Modern Young Finance: weekly round-up 7

@SophieRobson2

A generation Y-er’s verdict on the latest developments in the world of young people and personal finance.

FINANCIAL EDUCATION

As we reported last week, the Government has now promised to include financial education in the school curriculum. The Herald in Scotland took a look at the effectiveness of similar programmes in Scotland, where it has been part of the curriculum since 2008. The Financial Education Partnership (FEP), which is run by the Chartered Institute of Bankers in Scotland (CIBS), found that, although all the schools it had visited had made some time for teaching about finance, nearly 25% of pupils wished they had more time to learn about all the different aspects involved – including money management, borrowing and financial products.

The FEP also wants to make every school put a teacher or department in charge of lessons in money management. The main concerns here though are that teachers are already overladen with other responsibilities, and the curriculum is jam-packed as it is. Also, there is a worry that many teachers may not be fully qualified to teach children about personal finance, particularly older children.

This evidence from Scotland suggests that the Department for Education needs to make sure that their programme presents a coherent pattern, and gives pupils enough access to information about various financial products, as well as just teaching them the basics.

DEBT

Citizens Advice has called for the Office of Fair Trading (OFT) to use new powers to suspend the licences of several payday lenders which it says have been causing distress to customers – 2 of which, it confirms, are household names.

From February 19, 2013, the OFT will be allowed to suspend the consumer credit licences of companies which are engaging in “deceitful, oppressive or unfair” business practices.  According to Citizen Advice’s chief executive, Gillian Guy:

“These firms pose a real risk to people looking to get a short-term loan to tide them over.

“Our evidence shows these lenders are behaving as a law to themselves. Excessive fees and charges are escalating debts and people are worried sick as companies bombard them with texts, emails and phone calls, often overstating their debt collection powers.”

Given the high usage of payday lending amongst young people – a June 2012 survey by Centre for the Modern Family (the Scottish Widows think-tank), 18-34 year olds are twice as likely as the average person to take out a payday loan, at 10% - this should go some way to protecting them from supposedly abusive behaviour by these lenders. However, it should be stated that the OFT is only allowed to exercise these powers for the most extreme of cases.

PENSIONS

The FT reported this week that only 30% of young peoplecontribute to a pension fund, while 40% of these do not know what type of pension they are paying into. This comes from a survey which was released in 2012 by the CSFI.

This figure is more or less in line with the national average, of 33%, this is a worrying figure, especially since other age groups are more likely to have other assets, such as house, or equity shares, and are more likely to have benefited from a generous workplace pension at some point in their working lives. Not only this, but young people are expected to live longer. According to Stephanie Rochford of Z/Yen:

“Recent Office for National Statistics data shows nearly one in four children aged 20 in 2011 will live to be 100 years old but the financial system is dominated by short-term thinking.”

Overall, young people appear to be very naïve about pensions, with little idea about how the basic model works, let alone how much pension fund charges are likely to cost them and how much they can expect from a workplace pension.

This drives home the danger that young people are not engaged with pensions and so are less likely to make active and effective plans to save towards retirement.

EDUCATION AND EMPLOYMENT

This week, Cait Reilly, a 24 year old geology graduate made to work for free in Poundland or face losing her £52 a week Jobseekers allowance, won a major legal battle after judges branded this unlawful.

Reilly’s motivation behind taking the case to court was:

“I knew it was wrong when I was prevented from doing my voluntary work in a museum and forced to work in Poundland for free for two weeks as part of a scheme known as the sector based work academy.

Those two weeks were a complete waste of my time as the experience did not help me get a job.”

Does this have implications for other young people struggling to find work commensurate with their level of skill?

Well, first of all, Reilly was already working, albeit in a voluntary capacity, so she was in fact doing something towards getting into the industry of her choice. Unfortunately, the industry of her choice seem to require that she did unpaid work experience in order to boost her CV, which, in turn, meant that she was dependent on jobseekers allowance.  This means that those young people who do not have the means to pay for this sort of work experience may find it difficult to get into this sort of industry – and will exacerbate the inequality already found in areas such as journalism and certain parts of the music industry.

Secondly, the time she spent working at Poundland was time spent not looking for jobs. At the moment, there are, on average 34 applicants per graduate job, so it is likely that the average young person will have to spend some time getting hired. Perhaps the government should have forced her to sift through job websites for that two weeks, rather than ask her to stack shelves? Sitting in front of a computer at a job centre applying for job after job would surely have been a better use of her time?

