Don't Go Henry, Go Cash, First - rushing kids onto bank cards could ruin their financial future5/5/2022
,There are a lot of apps out there right now purporting they’re the divine intervention you’ve been waiting for to turn your kids into personal finance ninjas…news flash: you can’t delegate teaching your kids about money to an app.
The app may be able to relay some basic knowledge but ultimately the best builders of wealth need to only master one thing: their emotions. And, like as not, all the behaviours around money in your house – and yes, not talking about money at all counts as ‘a behaviour’ are all adding up towards what your children will ultimately believe about money and how it ought to function in their lives. This is what financial psychologist, Brad Klontz, calls money scripts. In addition, we humans are hard wired with certain biases: loss aversion, optimism or confidence bias, the pull of instant gratification, action bias and a bias towards earning rather than saving, to name a few. The money scripts you pass on to your children interact with these biases to determine their future responses, fears, anxities and attitude to their financial affairs. So, now that I have scared the bejesus out of you, what can you do to pass on a more rational approach to money. Well, before you expose them to cash cards or debit cards give them cash – I’m a supporter of making them earn it – then see what they instinctively want to do with it and capitalise on the teaching moments that will bring, and there will be many. My son’s basic knowledge of money acquired through our going through stage 1 of B.School for Money-wise, Wealth-bound kids means we are now having really good discussions about money and his reactions to it. And having heard Brad Klontz on Paula Pant’s Afford Anything and now on Hidden Brain I have bought Money Mammoth (Amazon USA, Amazon UK) and if I enjoy that I will read more of his books. Are you consciously thinking about how your household’s behaviours around money are impacting your impressionable little ones?
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I haven’t written a single blog post in 2021 and I’ll explain why in a future post, in the meantime, I need to offload this issue that’s been gnawing at me for a couple of weeks.
Now, I disagree with Martin Lewis (the founder of moneysavingexpert.com) on many issues related to debt but on no issue are we more at logger heads than on student loans! Martin Lewis is of the view that UK student loans are not really loans but a form of tax, a graduate tax, in his view…his reasons for thinking this way are based on the way student loans are currently structured: This is how it works, if one takes out student loans over the course of say, a 3-year degree and ultimately graduate with a balance of £50,000 in student debt (for argument’s sake) – it is possible that you may never have to pay this back if you are a low earner all your life. This is because student loan repayments currently only need to be repaid when you earn £27,295 or more and even then, the repayment is structured such that you only repay at a rate of 9% over that threshold. So, if you earn £30,000 a year, your student loan repayment is: (30,000 – 27,295) x 9% = 2,705 x 9% = 243.45 or c. £20.30 per month Even if you were on a £60,000 per annum salary the annual repayment would only be £2,945 or £245 a month. Presented this way, it does look like a problem not really worth worrying about BUT viewing the student loan as a tax ignores the following critical issues: 1. UK student loans are not interest free
Unlike in New Zealand where student loans are fully interest free, in the UK you start accruing interest as soon as you take the loan out – they don’t even let you graduate first. If it was interest free and the government was solid in its stance on that, I would see where Michael Lewis is coming from but it isn’t.
Student loan interest rates used to be low (c.1%) but are now two to three times higher than mortgage rates having ranged from 4% to 6.6% (currently the best 5-year fixed interest rates on mortgages are just sub-1%). 2. The repayment threshold can change, so: caveat emptor
The repayment threshold can change…and a reduction in that threshold to £23,000 is believed to be in the government’s near-term plans. What this would mean is that many more people would be captured by loan repayments, after all, who goes to university to earn less than £23k, right? The median starting salary for graduates in 2021 is c.£30,000 (Highfliers.co.uk). Indeed, I would hope that all graduates can hope to earn in excess of £27k (the current threshold for student loan repayments) within a few years of graduating.
So, the person on a salary of £30k/year goes from repaying £20.30 per month to £52.50 (that’s £630 per year) and this is really quite substantial at that wage when you’re likely also saving to buy a home. The person on £60k/year goes from repaying £245 per month to £277.50 (that’s £3,330 per year) Basically, everyone already captured by the threshold pays an extra £32.50/month or £390/year. 3. Student loans might not be forgiven in the future
Currently, after 30 years the loan is forgiven but that could change any time, the government could increase that to 35 years, 40 years or even decide that student loans are never forgiven and any debts owed need to be deducted from the deceased estate. I hope it never comes to this but most other loans aren’t forgiven on death so if the government were cash strapped they could make a case for this.
