Financial education for a teenager

wittenhamclump

My grandson will receive about £200,000 in investments from a bare trust when reaches 18 next year.

There are no restrictions on what he does with this but I would like to arm him with practicalities and some financial education provided by a disinterested third party.

Suggestions please.

elsien

what’s the starting point? Does he have wages from a part time job, pocket money, savings account already that he manages himself?
Any education at school?

tom192

I would start introducing him to how interest on savings works, on 200k for an 18 year old the monthly amount won't be insignificant that he will earn. If he keeps all the money he will have a nice regular income to support any work he does.

Obviously need to start getting it out of the way of the tax man where possible and possibly allocating a part of it for investing for the future.

It will give him such a head start in life if he blows it wrong he will never get the chance again so it's important he understands this. I'm thinking along the lines of pointless wasting money on a flash car that he will likely crash etc

wittenhamclump

Pocket money and part time odd jobs but he's still at further education college. Not much meaningful input from school/college before this on fin ed.

Feel that someone other than parents and grandparents giving advice would carry more weight but it needs less of the investment advice than the consequences of taking the wrong decision. A bit of a balancing act.

tacpot12

Involving him in reviewing the investment before he is 18 will start to build his knowledge.

Once he understands the value of compound interest he is well on his way to understanding how accumulation funds work.

He needs to understand about the risk of spending it all, but also about inflation risk, and the risk of selecting bad investments, including the risk from high charges. The point about understanding that he is unlikely to ever get this sort of chance again is critical, and you should encourage him look to the long-term. The best use of this money, eventually, will be to buy himself a house, but there is no point doing so until he knows where he wants to live as an adult. He should be warned that it is not certain that any future partner will have the same financial resources as he has, and that he needs to be careful about being too trusting and/or generous with his home if he invites a partner to move in with him, and especially if he decides to marry. £200,000 can become at lot less than £100,000 once the solicitor's bill for a divorce are paid.

Finding a disinterest third-party to educate him is a great idea, but they are not easy to find. I hope you are able to do so, and would encourage you and him to start this journey as soon as you can.

RAS

At the very least explain that he is legally entitled to blow it all on fast cars, nefarious substances and expensive travel. And if he blows the lot, he'll need to work his butt off when he sobers up (more gently that I've put it.)

Off target, gently ask what he would really like to do? And maybe discuss his bucket list. Giving him something now to aim for before the money becomes available may give him time to adjust.

I'd also pass on one issue that may need discussing, based on a recent thread from someone a little older than him. She inherited aged 18, minus parents if I recall. She went to university and during conversations let on that her study and living costs were funded by her inheritance. As a result she was targeted by others wanting a free lunch, or "loan", and side-lined by others. She wished she could reverse her disclosure.

It's hard. As a college/A level student I went to a college with a large international student body. Either they were in flight or daddy was something big in their national arena. Neither were necessarily safe. Despite my basic family situation, some friends I supported with stay-overs in holidays. Another spent more on rent a month that I got for all costs per term as a university student. I wouldn't have swapped with him for anything.

Being "well off" is a challenge as well as a blessing. Hope he make some good choices and forgive him a few mistakes.

BikingBud

You could start here https://ukpersonal.finance/flowchart/ and try to discuss what the aims are https://ukpersonal.finance/goals/ and how following the principles will make acheiving those aims much easier.

wittenhamclump

Thank you BikingBud, RAS, and tacopot12 some very helpful suggestions and a framework to build up to discuss. Some points I'd never considered but that need considering.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82106020#Comment_82106020

Obviously need to start getting it out of the way of the tax man where possible and possibly allocating a part of it for investing for the future

We get lots of similar questions on the forum, although usually they are older than 18.

Normally the advice is to first work out what you want the money to do for you. House deposit, car , gifts to family, saving for later life etc etc.

Then depending on the time scales involved, you can decide how much to save for short term needs. How much to invest for the medium term - say 5 to 10 years and how much to invest for the long term ( via a pension usually.

Only then start to think about how to do all this in a tax efficient manner.

Some people seem to think that avoiding paying tax is the priority, when it should not be.

elsien

I’m just going to add to what R said with regards to unwise decisions. When I was 18, house buying was not even on my radar so talking about it would have been pointless. Nothing wrong with blowing some on travel or on a nicer vehicle of whatever sort than he might have had otherwise.

We all have different priorities at different ages and if the advice is too “sensible“ or he is unusually level headed for an 18 year-old some of the advice is go over his head unless the message is that it’s also okay to have fun as well.

Although on far less money, I didn’t get on board with the idea of pensions till I was 30. Yes, it would be nice to have more money in the pot now, but on the other hand I some bloody good holidays which I absolutely don’t regret. It’s all about balance.

TheWoodler

A perspective from someone who has been through it, albeit on a smaller scale. I came into a small inheritance of £2000 as a teen more than 40 years ago - back then still a fairly substantial sum, but even then not life-changing, just enough to give me a good start.

I kept it in the bank and added to it with birthday and Christmas money (my parents, though they encouraged independence, didn’t want me to take on a Saturday job but to prioritise my studies and do well, as it was harder for me as a disabled student in all sorts of ways).

A few years later, just before university, I spent £700 on travel to visit relatives on a different continent then living under a (now defunct) regime, with my parents’ blessing. They would not have been able to afford to send me there themselves and they saw it as an opportunity, but it was hard for them to see their only jet off to a bit of an unknown and a frankly scary regime. It was extremely educational on many different levels, not least managing independent travel as a disabled person, and set me up well for university. It was money well spent and I have never regretted making use of it.

The rest I saved during my first degree and finally spent to help out during my second, which I funded myself along with some smaller grants that I secured on my own initiative, as I knew £1300+ wouldn’t go that far. That led directly to my career, so I also think it was money well spent.

It did give me choices, encourage me to save and add to it, and it did help me to stand on my own two feet, because I did think harder about saving and preserving the funds and how to stretch my money further, and I made choices that were investments in my future.