Thirdly, as is well-documented, this sort of free labour prevents other unemployed, and unskilled young people from taking on these jobs. The government is essentially giving large companies such as Tesco and Poundland a boost by sending jobseekers to work there for free. It means they have fewer vacancies that they need to pay people for.

Lastly, making someone work for two weeks seems rather half-hearted. If a scheme such as this is really to have any effect, perhaps a longer term rotational scheme, where jobseekers could spend time in different companies, and different departments of companies would be more practical and useful in the long-term, if only to show the benefits of team-work and belonging on self-esteem.

SAVINGS AND INVESTMENT

Since fewer young people are able to buy houses and other assets in recent years, CNW Marketing Research has been looking at ways in which young people in the States spend their money.

Technology has come out on top. According to the blog Spotya.com,

“Just in the last few years, we have all watched the influx of smartphones, laptops, televisions and tablets, to name just a few. Let’s not forget the upgrades versions of each of these which come out every few months. The competition between companies to create the next “it” version of a product/service which Americans are dropping billions on”.

I look forward to seeing more figures on this, particularly how much they spend in relation to what they earn, and whether there is any correlation between this type of spending and different social groups. I would also be interested in learning how much these electrical items depreciate in cost, in order to do a full analysis on how cost effective this type of spending might be.

Spotya.com worries that young people may be living beyond their means, perhaps because of this  spending on new technology.

It identifies several underlying issues which are fuelling a risk of overconsumption by young people, who, it believes are increasingly living beyond their means.

-High levels of student debts, and limited employment opportunities, often outside original area of study.

-Fewer secured loans, such as mortgages or car purchases – as fewer young people are buying either of these.

-Overuse of credit cards on discretionary purchases

-Increasing reliance on payday loans

-There is also the concern that being forced to live with parents for longer hinders the ability to learn important money management skills.

Does this sound familiar to anyone in the UK?

The Savvy Woman's Guide to Financial Freedom by Susan Hayes

When it comes to money management, there is no such thing as one size fits all. Everyone has their own income levels and comfort zone – some prefer to spend, some prefer to save and others try not to think about it at all. According to Susan Hayes though, one thing does hold true for everyone: the better you learn to control your finances, the more your money will begin to work for you, and by extension, the more you will be in control of your life. Hayes’ new book, “The Savvy Woman’s Guide to Financial Freedom”, teaches you to do just that, in a few easy steps.  



There is currently an emphasis in teaching people about personal finance - and there are a great many very useful books on the subject (see my recent reviews on #yourmoney and Money Fight Club). Hayes approaches the subject from a different angle. As a businesswoman specialising in financial training, she argues that in order to be fully in control of your finances, you have to treat every aspect of your life as a business. Understanding the jargon is of course very important, but this should form part of a bigger plan.

We are thus introduced to many tricks of the trade that Hayes has learnt from years of running a successful business. The SMARTER goal-setting technique for instance, stands for,

Specific 
Measurable
Attainable
Realistic
Timely
Extending
Rewarding

and teaches you to work smarter, rather than harder, and this is as true of money management as it is of running a business.  By being specific about your goals, and stating exactly how you are going achieve them, you will be far more likely to make those crucial first moves. For instance, listing all the reasons for building up an emergency fund, will help you visualise what it might take to build up a rainy day fund. By extending yourself, you are constantly pushing beyond what you think are your limits. Not only will this increase your confidence, it will also lead you to bigger, more exciting challenges. In short, if you apply business formulas to your financial arrangements, it should make it much simpler to succeed. 



Cost-cutting then, which forms the basis of any business, should play a huge part in money management. Sounds obvious, but how often do you justify spending the loose change in your pocket 'just because it's there'? And how often would you see this happening in a successful company? You just wouldn't, because everything is accounted for. Hayes includes a chapter on cost-cutting. But she takes it further. After all, we all know that necessity breeds creativity, and we're constantly told that shopping at charity shops is a great way of putting together a new look, but Hayes break it down into purely business terms. If you look at your income as a "gross profit margin", you'll find ways to make the most of your income. It is not always worthwhile to avoid spending altogether: it is better to find less expensive ways of buying the things you have to. 

And unless you do this exercise first, there is little point in earning more, as this behavioural pattern is doomed to repeat itself. You need to be in control. It's not how much you have but how you spend it that counts.

