covers to develop the brand. Not only that but they learnt some invaluable lessons on business and enterprise, learning about upselling and cross selling, for instance. They have also been able to conduct some vital market research on their friends, a few of whom have even downloaded the app.



And though remarkable, Jack and Lucy are far from the only young people in the world of business. Over in Acton, Texas, there is even a young people's entrepreneur fair, Acton Children's Business Fair, where children as young as 6 (and as old as 14) try and impress an elected panel of local business people, who judge the youngsters on their pitch, their product, and the marketability of their idea.

Several initiatives in the UK are also in place. On the Money, an initiative with Education Scotland, for example, has run a series of talks with notable entrepreneurs, including Sir Tom Hunter, Scotland's richest man, and former owner of Sports Division, and Nicola Morgan, author of 'Charlie Fly and the Nice Dream' who proves that a knowledge of business and money management is crucial to professional success in any walk of life. She actually describes herself as an entrepreneur - for to be entrepreneurial, she says, you have to be able to use your own ideas for a practical purpose.



There is also MyBnk, a social enterprise based in London, which runs workshops for young people aged between 11 and 25, which teaches the building blocks of money management and business with practical lessons. For instance, earlier this year, it launched a 'bank', where school children run a bank using their classmates' savings as deposits, which they can then lend out to community projects, in order to learn more about how the financial system works. Since it was founded in 2005, it has worked with about 50,000 young people. This once again shows that these skills are very useful for teaching children about business, but absolutely vital in gaining independence and financial well-being.

This highlights the growing importance the government and other organisations are placing on teaching children and young people about enterprise. The economy has changed, and good A-levels and solid university degree are no longer sufficient if a young person wants to make themselves stand out from the crowd. Increasingly, entrepreneurial flair is becoming important, not least for the characteristics you have to possess to be successful.