What I wish I knew about money when I was 18
Like many young people across the world, in little over a year, I will leave the comfort of my secondary school bubble, and embark on the next stage of my life — university.
I hope that my hard work will reward me with a degree and the skills I need to land a great job that pays the bills (and a Manchester United season ticket).
While I am full of excitement about the opportunities that lie ahead, I am also acutely aware that when I graduate, aged 21, I will be in the red by at least £40,000.
The fear of being so debt ridden is nauseating in itself. More worryingly, I don’t really know what to do about it — or what it means in the long term. And when I finally emerge into the world of work, how will I repay my debts and at the same time, make sure I have enough for a rainy day, plus start saving for a property and a pension?
Although I consider myself to be switched on, I wouldn’t know where to start. But why would I? At school, little effort is made to ensure we know how to manage our finances and make the right decisions about money. I’m very fortunate to have parents who have encouraged and supported me — but not everyone is so lucky. And while there is loads of free information online, it is confusing and often contradictory.
Nevertheless, we all need to take responsibility — and I’m trying to do my bit. When I was on work experience at the Financial Times last year, I pitched some ideas about how the FT could engage with secondary school students. The FT board liked my thinking. Now, every UK secondary school can sign up to get free access to FT.com and a weekly email of articles that will appeal to 16-19-year-olds.
As young people, we have so many financial and political challenges to overcome in our future. To find solutions to these problems, we need to be much more engaged with the world of money — and the world of politics than we are now.
I really hope my fellow sixth-formers across the country will take the initiative and use the FT to understand the world around them better, and make more informed money choices.
Working in the FT’s London office for three weeks this summer was a great opportunity to put this to the test. Claer Barrett, the FT Money editor, told me to ask the paper’s famous writers and commentators two questions: what was the best piece of financial advice they received when they were young, and what piece of financial wisdom they would pass on to young people like me.
So for all you sixth-formers, university goers and everyone else, here is a selection of thoughts which resonate with me and, hopefully, will be useful tips for you too.
Editor, Financial Times
I have a phobia of debt. I couldn’t bear to see my debt increasing and throughout my life I’ve not taken on very much debt at all. I took on this attitude from my father, who grew up in the 1930s during the Depression. I’ve been a saver because I’ve always liked to have scope to manoeuvre if things go wrong. I believe in savings and I don’t like debt. In fact, I was so risk averse that I didn’t buy any shares until I was 40. This was probably a mistake, but I wasn’t educated about the stock market. I see a value in investing because as people get older you really need to care about your pension, and saving and investing is really important.
I did work in the holidays, my parents did not just give me money. I worked in a valve factory, for Sainsbury’s in Victoria and in Germany as a student. I also worked in the Sarsons Vinegar factory in Vauxhall — six weeks of carting vinegar around in barrels. No fun with glandular fever, but I did it just to earn money.
Young people have to understand that they need skills. Have something to offer an employer — learn a language or become a coder. You need to have something where the employer understands you have something special. Also, do your best to get some financial independence. Don’t just expect your parents to give you money.
Chief economic commentator, Financial Times
The best piece of advice I ever received? That’s simple: get the best education possible. And that would also be the financial wisdom I would pass on to young people. Otherwise, I don’t think I ever received any financial advice. It is a topic I simply didn’t think about (and nor did anybody I knew).
But my mother had an instinct: buy property. That worked for her. I might add that my parents were born in 1910 and 1918: so they were children of the Great Depression. They were as a result very cautious and thought stocks and shares were incomprehensible and dangerous. All their friends felt the same: financial markets were simply what caused mayhem. And now we know they were basically right!
Head of investment, Woodford Investment Management
The best financial lesson I learnt was to question the notion that markets are efficient. Economics is the study of human behaviour as much as anything else and I’m not sure this can be explained in the same way that you can describe how ice crystals are formed.
I believe the best way to add value is to focus on fundamentals (by which I mean the real performance of a business and the real activity in the economy) and focus on value, not price. In the short term the market can be profoundly inefficient, and obsessed with things that have very little relevance to the long-term success of a company or an economy.
Entrepreneur and former judge on Dragons’ Den
The decisions you make when you leave school define the rest of your life. So, in terms of making the right choices for your financial security as you get older, my best advice is to do something you have an interest in and are passionate about, as you’ll be working for a long time.