By the same token, you should also be looking to increase your revenue. In other words, perhaps you should be putting the coins you fritter away into an inflation beating interest account. Again this sounds obvious, but what if someone offered you the chance of make your money last to the end of the month and to lose some weight for instance? Working out exactly what you are spending your money on - in this case, it would be chocolate bars - would allow you to cut this excess out of your life. And as if by magic, "the Savvy Woman" has an entire section devoted to calculating your revenue, and maximising your gross profit margin.

Once you have worked through this, you can scroll through the book and find the chapter devoted to increasing your earnings. This mixes a heady range of options, such as getting paid for something you already do (mystery shopping for instance), investing in a high-interest account, or even selling unused household objects online. Hayes tries to dispel the limiting beliefs that many people have, which makes them believe that they can't make extra money on top of their salary. She drums home the point that you should think about what other people might need, and try and build on this. This section is made all the more poignant by the fact that she herself has grown an international company using some of these techniques.

Despite this book having a strong business element to it, often looking at money from a dispassionate standpoint, Hayes also stresses how important it is that emotional aspects are taken care of. She advises talking to friends about financial goals and financial situation (it is amazing how often women who will share so much with their friends keep their financial matters private) - an accountability partner. She encourages positive thinking, and pushes you to work hard to achieve your financial goals, whether they might be having enough money to go on a holiday once a year, or becoming a multimillionaire. 

Whether dipped into or read from cover to cover, this book has most of the answers. Follow Hayes' advice, and you are well on the way to achieving financial independence.

Modern Young Finance: weekly round-up 6

@SophieRobson2

A generation Y-er’s verdict on the latest developments in the world of young people and personal finance.




FINANCIAL EDUCATION

The news many had been waiting for finally came through this week: financial education will now be made compulsory for all schoolchildren - subject to a consultation. Education Secretary Michael Gove yesterday announced a public consultation on the draft National Curriculum, which will run until April 16. Financial education will be taught in both mathematics and "citizenship" education. 

According to consultation documents, the new curriculum will teach pupils "the financial skills to enable them to manage their money on a day-to-day basis as well as to plan for future financial needs".

This news has been greeted with near-universal acclamation by those in the financial education arena, with Pfeg, Martin Lewis of MoneySavingExpert and MyBnk all full of praise for the announcement. However, MyBnk also advised caution, suggesting that Gove ought to go even further and make financial education a subject in its own right.

Those who are interested to see how they might cope if they had to take personal finance lessons should try The Daily Telegraph's quiz. 

DEBT

Concerns about debt are growing north of the border, according to an investigation by The Daily Record. Apparently, nearly 400 Scots a day are contacting the Citizens Advice Bureau (CAB) over concerns about rising indebtedness. The CAB reports that, on average, they owe £15,000 each. And given that the national average salary in Scotland before tax and national insurance is £20,800, it seems that many Scots are in serious trouble. 

The main culprits fuelling the personal debt crisis are credit cards and payday loans, according to the research. 

For young people, the figures are particularly stark. Citizens Advice Scotland (CAS) chief executive Margaret Lynch felt that while debts had risen by 50% across Scotland since the financial crisis began, the number of young people falling into debt was especially worrying.

She said, "four out of five young Scots have been in debt by the age of 21, and a third have owed more than £500."

Yvonne MacDermid of Money Advice Scotland predicted that the problem would only get worse, especially with the threat of a triple-dip recession looming.



PENSIONS

The debate about how to make planning for retirement more effective for young people rages on. This week, the National Post in Canada looked at the issue, and drew similar conclusions to comparable studies in the UK:

-The share of working Canadians contributing to work-place pensions has fallen in recent years. Just under 39% now pay into one, compared to approximately 42% in 1997.

- Young people can now expect to live for longer than their parents and grandparents, so they need to save considerably more to live comfortably these extra years.

- On top of this, young Canadians are beginning their working lives with debt from student loans, just as in the UK, which is putting them off saving until they have paid down some of this. 

-And once they do get around to saving, there are so many other, more pressing things to save for, like a car, or a deposit on a home. So pensions, which are 30+ years away, get put to the bottom of the list.

Does this report have ideas on how to get young people to engage with pensions? The short answer: not really. One thing is clear though: young people do worry about their futures. Unfortunately, they just have too many other commitments to think about, and too little disposable income. 



