How the next generation can tackle financial challenges

It’s tough these days for the younger generation – getting on the housing ladder is an impossible dream for many, while gaining a university education can result in years of debt.

With low interest rates offering poor returns for savers and a state pension retirement age being pushed back, it’d be no wonder if young people felt stressed.

Each generation faces its own financial challenges, but many parents will share their offspring’s anxiety about the future.

Our animated guide compares the financial challenges of today with the past:

How parents can help their children…

So, what can you do as a parent that will help give your child a sound financial footing as they progress into adulthood?

NFU Mutual Chartered Financial Planner Sean McCann says there are plenty of options to consider.

“The increasing cost of university and helping children onto the housing ladder are hot topics for many parents. The earlier you start to plan the more options you have available.

“The first step is to establish when the money will be needed. You’ll then need to consider how much of the cost you’ll be willing or able to fund from your regular income when the time comes and identify any lump sums and / or current income that could be invested now to help meet the future costs.”

Sean added that being tax efficient can really help when it comes to your investments.

“A key part of maximising investment return is to make sure that any tax loss is kept to a minimum. Making use of your ISA allowance (£20,000 per person in the current tax year), will protect any growth from income and Capital Gains Tax.

“The ability to access lump sums from personal pensions from age 55 gives many parents another option when it comes to helping their children through university and onto the housing ladder.”

And acting now has the potential to reduce an Inheritance Tax (IHT) problem while also helping the next generation.

Sean added: “Gifting money to children can help reduce any future Inheritance Tax bill. You can give away £3,000 each tax year free of IHT, most other gifts will be free of IHT if you survive for seven years. Any regular gifts you make can be free of IHT immediately, if they are made from income and don’t impact on your normal standard of living.”

…how young people can help themselves

Of course, relying solely on mum and dad shouldn’t be the only tactic – there are plenty of things younger people can do to help themselves.

When it comes to saving for a deposit on a home, Sean says: “It’s important to take advantage of the help on offer. The Lifetime ISA is designed to help you build up a fund from age 18. Every £100 you pay in will attract a Government bonus of £25. You can invest up to £4,000 each tax year which will attract a bonus of £1,000. The full value of your Lifetime ISA can be used as a deposit on a first home. If you withdraw for any other reason before age 60, the Government bonus will be lost.”

Retirement might seem a long way off, but it’s best to start a pension early.

“Making an early start makes it easier to build up a meaningful pension fund, giving you more choices in the future,” said Sean.

“For every £80 you pay into a pension, the Government will add another £20. If you’re working, it’s likely that your employer will also be obliged to contribute.

“Getting the right financial advice can help you understand all the options open to you.”

You need to know

  • The value of pensions and investments can fall, and you may get back less than invested.
  • The value of tax benefits depends on individual circumstances, and may change in the future.
  • The age you can access your pension will change to 57 in 2028
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