If you think this is far-fetched, don't - this is how it already works in America. 4. Student loans reduce the rate at which you can save, invest and jump onto the property ladder
Finally, this is not a graduate tax because you do not pay it as result of having graduated. You only pay it if you have availed yourself of a student loan. Those graduates that graduate without student loans are able to save and invest at a faster rate including getting onto the property ladder faster.
If the graduate on £30k per annum saved £20/month into an index fund growing at 7% gross per annum they would have c.£24,500 in investment value in 30 years’ time, or £45,600 at a growth rate of 10% gross which is the actual historical growth rate of the stock market. And that £60k per annum highflyer? Well, if they saved £245/month into an index fund growing at 7% gross per annum they would have just shy of £301k in investment value in 30 years’ time, or almost £560k at a growth rate of 10% gross – that’s over half a million pounds. Note that, in reality, this person would have paid the student loan off after 21 years but I have used 30 years to compare to the previous example. At 21 years the figures are £141k (at 7%) and £211k (at 10%) respectively – that extra 9 years of saving and compounding really adds up. Not having a student loan impacts your ability to accumulate wealth. It could make a big difference to how soon you can get on the property ladder. In the ideal world, student loans wouldn’t exist and everyone could get a tertiary education for free. However, student loans do exist and I think it is helpful to view them as loans and to either avoid them or use them wisely. For instance, I had friends put the full value of their student loan into an ISA while their parents cash flowed their university fees – now that was smart and was one way to buy a home sooner. Some people choose to work hard during holidays to cover their living costs. Our own strategy was to plan far in advance. We saved £4k per annum per child until their 5th birthday (and in the first few years this was at the expense of saving for our own retirement) and that £20k is left to grow until it’s needed for university. Our almost 7 year old’s £20k is now worth c.£32k and our 4.5 year old’s £20k is now worth c.£25k – we managed to get to £20k sooner for her and that’s now released us to focus on our own savings. We, of course, have no idea how student fees will evolve over the next decade or so but we hope that this strategy will at least make a huge dent to the cost. See my post: Q&A: How can I save and invest for my children?
To round up 2020, I thought some might like to learn a little more about me as an individual. And, because I prefer not to talk about myself I thought I'd share an interview that I had with Alex Sapala who invited me onto his show, the Business, Wealth And Mindset Podcast. Alex is one of the most successful and ambitious Malawians living in Britain today, he's made a massive success of himself in the work place and also with property investing but you would never know because he keeps himself humble.
Alex with Heather who shares her fascinating journey and discusses why she has chosen to be employed in a role that offers her flexibility and the time to undertake the hobbies she loves.
This is a great opportunity to hear from someone who experienced being employed and working for herself before making a conscious choice to be employed. It’s always vital to find out what makes you happy, what is the real you and how to achieve this in life. KEY TAKEAWAYS
BEST MOMENTS
VALUABLE RESOURCES ABOUT THE GUEST Heather Katsonga-Woodward Having spent 7 years in investment banking at Goldman Sachs (Corporate Finance) and HSBC (Corporate Derivatives Structuring) and a further 6 years pursuing her own business interests, Heather is currently a civil servant. She describes it as the best job she’s ever had. Heather is an investor in property, the stock market and as a hobby enjoys creating personal finance digital learning resources that can be found at katsonga.com and on the podcast, The Money Spot™️. Her courses on Udemy (on property and business) had attracted over 10,000 students as at 2020. Heather graduated with First Class Honours in Economics from the University of Cambridge. She has the CFA Charter, the ACCA accounting qualification and the Certificate in Mortgage Advice and Practice (CeMAP). She lives in Birmingham (UK) with her husband and two children. ABOUT THE HOST Alex is a prize-winning chartered accountant with experience in financial markets from trading finance, capital hedging, structural foreign exchange and interest rates to operational risk from the world’s top financial and advisory institutions including Deloitte, RBS and JPMorgan Chase Alex has been involved in property development programmes across different types since 2008, building and managing a portfolio that includes standard buy-to-lets, student accommodation and other houses in multiple occupancy (HMOs). He specialises in raising finance, providing potential investors, investors and joint venture partners with ad hoc (to their specific requirements), hands-free and hassle-free property investments solutions as well as coaching and mentoring Alex aspires to share business and financial knowledge with upcoming entrepreneurs and experienced business minds to learn and master the concepts and mindsets required to succeed, stand-out, have the edge and make a difference. Alex is also a keen traveller, cyclist and photographer. CONTACT METHOD My very best, Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now!