INVESTMENT AND SAVING


In a measure of just how far rental prices have increased in recent decades, a new report by housing charity Shelter has found that if food prices had risen at the same rate as house prices, the average weekly shop would now cost £453. This means that:

-a chicken would now cost £51.18

-a loaf of sliced white bread would cost £.4.36; and

-a bunch of 6 bananas would set you back £8.49.

This research comes as Shelter warns that housing is becoming unaffordable for millions of young people and families: in fact, a recent Shelter poll found that 59% of British adults now believe that they will never be able to buy in their local area.

Also this week, the Government's English housing study also found that homeownership in England has fallen to its lowest level since 1988. The average house price is now £163,000, which is 6 times higher than the average salary. Not only this, but just one in ten homeowners are now under the age of 35, yet more evidence that young people are being priced out of the market.




PAYMENTS AND TECHNOLOGY

A new survey by Infosys, the technology and business consultancy, has found that younger people continue to worry about mobile banking security. It found that, while 45% of those aged between 18 and 29 use mobile banking, 47% of users and 63% of non-users would be reluctant to use, for instance, a phone camera to deposit a cheque.

This comes on top of recent data by the Pew Internet and American Life project, which showed that younger, more educated people are most likely to use mobile banking services.

If this is the case, it seems that more needs to be done to educate people about the advantages of mobile banking. Not only does it save time for busy professionals, it is also far more convenient than visiting your bank branch, or logging onto your computer every time you need to make a transaction.

Unfortunately though, changes in attitudes towards security are lagging behind the march of new technology. Until more is done to convince the average person - and technologically savvy young people in the first instance - that mobile banking is a safe option, further advances will be some distance away.

Perhaps one solution might lie in altering the payments landscape to let more smaller competitors in? At the moment, people rely for the most part on a handful of providers - 97% of young people in a recent survey revealed that they only used PayPal for online payments, for example - and more competition could hopefully lead to more innovation.



EDUCATION AND EMPLOYMENT

The employment minister, Mark Hoban MP, this week congratulated Max Kirby, who was unveiled as the winner of the HJI-Reed essay prize. The competition was launched last year by the Henry Jackson Initiative, and Sir Alec Reed (of employment agency fame), and invited anyone aged 18 and over to write a 1,000 word essay on ways to cut youth unemployment.

Meanwhile, the Local Government Association is concerned that efforts to get young people back into work are being hampered by excessive red tape and bureaucracy.

It believes that a more local approach could help the young people find work more easily. It criticises what it calls an extremely complicated and expensive system, which has 33 different national schemes, which cover 13 different age boundaries. 

Modern Young Finance: Weekly round-up 5

@SophieRobson2

A generation Y-er’s verdict on the latest developments in the world of young people and personal finance.

 

OVERVIEW

On the whole, news this week in the world of young people and finance has been bleak. Deposits for first-time buyers remain stubbornly high, locking many out of the dream of home ownership. Pension schemes are closing at record rates exacerbating feelings of uncertainty, and it is indicative from CityWire analysis that the current model of pension provision, even after recent reforms, is no longer fit for purpose, at least not for younger people.


However, there may be light at the end of the tunnel. At long last, it looks as if the Education Secretary, Michael Gove MP, is set to make a decision on whether to make financial education compulsory for schoolchildren. I just hope there is room on the already jam packed-curriculum...


 
FINANCIAL EDUCATION


This week, we are set to find out if the teaching of personal finance will be made compulsory in schools. More than 250 MP and peers back the idea, which has been presented in a 150 page report to Michael Gove.

And this motion has an unlikely supporter. Anthony Browne, the chief executive of The British Bankers' Association (BBA), has written to Gove asserting that “making personal finance education a statutory requirement would provide real benefits for children, society and the future of our economy’.

If successful, teaching of personal finance would become part of the National Curriculum by 2014/15… watch this space…

The question of financial literacy is not just hitting the headlines in the UK. Over in Kenya, the Central Bank has called for the private sector to help deal with the high levels of financial exclusion which is preventing many Kenyans from gaining access to financial products and services.




PENSIONS

Pensions headlines were dominated this week by the news that final salary pension schemes are closing down at a record rate. A new report by the National Association ofPension Funds warned that only 13% of new recruits at companies will now get a final salary pension – which pays workers a fixed percentage of their earnings on retirement, is inflation linked, and is guaranteed by the government.

