Good habits adopted early: advising the next generation of savers

Posted 7 May 2024 by Nici Audhlam-Gardiner

What will yours grow into?” asked the adverts for Child Trust Funds (CTF) when they launched two decades ago.

With regular payments from parents and other family – plus the added incentive of a government payment – the hope was every young person would have a helpful nest egg once they reached 18.

For many young people, deciding what to do with this money is the first serious financial decision they’ve ever had to make.

At a financial crossroads

CTFs were only available briefly, from 2005 until Junior ISAs replaced them in 2011. But their creation opened new savings possibilities to a broad section of the UK. They are now maturing, with nearly five million still to come between now and 2029.

In some cases, the lump sum on offer can be sizeable. As of April 2022, the average CTF had a market value of around £2,000, some were worth £25,000 or more.[1]

It’s widely understood that engaging with the younger generation and attracting them as clients is going to be a challenge for advisers. But as CFTs funds now mature, many young adults (and their parents) find themselves at a financial crossroads, looking for advice.

Exploring these issues with them is more than just a commercial opportunity. It’s a gateway for them to learn about money and engage in financial matters. With research often showing that many people lack a serious financial education, there’s an opportunity to help this new generation adopt better savings habits.

The importance of good habits

So, what do these young people want to do with their money?

Some want to spend straight away, but others are already thinking more long term, wanting to know more about how they can use the money to buy a property, or even thinking about how to start an investment portfolio.

Our role at Foresters is initially an educator and then a support to their decision. In the run up to their 18th birthday, we’ll point the teens to educational videos (for example, explaining what an ISA is), and talk to them, and their parents (who have an important role in supporting their investment decision) about the different aspects of finances and investing.

Most importantly from our perspective, is the opportunity for the CTF to establish good financial habits.

For example, why it’s vital to set financial goals and the impact of tax efficiency on the growth of investments. These are lessons we hope will stay with them forever.

The conversation

One notable, and perhaps surprising, aspect is how important in-person conversations are.

Younger clients are much more tech enabled. They’re happy to self-serve when it comes to little details like a change of address.

But for the bigger decisions, only a human face will do. This helps ease them into the conversation and grow their financial confidence.

Our conversations often stretch to the wider family. Parents (with additional discretionary money available) are often reconsidering their financial planning needs. We even speak to grandparents who may also have been paying in.

Some of these clients are best classed as ‘everyday savers’. They may not be high-net-worth investors with money tied up in complex products and some with little or no experience of investing, may lack the confidence to explore further.

We start simply. For example, we might explain some of the basic steps forward, such as the mechanics and tax advantages of an adult ISA. Or we may look at something more targeted like a Lifetime ISA, especially if the young person is thinking about saving for a deposit on a first home. Lifetime ISAs are not as widely known as they should be, given the additional bonuses they offer – I often describe them as the Treasury’s best-kept secret!

In supporting customers, our basic advice model allows us to focus on specific needs at a point in time, via a simple stakeholder product offering. There’s no need to make discussions complicated by focusing on areas unsuitable for their level of investment awareness or affordability. This helps to make our advice economically viable for everyday families – so playing a part in bridging the advice gap.

Then, as we move forward in our conversations, we use technology, with decision-tree analysis, to recommend the right course of action.

Remember: today’s savers are tomorrow’s investors

More than 40 years ago, NatWest launched one of the first bank accounts specifically targeted at children. The reward for saving more was earning a full set of ceramic piggy banks (more than one million pigs were sent out to savers in the first year alone).

Nowadays, the incentives for saving are a little more sophisticated. Banks like GoHenry use gamification to encourage their users to save and learn (with videos tackling everything from basic finance rules to cryptocurrency).

As a profession, we need to look for ways we can continue this learning journey. CTFs are just one of the opportunities for us to get there early and help build our young customers’ confidence.

The benefit, first and foremost, is helping someone become a more informed and financially well-rounded individual. But also, one who – when their circumstances and finances allow – may return to us again for advice as they continue their financial journey.

[1] HMRC: Annual savings statistics: June 2023

Nici Audhlam-Gardiner

Nici Audhlam-Gardiner

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Nici Audhlam-Gardiner

Nici Audhlam-Gardiner