Building on the last post on 7 things that hold black children back from succeeding. This is the current Economic status of black people in the UK relative to other groups:
ASSETS
On home ownership According to .gov.uk:
On pensions assets: According to a January 2020 report by the People Pension, compared to White ethnic groups,
The average gap between a female pensioner from an ethnic minority group and male pensioner from white ethnic groups is 51% (half). This figure is 27% for an ethnic minority male pensioner. The average ethnic minority pensioner has £3,350 less in annual pension income. Ethnic minorities are also less likely to qualify for auto-enrolment into a work place pension because they are more likely to earn less than the auto-enrolment threshold of £10,000. INCOME According to gov.uk: In the year ending March 2019, the median annual household income in each quintile before housing costs were paid was:
If we look at the bottom two income quintiles, that is the lowest 40% of income earners,
These figures are before housing costs. The picture changes a little bit after housing costs but I chose to present the ‘before housing costs’ picture because there is a degree of discretion with regards to how much a household decides to spend on housing. While there are income disparities that will feed the gap between the assets of the rich and the assets of the poor, I feel as though the reasoning behind the asset differential is very basic and needs further exploration. On job security: Do ethnic minorities just work less and as a result earn less? No! According to gov.uk:
Based on these stats, the employment rate for black people is 8 points lower than the average for the population and 15 points lower than for Whites. In addition, it’s worth noting that Black people and other minorities are more likely to be self-employed, be on zero hours contracts and are generally more likely to be employed in less secure lower income jobs including as part of the gig economy. Two things stand out as definitely missing:
The UK doesn’t have an identical history to the US and certainly I don’t think UK mortgage lenders discriminate according to race directly or indirectly but if someone thinks they do, I’d love to hear their story. Remittances are a key component of economic growth in Africa. According to Pew Research, "money sent by the African diaspora to their home countries in sub-Saharan Africa reached a record $41 billion in 2017...a 10% jump in remittances from the previous year", another source suggests $46 billion was remitted in 2018, that would be the official figures but billions more are remitted via unrecorded channels. Official development aid to Africa was just shy of $52.8 billion in 2017 (OECD 2019 statistic). Provided this money isn't all being used for consumption, wealth accumulation by Africans is underestimated if we look purely at wealth held by the diaspora within the countries they live. In addition, after discussing the issue of low rates of home ownership with my African peers other factors to consider include:
Social mobility According to research from the University of Manchester,
FACTORS THAT COULD HOLD BLACK PEOPLE BACK When it comes to discrimination in the labour market, some of the same things that lead to targeting or discrimination in the formative years (as described in my previous post) can also adversely affect the likelihood of black people getting well paid jobs:
So there you have it. This is a summary of the current wealth and income stats for black people in Britain. I think it raises a lot of questions. I would love for people to contact me and leave a voice message or a note at katsonga.com/coach or as a comment on this post explaining what they think has helped them succeed or what they believe is holding them back from progressing to higher levels in their career and in building wealth. Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now!
I thought it would be fitting to end the 2020 series of The Money Spot podcast with a series on the Economics of being black. The issue I would like to explore first is a list of things that could hold a child back before they are even 18.
Where possible, I will depend on UK studies and statistics but if that’s not possible reference will be made to US studies where much more research on race tends to be available. 