There is also the risk that those who are currently saving into one find it closed down with little warning – it seems that there is little certainty in individual pension schemes.

And what are the implications for young people? First of all, the pension schemes that they may be contributing to are far less generous than final salary schemes. Secondly, they are not necessarily inflation adjusted, and, worst of all, they are at the mercy of the financial “elements”, and future tinkering by the Government. An article by Michelle McGagh in CityWire looked at the behaviour which shapes young people’s decisions about pensions. The main problem she identifies is that the money locked away in a pension fund cannot be accessed until retirement. While this is the most effective way of young people getting favourable returns on their investments, particularly high-yielding, higher risk investments, it can be troublesome if they then find that they need to make an expensive purchase, such as a car or deposit on a property, but do not have access to this capital, because it is locked away in a pension fund. The worry is that they are then forced to borrow at higher rates than they may be receiving from their investments. 





PAYMENTS AND TECHNOLOGY

Research by the National Australia Bank (and Quantium) has found that Generation Y-ers inAustralia are less likely to use their credit cards than other age groups. At the supermarket, for example, they are twice as likely to pay by debit card than credit card. NAB also noted that Gen Y-ers were more focused on saving than spending: according to its general manager Michael Shurlin, “we’re seeing stronger growth amongst the younger generations opening both transaction and savings accounts.”


The CSFI’s recent report was also referenced. This found that two thirds of young people with credit card debt paid it off every month, although not, it appears, without help from their parents: 46% still received help from their parents, and of these, 41% received more than £200 per month.


As an aside, there does seem to be very little data about card behavior amongst young people. Perhaps, with the advent of contactless card payments, more research might be done in this area.



EDUCATION AND EMPLOYMENT


Last week, we reported that although the rate of unemployment had fallen for the population as a whole, amongst young people (aged between 16 and 24) it had actually risen. We now have an explanation for this. It seems that the entire net increase in employment isdown to the over 50s – according to the ONS. Moreover, research by Citi bank raised concerns about the impact that a steadily ageing demographic could have on young people’s prospects over the long term.

DEBT


Anyone who has ever struggled to stay in control of their finances has long known of the negative effect it can have on health. New research has found a clear correlation between debt and depression.


A study by LawrenceBerger, associate professor of social work at the University of Wisconsin-Madison, discovered that every time the amount a person was indebted increased by 10%, depressive symptoms rose by 14%. However, there was good news for younger people here, as the research also found that young people were less concerned by debt – they had more confidence that they would be able to tackle it off over time, or as their circumstances improves, if they moved into a higher payer job, for instance.


Berger also drew a distinction between long-term and short-term debt. Although they were happier about short-term debt, such as payday loans or credit cards, rising levels of long-term debt, including student debt amongst young people, did mean that they were more worried about this type of debt than other age groups.

SAVING AND INVESTMENT

It hardly qualifies as news these days but there are yet more hurdles for young people to clamber over before they can hope to become homeowners.

Analysis by Oxford Economics says that the average first-time buyer will have to put down £60,000 for a mortgage, rising to £110,000 for those in London. And it gets worse. By 2020, it looks as if the average deposit, assuming it is 25% of the total value of the home, will have to be £61,500. The Council of Mortgage Lenders found that 66% of first-time buyers have had to turn to their parents for financial assistance in order to get on the housing ladder.

Book Review: "Money Fight Club" by Lindsay Cook and Anne Caborn

@Sophie Robson



We have known since the financial crisis that there is a gap between ordinary people's financial knowledge and the level needed to understand even simple financial products. Like-for-like products are notoriously difficult to compare, and the financial services industry does not always make it easy for us to do so. Nor has the government made it particularly easy for ordinary people, with its relentless intervention into pensions policy, tinkering with rates of inflation, and latterly, changing the entire regulatory structure, with the breaking up of the FSA. Although it looks as though banks are increasingly being held to account by the government, the media and taxpayers, consumers still need to do their bit to equip themselves with financial knowledge. 

The problem with most people is that, at some stage in their lives, they have missed out on the basics. Numerous studies have found that young people feel confused and lack confidence when faced with ‘money issues’. Jargon holds many back: one study, published by MRM, found that young people are more likely to understand a foreign language than some basic financial terminology. Sadly, this can have a detrimental effect when it comes to making important financial and consumer decisions, with all too many people feeling powerless to challenge banks and businesses, and too willing to give up when faced with injustices, such as misselling.

