Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest
When I left school a little over five years ago, I knew next to nothing about investing. I’d never heard of an ISA, I had no concept of ‘saving’ beyond keeping money in a bank account, and I thought the term ‘investor’ was reserved for the Deborah Meadens and Peter Joneses who appeared on Dragons’ Den.
Perhaps I was uniquely uninformed. But, given how I have since become resident financial expert for both my friends and family (in the past week I’ve had strikingly similar conversations with a uni friend and my grandparents about opening an ISA), that seems unlikely.
Some may also argue that the current crop of pupils is better informed than mine was. Again, I have my doubts. What I know for certain is that it’s vital they learn how to save for their futures.
Children have, on the whole, avoided the worst of the pandemic’s health implications, but the financial (let alone mental) burden it’s laid on their futures is a far different story.
According to the OECD , every additional year of school contributes to a 7.5% increase in income across sampled countries. Time spent away from school has the opposite effect. A COVID-induced loss of a third of a school year could mean a 2.5-4% hit to affected pupils’ income over their entire life. It could also result in 1.5% lower GDP on average for the remainder of the century.
That’s just the impact of missing school. Consider also that more than half of pandemic job losses in the UK have been among under-25s, with women disproportionately affected compared to men. The next crop of school leavers and university graduates will enter a job’s market already over-populated with older cohorts still looking for work.
I’ve seen my sister and many of her friends struggle - a few made last-minute applications for masters programmes (and consequently raked up even steeper student debts) upon realising the lack of job opportunities. It’s not been much easier for my own friends. Let’s not forget too about ever-rising house prices, lower real wages, older people working longer, and so on.
In truth, young people now need all the help they can get. That’s why it’s crucial we teach them the importance of saving and investing early on.
Try talking with your child about investing - I guarantee you’ll be shocked by how little they know. Financial health and money matters just aren’t discussed in schools.
The one difference I can think of between my generation and theirs is the rise of young day traders fuelled by easy access to social media. I’m not sure if this is a help or a burden.
Episodes such as the recent GameStop saga may engage young people, but they also misrepresent the purpose of investing. They sell it as a get-rich-quick scheme, a gamble, and thrill, on the stock market. In reality, investing is far more boring. It’s the ultimate get-rich-slow scheme.
I’ve had multiple conversations recently with friends who hold shares in GameStop and AMC, yet don’t know what a fund is. Great, they’ve started investing, but realistically this will do little for their financial futures.
It’s important young people understand the basics first. Clearly, it’s difficult to cover everything in one conversation. So, think about some principles. Try to detach investing from the realm of rich professionals and explain it simply as a way to save for the future. Basic mantras, like setting aside 10% of their income for life, could help.
A crucial point is compounding - the earlier you start saving, the more time your money has to compound its interest, potentially leading to greater returns in the future. The one thing going for young people when it comes to investing is their age.
Obviously, many will see saving for the future as playing second fiddle to getting through the present. Consider helping them on their way with a Junior ISA (JISA). Parents can contribute up to £9,000 per year into a JISA. Once the child turns 18, it will automatically be converted into a standard ISA. Given how long it took me to bother setting up my own ISA, there’s value simply in having one done for you.
The same tax year deadlines apply for a JISA as a normal ISA, meaning you have until midnight on 5 April to make contributions for this tax year. That’s the Monday after Easter weekend, so make sure you send any paper applications by post early this year to beat the deadline, or even easier, do it all online.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.