I was lucky enough to find my passion early — in retail — and I have done well, but, most importantly, loved doing it. Ultimately, if you don’t have an interest in what you do, it will be so much harder to make money from it.
The best piece of financial advice I’ve ever received is actually from my mother — that “cash is king”. It’s the number one rule that I’ve lived my life by. It helps you understand the value of money and see that everything else is smoke and mirrors. If the cash runs out, it’s like a heart attack for you and your business. Keep that front and centre of your mind and you will have financial security and not be struggling to pay the bills.
FT Money editor
Today’s 18-year-olds need to understand how student loans work. They may be called loans, but the system works like a graduate tax. Put simply, the government expects you to repay your tuition fees and maintenance loans by paying a higher rate of tax for 30 years (after which, your debt is wiped). How much you repay depends on how much you earn.
If you left university and never got a job paying more than £21,000 a year, you wouldn’t repay a single penny. But armed with a degree, chances are that you will earn comfortably more than that. When you do, the amount you repay will be 9 per cent of the amount you earn above that £21,000 threshold (not 9 per cent of your total income).
For example: you’re earning £30,000 per year. You will repay 9 per cent of £9,000 which is £810 per year, or £67.50 per month — about the same as a monthly contract for the new iPhone. When your wages rise, so will the amount you repay — but it will always be 9 per cent. Unlike other forms of debt, if you lose your job, get ill, stop work to have a family, or take a year out to go travelling you won’t have to make repayments (as long as your income is below that £21,000 threshold).
Yes, you will rack up more interest. But as the debt is wiped after 30 years, this probably won’t affect you in the long run. In fact, more than two-thirds of graduates will never repay their entire student loan, according to analysis by the Institute for Fiscal Studies.
For now, try to view your student debt as an investment in your future career — and make sure you wring the maximum value out of the experience.
Do you know what you want to study, and where a degree in that subject could take you? When I was 18, I wasn’t sure either. So I worked full-time for two years before going to university. I was a wayward sixth-former more interested in playing music in bands than studying, and selling Apple Macs for two years (before they were fashionable) rubbed off some of the rough edges. When I finally got to university, it was what I really wanted to do — I joined the student newspaper, got a first in English Literature and landed my dream job as a reporter soon afterwards.
That first job meant I had some savings behind me — and was able to work through hangovers.
FT columnist-turned maths teacher
No one ever gave me financial advice when I was growing up. In our family we never discussed money. But I learnt from both parents that spending was not something to be embarked upon lightly. To take a taxi was considered immoral. Eating out at the local curry house was a huge treat.
This turned out to be useful financial advice of an indirect sort. Even though I am a profligate spender by my parents’ standards, in my heart I still dislike excess. I’m still not a taker of taxis and I have never been overdrawn.
The advice I would pass on to today’s 18-year-olds is not much different. The single most important thing for them to learn is how to budget. They must understand where the money comes in and where it goes out again.
The first step is to have some idea about the value of money. The worst way of getting this idea is to intern for nothing while getting parental subsidies. The best way is to do a job on minimum wage. Then they must understand exactly what they spend money on, and how best to economise should times get harder. They should know all this in broad terms, but not obsess over it. My second piece of advice? Money is quite boring. Don’t let it rule your life.
From my mother — keep it simple. One of the greatest causes of financial disaster is over-complication. Too many people have too many financial products in too many places, and fully understand too few of them. This is confusing and stressful.
Complicated schemes developed to avoid tax — deeds, trusts, odd investments in alternative assets — are the worst. And the more complicated things get, the more the financial services industry is likely to charge you. The UK financial system is far from perfect (understatement alert) but for anyone who wants to create their own simple, low-tax system it is largely good news.
The things you need to find out about and get are:
- A Sipp (self invested personal pension) or a workplace pension you can transfer into a Sipp later;
- A stocks and shares Isa;
- An emergency cash savings account;
- A free current account
- One credit card.
Peace of mind is intimately connected to straightforward understandable finances and (crucially) low levels of admin.
FT Money Mentor columnist
My parents’ catastrophic mismanagement of their financial affairs was the best financial lesson I ever had.
My father inherited a small fortune, yet never owned his own home. He and my mother ran a rented corner shop. To their friends, they seemed successful, the life and soul of the local Conservative Club — nice clothes, new cars and a fair number of holidays. But every month, their overdraft grew.