Luckily, a new e-book; "Money Fight Club", by Lindsay Cook and Anne Caborn, arms them with enough knowledge to navigate their way through any purchase. This is a concise guide to knowing your rights, whether you are buying a loaf of bread, heating your home, or opening a savings account, and should be regarded as a blueprint when making any major consumer decision.   




"Money Fight Club" assumes little prior knowledge, and covers a wide range of scenarios. It teaches you how to make a complaint, by email or by phone - looking at body language and tone of voice for face-to-face issues and for written complaints, stylistic aspects, such as who to address it to, and how out to find details like this. It you through the psychology of merchandisers: apparently, giving you too much choice, and offering confusing 2 for 1 deals is a well-known marketing technique - confusion marketing (should have guessed by the name really). 

There is a much needed section on knowing your rights, which lays out relevant legislation on important matters such as the Sale of Goods Act, Trade Description Act, Consumer Credit Act, Distance Selling Regulations and the Data Protection Act, all of which govern where you stand if a purchase you make turns out to be less than satisfactory. Moreover, there is a comprehensive list of schemes and regulators - from the Financial and Pensions Ombudsman Schemes to Ofgem (the energy watchdog), Ofwat (water) and Ofcom (communications - so TV, postal services and satellite companies to name a few). Everyday decisions such negotiating household bills are also dealt with in detail. Tips are given on how to avoid paying extortionate charges on gas and electricity - or at least how to anticipate these bills more easily. As for water, well, it seems that this was charged at a fraction of the cost of today's prices before privatisation took place in the 1980s... 



But this book comes into its own when dealing with financial matters. An ongoing concern is that consumers are not given access to the information that would allow them to fight their corner successfully. "Money Fight Club" does a great deal to put this worry to bed. It helps the reader through the array of financial products they are likely to encounter: pensions, savings accounts, current accounts and credit cards to name but a few, and demystifies the language that holds ordinary customers at the mercy of powerful financial institutions. It takes both a historic look at financial services, running us through recent misselling cases, such as PPI, as well as explaining how to avoid getting into similar situations in the future, and making your money work harder for you.

This is exactly what we need in today's world: a clear, concise guide to help people take back control of their finances. As the authors assert, the fightback has indeed begun.       

Modern Young Finance: Weekly round-up 4

@SophieRobson2

Overview

There was bad news this week for the UK economy, as it was revealed that it shrank 0.3% in the last three months of 2012. This led to renewed concerns that the UK could slide back into recession. It remains to be seen how this might affect young people in the near future, although it is difficult to imagine how they could collectively be much worse off, being disproportionately affected by almost every policy decision and economic twist and turn.

The latest ONS figures on unemployment underpinned this. The overall unemployment figure fell by 37,000 to 2.49 million - the lowest level since May 2010. Unemployment figures for those aged between 16 and 24, on the other hand, actually rose by 1,000.

However, there is some positive news for current account holders, as the OFT drew up new recommendations in its review of bank current accounts.

And there are more news and views from experts on the future of financial education.



Financial Education

The debate about making financial education compulsory in schools rages on. A week after Thomas Docherty MP presented his private members' bill to Parliament, the Financial Times dipped its toe into the debate (no link here due to FT copyright, but click here to access the website. It looks at a school in West London where very sophisticated financial education lessons take place. Pfeg, MyBnk and DebtCred are all mentioned. As I write, this, the All Party Parliamentary Group for Financial Education for Young People's 150 page report is being looked over by the Department for Education.

Meanwhile Redington, the independent investment consultancy, has launched RedStart, a financial literacy and entrepreneurship education programme, which aims to "build confidence, drive and ambition in young people in London". It hosted its first crash course with a group of 12 and 13 year olds from Lister Community School in Newham, East London. See here for more information on the scheme.



Investments and savings

Last week, I discussed options for first time buyers looking to get on the property ladder, particularly Barclays new Family Springboard scheme, which allows buyers to get a decent mortgage with just a 5% deposit... providing their parents - or another relative - are willing to link some of their savings to the loan.  This week, The Guardian has laid out more alternatives to Family Springboard, including Lloyds TSB's Lend a Hand scheme (which requires the relative to put up to 20% of the house value into a linked account, but in return for a slightly better mortgage rate - as little as 3.99% for a Lloyds current account holder). Encouragingly though, there seem to be a number of similar deals out there as well, notably the Aldermore Family Guarantee Mortgage, where you can get a 100% mortgage, as long as a relative can guarantee borrowing above 75%.