1. Name
Having a name that is perceived as “different” may be a factor that exacerbates a black child’s feeling of otherness, of being different to the mainstream. In the worst case, it may lead to teasing or just feeling discomfort and insecurity with what might seem like innocent questions from teachers, like “how do you say your name?” I’ll talk more about names in my piece about what holds black adults back. Personally, our desire for our children not to be discriminated against in mainstream British society was a key consideration in name selection. We want them to blend to the extent possible and didn’t feel that name was an issue they should need to deal with in addition to everything else. 2. Hair Is there an issue more contentious? My son noticed the difference in his hair before he mentioned that his colour was different to that of everyone else in his class. There are many anecdotal examples of black children being treated in an unfair way at school on account of their hair, for example:
But, while a name and hair, in addition to skin colour may add to a feeling of being different, there are real and recent statistics from the Social Market Foundation and other research organisations to show that black children are discriminated against at higher rates: 3. The perception of being threatening There is a perception and stereotype of being threatening which especially haunts black boys. In studies, black boys as young as 5 years old have been perceived as more threatening compared to similar aged white boys which is a scary fact. This has been elicited with tests of association of faces and objects like guns or puppies rather than by asking directly. And where as being “tall and dark” would give a white boy advantages with perceptions of stature, strength and athleticism – for a black boy the exact same tallness and darkness may only serve to make them appear more threatening and with that all the disadvantages: more regular police stop-and-searches and fewer opportunities. This sentiment is my own, rather than from elsewhere but it is something that recently occurred to me as a risk. 4. At-school and In-class discrimination The Social Market Foundation reports that “discrimination in education frequently takes place outside of the syllabus. There are a range of institutional practices that underpin Black students’ exclusion and, ultimately, their educational attainment.” For example:
So, unfortunate as it is, black children especially black boys face discrimination at much higher rates at school. I haven’t found any research to back it up but a friend who works in the field told me that some recent studies suggest that black boys are ahead of all other ethnic groups on entering school but within a year they are behind others because of the poor engagement they receive. 5. Low expectations Akala in his autobiographical, “Natives: Race and Class in the Ruins of Empire” recounts how he was a gifted child, highly intelligent with a GCSE reading age by the time he was 7 and yet, he was placed in a class with children with learning difficulties. It took his (white) mother advocating for him and speaking up for this to change. And in her time on Desert Island discs Sonita Alleyne, the first black Master of a Cambridge college admits that exactly the same thing happened to her when she arrived from Barbados as a young child. Placed in the special needs class, her mum walked into school and explained that her daughter’s accent wasn’t a sign or symptom of being stupid. The most frustrating thing about these examples is that similar things are happening to many black children today and they don’t have an advocate. What of those children that reveal they want to be a doctor, lawyer or astronaut that are told to be realistic and guided towards nursing, hair dressing, plumbing and other manual jobs. Or towards sports and more artistic jobs like music – yes, there are more examples of black people succeeding in these fields but this is simply because you can’t pretend the boy or girl who came first in the 200m sprint actually didn’t. If nurtured correctly there’s nothing to stop black children excelling in any and every field. Further, many black children up and down Britain simply assume it’s “stupid” or “unrealistic” for them to aim for Oxford and Cambridge and there is no one there telling them otherwise. Conversely, the majority of those in private schools assume it’s a given that they are expected to apply to the top universities. Not long ago women had many of the same challenges – in her time on Desert Island discs retired surgeon Averil Mansfield (born in 1937) says her mum told her to lie she wanted to be a nurse rather than admit she wanted to be a doctor to avoid the mockery. Any girl can say they want to be a doctor now and no one would bat an eyelid and that is the position I would love all disadvantaged children and black children specifically to get to. 6. Poverty People can live in a vicious cycle of poverty from which they struggle to escape. What proportion of black children live in poverty? The Social Metrics Commission found that almost half of people living in a family in the UK where the head of the household is black are in poverty. This compares with 19% or about a fifth for white people. This means black-headed households in the UK are 2.5 times more likely to live in poverty than their white counterparts. Poverty comes with many disadvantages that you can probably list yourself, a few that are commonly discussed in the press include:
These are example economic factors but poverty, of course, also has negative social consequences, living in an economically deprived area may mean increased exposure to crime etc. According to research by the University of Manchester, “a fifth of its Black African, Black Caribbean, and Arab populations live in the country’s most deprived neighbourhoods compared to 8% of the white British population.” I will tackle “social mobility” in my next instalment, for now it is enough to know that many more black children than white children are living in poverty and therefore do not have access to opportunities taken for granted by middle class and more well off children. 7. Single parent home This data is a little old (from 2007) but is unlikely to have changed much so I will use it. According to a Metro article, “48% (almost half) of black Caribbean families have one parent, as do 36% (a third) of black African households.” This figure is 10% for Indians (and marginally higher for those of other South Asian background), 15% for the Chinese and 22% (a fifth) for whites. 90% of single-parent families are headed by mothers. Children who grow up without their biological father are more likely to be
I don’t want to stereotype the single parent with lots of dreary stats but suffice it to say having to manage as a single parent according to the data tends to exacerbate poverty – which stands to reason because one person equals fewer resources including services like washing, cooking etc rather than financial resources. It may also mean the child has less access to parental support for homework and possibly other emotional needs. In summary, before a black child is even a teenager they may face major challenges with their development because they are:
If ALL school teachers could treated ALL children like they are special and going places regardless of race so much progress could be made in erasing educational inequalities between the races. And over the long run, erasing wealth inequality. Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now!
