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Money, Money, Money

As UK Savings Week approaches, CEO Kevin Gray shares the top financial wellbeing tips he’s shared with his daughters – and maybe a few dance moves thrown in:

I’ve just returned from a fantastic weekend in London where I was lucky to experience ‘Mama Mia – The Party’ with some friends.  The venue at the O2 consisted of a realistic mock-up of a Greek taverna where over a four-course lunch, and together with hundreds of other attendees, we enjoyed a drama being acted out around us accompanied by music, dancing and the singing of lots of Abba songs.  Merry making was the order of the day and audience participation was actively encouraged.  The fast moving and often humorous plot revolved around the owner of the taverna (Nikos) and his daughter (Konstantina). Konstantina’s love interests win the day over Nikos’s well intended, but ultimately over-zealous, desire to protect his daughter.  This of course gave a great excuse for more partying to even more Abba songs.  It was all such good fun!

As a father to two daughters myself, I actually felt a little sympathy with Nikos. It’s natural for parents to try to protect, help and advise their children where they can.  Although I’ve so far avoided Nikos’s mistake of offering advice to them on matters of love, I have stuck to much safer ground and offered them a trilogy of thoughts around matters of personal finance that they might wish to consider.  My advice to my girls was guided by my own experiences and mistakes and it might not be appropriate for everyone however.

Money thought 1. My first pearl of wisdom to my girls was to recommend that they try to ‘budget to save’. Many people go about saving in the wrong way by attempting to save what they have left at the end of each month after they have (knowingly or unwittingly) prioritised spending on everything else in front of saving.  That approach is usually doomed to failure and often results in comments like ‘I can’t afford to save as I’ve nothing left at the end of the month’.  Successful saving does require saving to be given higher priority over some forms of spending and a budget is a good place to start.  Adopting the ‘little and often’ approach avoids much of the pain that can come from trying to save too much too quickly.  This method is typically supported by bank and building society regular savings accounts which require savers to adopt regular saving, but which typically offer some of the highest interest rates that are available in the marketplace.

Money thought 2. My second piece of advice that I gave was to try and take advantage of savings schemes that come with some form of tax wrapper or government bonus.  These include many forms of Individual Savings Accounts (ISAs). I suggested to my daughters that they should seriously consider saving for the long term via a Lifetime ISA (LISA) simply because the annual government bonus that is offered with these is equivalent to a 25% interest rate.  This is a bit of a ‘no brainer’ and I only wish I was young enough to open one.  The other main form of saving that comes with tax advantages is saving into a pension. For every £80 that a standard rate taxpayer saves into a pension, the government will top up their pension with a further £20. The tax advantages of pension saving are even better for higher rate or top rate taxpayers.  Personally, I think that you cannot start saving for your retirement early enough and that, if at all possible, increased contributions to pensions should be considered earlier in people’s working lives.  The earlier a pension fund starts to build; the more secure a person’s retirement will be…and most probably the earlier their retirement will be too.  Pension saving via payroll deduction is also psychologically easier as you also don’t miss the money that you don’t ever get paid into your bank account.

Money thought 3. The third recommendation that I gave to my daughters was to try to become home-owners as early as possible.  To do this I recommended that that they should also look at innovative ways that exist to get their first foot on the property ladder.  These include using ‘joint borrower/sole proprietor’ arrangements and use of parental collateral (cash and property) to support loan applications.  These mechanisms can drastically improve loan affordability and can reduce the requirement for large deposits.  Taking in a lodger can also improve the affordability of mortgages or increase loan sizes.  Bath Building Society (BBS) specialises in offering mortgage products using all of the above features.  Please contact us if you would like more information on our mortgage and savings products.

I fully understand that the financial challenges of modern life are many for young adults, but I do hope that my own girls consider adopting my ‘money, money, money’ trilogy of recommendations.  If they do put them to good work, I have no doubt that their futures will be secure.  They might even be able to afford to take their old dad to a real Greek taverna one day.  I live in hope!

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