Anything that helps young people get in control of their finances, and gives them the chance to escape the woes and insecurities of renting, has to be a positive step. However, I do worry that this will exacerbate the divisions between the haves and have nots - and lead to even more disaffection amongst those from less wealthy families.

Banking

The Office of Fair Trading has raised concerns over the limited choice of personal current accounts. Its latest review found that banks are not doing enough to make accounts good value for money for consumers. It also criticised the larger banks' hold over the majority of the market: it found that Lloyds, RBS, Barclays and HSBC make up 75% of the market (although it did acknowledge newer entrants, such as M&S Bank and Metro Bank). The news that the Co-operative bank is to close 37 branches across the country does not help matters.

Young people stand to lose out if banks remain uncompetitive and ill equipped to meet customers' needs, especially if they find it difficult to change accounts easily.

Encouragingly, the OFT also included some recommendations in its review. These include exploring the option of retaining account numbers, even if a customer moves to a new bank (in a similar manner to mobile phone numbers), making annual summaries of accounts available throughout the year rather than simply being sent one a year through the post (to make comparing accounts easier) and better advertising of a text alert system which lets customers know when they are nearing their overdraft limits. I look forward to seeing these recommendations being put into practice - after all, they appear genuinely innovative and relatively simple to implement across organisations. (Incidentally, an earlier blog on the Fairbanking Trust highlights some of the most customer-centric accounts on the market today).

Employment and Education

With the news from the ONS that youth unemployment has risen, and a study by the IPPR think-tank that these figures could increase even more over 2013.

Luckily, there is some hope, as a new initiative is about to be launched by the Financial Skills Partnership. The GetinGeton programme is an industry led e-learning project aimed at giving 16 to 19 years the necessary skills and knowledge to break into the financial and professional services sectors. Young people taking part will have the chance to take part in online learning modules and access to professionals in the industry who will be on hand to have e-conversations with them about careers and working in the industry.

The FSP is still looking for e-mentor volunteers for the scheme, which will begin in April 2013. Click here for more information on signing up.

Modern Young Finance: Weekly Round-Up 3

@SophieRobson2

Overview

 

Well, 2013 is finally with us and the first round-up of the year is dominated by pensions and financial education. Steve Webb MP, the Pensions Minister, revealed plans for a new, simplified payment system, which, he hopes will make pensions fairer for low earners and working mothers. We, in turn, look at how it might affect younger people.

 

Also this week, there has also been much debate centred around financial education: a private members' bill by Thomas Docherty MP was introduced on Friday Jan 18, although the formal implementation of financial education lessons in schools looks to be some way off. (You might want to take a look at the blog I published earlier this week in response to the detractors of this initiative.)

 

Other topics this week include a new US study on credit card debt amongst young people, and the implications it may have on similar problems in the UK, and the pummelling that savings rates are getting at the moment as a result of the Funding for Lending scheme. We hope this won't encourage younger people to stick with saving for the short term at the expense of effective long-term financial planning.

Pensions
 
The Government's White Paper announced on Monday unveiled sweeping new changes to the basic state pension. Under the new rules, which are due to be implemented from April 2017, all new pensioners will qualify for a 'flat-rate' payment of £144 per week. The aim is to simplify pensions - currently, the basic rate is £107, with various means-tested top-ups. 
 
It should also make retirement planning easier, especially for young people, who stand to benefit more over time from higher risk investments than those closer to retirement. A flat rate for everyone and the disappearance of pension credit for low earners will circumvent the need for means testing.  Under the means tested system, the level of savings an individual had was amongst the factors taken into account when considering how much pension credit to be awarded. This meant that, perversely, lifelong savers risked being penalised. This should change - and anything that encourages financial prudence and forward thinking ought to be considered a good thing. 
 
But, unfortunately, where young people are concerned, simple does not always mean better. Many of those retiring (read the IFS's analysis here) after 2050 could actually be worse off under the proposed new system, as they will have to work longer - the retirement age is set to increase to 66 from 2020 and 67 from 2026 - and will, from now on, have to pay higher National Insurance contributions. 
 