Hey heather, thanks for your podcast, I find it incredibly useful because it's UK specific and everything else I find seems to be geared towards the US.
Anyhow, my name's Dee, I'm in my 50s and have been a military stay-at-home mum all my adult life although I went to university. Being a military wife has exposed me to so many countries and cultures which I love but you do sometimes encounter traumatic things so it's nice to settle in the UK. My family currently rents and all our adult children live at home including one that is dependent. We'd like to get on the property ladder but have been struggling with when and whether to do it. In the past I've left all the money stuff to my husband but now that the children are older I'd also like to start earning an income and I've been considering investment property. I want to gain some financial independence and I'd love to be able to help the children out financially. I am so ready to make up for the time I spent raising children. I don't know if it was stupid not to use my degree sooner but I guess better late than never. Keep helping with your posts! Thanks. 
Hi D,
Thank you for this question that covers a very wide range of things. I am also very sorry that you have experienced something traumatic. Your life choices are not stupid, many women find themselves in circumstances that mean they have to stay at home with the kids for whatever reason so your question may well resonate with lots of other mums. Being in my mid to late 30s, you will forgive me for providing what might sound like a slightly optimistic review of your situation. Your question as it is framed requires me to speak to: 1.Providing for your children particularly the dependent child with medical needs; 2.Buying property as a home; 3.Buying property as an investment; 4.Earning an income for yourself; PROVIDING FOR YOUR CHILDREN By letting your adult children to stay at home rent free you are doing plenty. That alone should allow them to save for their own property deposits and is a financial boost many people including myself did not have. If I could have lived at home rent, free, that would have had me on the property ladder a lot sooner. The other thing you could do is direct them to read the type of personal finance books that will give them ideas for how they can be financially responsible so that you don’t need to worry about them. I recommend The Richest Man in Babylon and The Millionaire Next Door as good starting points. Does your child with medical needs financial support from you as well as general support for all their living? I won’t touch too much upon this except to say that make sure that you are accessing all the state benefits you can for the child’s support including the carer’s allowance if it is applicable. BUYING A HOME Firstly, as far as the UK is concerned I always advise that, if you get nothing else right, at least buy your own home. From your message, it’s not clear whether or not you and your husband discuss finances but I am guessing that this may not be the case. Firstly, I would try to get the two of you on the same page. Working as a team when it comes to building wealth can really supercharge your financial health. The UK property market is completely different to the US property market in so many ways so I’d be a little careful before taking advice on property from US authors and podcasters (lots of property advice on the internet tends to be US-focused that’s why I bring this up). To begin with the population density of the UK is 281 per Km2 (727 people per mi2); population density in the United States is 36 per Km2 (94 people per mi2). What does this mean? It means that UK property in many areas doesn’t see price crashes (too many people, too little land) and there is a propensity for house prices to be sticky upwards. In addition, because US mortgages are fixed for the full term of 25 years whereas UK fixed terms are only for 3, 5, 7 or 10 years, interest rates are much lower in the UK compared to the US (almost half). The result of this is that very often the interest you pay on your mortgage is much much lower than rent. As an example, I live on a street where the rents range from £1,200 to £1,500, however, the interest we pay on our mortgage is just £350 (it was a 25% deposit mortgage). The full monthly mortgage payment is almost £1,000 but everything above the interest of £350 is money that will come back to us if we sell our home. So, provided you can get a good deposit together, you will save a lot of money by buying a home rather than renting. In the long run owning where you live will give you a lot of security including the psychological comfort it provides. At 50-something, you are not too old