When I started work at the local newspaper, I opened a savings account. I was paid every Friday — and I saved half of my wages every Friday for the next three years. I was determined that I would not be reliant on anyone for my financial security
When I moved on to my next job, I had saved enough for a deposit on a modest house in Sheffield. I charged my future husband rent when he moved in (and I saved that too). When we moved to London, we had enough for a deposit to get a mortgage for a two-bedroom flat.
Presenter of BBC Radio 4’s Money Box
The best piece of advice I was given was from my father who had a strong belief in pensions — even when I was young in the 1960s. He often mentioned the good pension he would get (as a teacher). When I got my first jobs, I persuaded the small employers I worked for to implement a pension scheme. When I became self-employed I continued to pay as much as I could into a pension and I reaped the benefit of those when I reached 65. I was also brought up to believe in the value of owning your home.
Today’s 18-year-olds need the same advice. Avoid debt (the student loan is not debt, it is a graduate tax). Buy your home — and a freehold house, not a leasehold property. If that means moving and travelling a distance to work, it is worth the time sacrifice. Pay as much as you can into a pension. Be highly sceptical about the financial services industry. And never gamble.
Chief executive, Financial Times
An early important lesson I learnt as a teenager was not to run out of money travelling across the Greek islands — and being forced to scavenge.
Actually, it’s a serious point, overspending and running out of funds is no fun and takes away your choices. So budget smartly and carefully.
The advice I would give now is to beware of the herd. By the time you join a bull run, the bears will probably be on the rise.
Above, all, don’t put all your eggs in one basket. Diversify.
Former pensions minister
The best financial advice I received when I was young was about the power of investing for growth over the long term rather than just saving for a rainy day. A good lesson I learnt was that you should keep investing when markets look weak, as you can get better value when others are selling than when everyone else is buying.
I would tell today’s 18-year-olds not to lose faith in saving and to put money aside for their future by both repaying debt and building up assets as soon as they can. Don’t listen to “get-rich-quick-scheme” salespeople — they will usually be trying to sell you something that is in their interest, not yours. The best thing you can do is learn about financial planning — making a proper plan on how you can spend and save wisely. I know it may sound boring, but it really is best to plan your finances and make sure you understand how investment and savings work, the different ways of saving, the difference between saving for a rainy day or for a house deposit, versus investing for the long term. Make sure you plan when and how to use the many advantages of pension saving to ensure you will have money for the longer term.
FT’s Family Money columnist
I wish someone had told me about the power of compound interest when I was 16 and got my first pay cheque working as a programme seller at our local football ground. It is essentially earning interest on the interest you have already been paid, meaning your savings will grow like a snowball rolling down a hill, picking up extra little snowflakes of interest on the way.
If you put £100 in a children’s savings account with a 3 per cent annual interest rate (and, yes, there are several available) after 10 years you would have £135, for hardly any extra effort. Start saving early, and keep up the savings habit, and you will be well ahead of your peers.
Don’t wait for your first pay packet. Ask your parents or family members to give you money instead of a present for your birthday and get that snowball rolling. If you’re under 18, your parents could invest in the stock market on your behalf using a Junior Isa. Even if you only have a few pounds to put away every week, the earlier you start saving, the longer your money will have to grow in value.
FT Rich People’s Problems columnist
In any financial decision to be taken, there are only three scenarios worth thinking about. Best, worst and most likely. So be bold, but not flippant or reckless.
If you strongly believe you are right and a deal is right for you to do, then do it. Don’t allow other people to blow you off course. Similarly, don’t dismiss what others say because their experience and advice could be worth listening to.
It’s a fine art to juggle advice and decisive action. Doing nothing and taking no risks, while inevitably a safer route, will leave you with nothing. If you are unsure, write down all the pros and cons and how you feel on balance. Then sleep on it. In my experience, you’ll wake up in the morning and know whether to go for it — or not!
Group chief executive of Lloyds Banking Group
As a partner of the FT for Secondary Schools initiative, and someone who works in banking, the best piece of financial advice I would pass on to an 18-year-old is to plan and save for the future, as you never know what may be around the corner.
Set long-term goals, using small steps. Whether that is opening your first bank account or, perhaps in time, saving for a deposit to buy your first home or set up your first small business, it is our job to help young people grow and thrive to achieve their ambitions.