You can read the White Paper here and anyone still unclear can contact the Pensions Advisory Service
 
Debt 

 

US research has found that young people are paying off credit card debt more slowly than previous generations - and this has implications for their UK counterparts. The study, from Ohio State University, was based on 13 years worth of data, and involved respondents aged between 18 and 85 years of age. It found that not only do those born between 1980 and 1984 have substantially more debt than their parents' and their grandparents' generations, they are also paying it off more slowly - about 24% slower than their parents, and about 77% more slowly than their grandparents. This is coupled with the fact that younger people have higher levels of student debt, so may find it harder to pay back unsecured debt.

 

The authors were concerned that this could encourage a future debt crisis - when these young people become elderly, it is likely that they will still be indebted.

 

However, the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act has led to higher minimum repayments on credit card debt, and the authors of the report predict that this could jolt younger people into paying their debt back more quickly. This is because it will help to prevent interest payments from building up, and may even eliminate debt several years early. The UK Government looked at increasing minimum payment requirements on credit cards back in 2009, see the Consumer White Paper here, but little has changed tangibly over here, despite strong support from campaign groups. 

  

Savings

 

We'll have to wait to see new developments unfolding in 2013. There does seem to be an emerging new pattern though, of young people looking for savings accounts which offer easy access to their savings. This is no doubt because of the uncertainty surrounding pensions and savings at the moment.  

 

One of the chief threats to interests rates and hence long-term savings for young people is the current uncompetitive nature of savings accounts. We are likely to see more and more savings accounts closing, and interest rates on savings staying low as the Goverment's Funding for Lending continues to batter returns. The Funding for Lending scheme was introduced to give banks access to cheap money to encourage them to lend to consumers - primarily to help more (young) people onto the housing ladder. While it has led to a modest increase in mortgages taken out over the last quarter, it has had the unintended consequence of cutting rates on savings accounts. An article published in the Daily Mail says that nearly all rates are now below 3%, since banks have less need to raise capital in this way.

 

This article also touches on an ongoing Financial Mail campaign, to double the cash ISA limit to £11, 280 (which is currently the combined limit for cash and stocks and share ISAs). Currently, you can only save half the maximum allowance in cash, even if you don't want to invest in stocks and shares. You can read more about this scheme, which is backed by a number of banks and building societies, as well as MPs, such as Alun Cairns, here.

Investments

 

Unfortunately, not much change here. Would-be first time buyers are still being frozen off the housing ladder, and saving for deposits is still daunting. However, an interesting article in the Evening Standard this week pointed to a new loan (this one is from Barclays, although other major banks will surely follow) which allows parents to use their savings to help their children get on the property ladder. Rather than having to use their savings, like other guarantor mortgages, parents are able to keep their savings in a separate deposit account. They will receive interest on this, and can withdraw their cash after three years, providing their children stay up to date on their mortgage repayments.  
 

Financial education 
 
A new report submitted by the All Party Parliamentary Group on Financial Education for Young People to the Department of Education called for more personal finance education for schoolchildren. Chair Justin Tomlinson MP said "We feel we have a duty to make the next generation of consumers be in a position where they can make informed and savvy decisions." This tied in neatly with a private members' bill (read here) launched by Thomas Docherty MP on Friday in a bid to make financial education part of the national curriculum.
 
Tomlinson and the APPG were perhaps also inspired by the unlikely news which emerged last week that bankers could soon be giving financial education to young people. Plans under consideration could see representatives from banks including Lloyds, Barclays and RBS giving financial advice to schoolchildren from 2014. Speaking for the APPG on financial education again, Justin Tomlinson, explained that children could benefit from the greater depth of knowledge of these bankers - after all, teachers have only been trained to "a certain level" in financial education. In my opinion (read my recent opinion piece here), anything that brings the educational world and the business world together is beneficial: after all, it is surprisingly easy for those in the financial services sector to overestimate the level of financial knowledge many 'lay people' have, and vice versa.
 
 (You might also be interested in reading about Pfeg's centres of excellence programme, which trains teachers to teach financial education). 

 
Education and employment
 
More encouraging news here. A survey by High Fliers suggests that there could be 2.7% more jobs for new graduates compared to this time last year. However, the report emphasises how crucial work experience is for graduates in finding employment - graduates with no work experience at all would be unlikely to get places on the most prestigious graduate schemes.