to get a mortgage and may even be able to get a mortgage of 20+ years, however, if you owned property abroad and sold it when you left then it’s worth buying the home outright. State pension Another thing to consider with regard to your financial security is that even the full UK state pension only pays £175/week per person (about £759/month) this would be double for a couple. If you live in a home that’s been completely paid off, no mortgage, then you can survive on the state pension relatively comfortably. However, as you have lived abroad for many years you need to contact HMRC to see how many qualifying years you have. Your UK State Pension will be based on your UK National Insurance record. You need 10 years of UK National Insurance contributions to be eligible for any amount of the new State Pension and for people my age 35 years of credit are needed to get the full entitlement, you may be in the generation that only needs 30 years of credit. You may be able to use time spent abroad to make up the 10 qualifying years. This is most likely if you’ve lived or worked in:
I would contact HMRC as soon as possible (link above) and ask what you need to do or pay to increase your entitlement to the UK state pension. You may get National Insurance credits if you cannot work - for example because of illness or disability, or if you’re a carer or you’re unemployed. You might also be able to pay voluntary National Insurance contributions if you’re not in one of these groups but want to increase your State Pension amount. BUYING AN INVESTMENT PROPERTY I recently read David Tarn’s “The Complete No-Nonsense Guide to Becoming a UK Property Investor: The 1-2-3 on Property Investing” and found it useful on the topic. The author is based in the North of England where property is much cheaper. He is into buying property and letting out the whole house to a single group like a family – so, standard single let properties. In addition, I would recommend The Inside Property Investing podcast. There are over 300 episodes, if you binge listen to the episodes that appear interesting, you will move up the knowledge curve rapidly. The ‘Inside Property Investing’ podcasters are themselves heavily into High Multiple Occupancy properties (this is when you let a single property out to 3 or more unrelated people like students or professionals). However, the beauty of the podcast is that they regularly interview people on the show that follow a variety of different property investment strategies. Don’t pay for any overly expensive property course before you’ve gained all the knowledge that is available for free or almost free – a friend of mine recently paid £24,000 for a property course, she went 50-50 with her daughter and even had to put some of the cost on a credit card! You’ve been warned. For the basics on property investing I have a course up on Udemy for under £50. This will give you all the basic knowledge you need about the property buying process in the UK. EARNING There are many jobs out there. If you just want to boost your confidence and get some money rolling in there are plenty of jobs out there provided you are not too picky about the pay as long as you get your foot in the door. If you want to build a work life for yourself have a look on jobs boards at what’s going and start applying. If you want to build a career within a specific field related to your field of study consider taking a course to freshen up your skills. I have no idea what your salary expectations are but median UK income for 2020 is 30,800 according to the ONS. After tax that would bring home just over £2,000/month; if due to covid etc you secured a job with a salary of £24,000/year, that’s still £1,600/month which definitely isn’t shabby especially if your husband earns too. A GQ article gives an interesting breakdown on age, occupation and the covid-19 pandemic’s impact on earnings. I hope this helps. Far from thinking you are too old. I am feeling soooo excited for you. This is a fresh start and even over a 15 year period you can build an amazing life and financial cushion. Good luck.
Dear Miss Katsonga,
What is your opinion on Critical illness cover? What are the alternatives (for lump sum payout to cover mortgage or other debts) in case one partner is unable to work? Thanks! Ronjoy 
Very formal, Ronjoy…you can call me Heather.
So, you want to know how you can cover yourselves if one person is unable to work. 1. Critical illness cover The first thing you mention is life insurance with critical illness cover. Typically people will have this on their mortgage insurance. Mortgage insurance is usually decreasing term which means the amount by which you are covered falls over time roughly in line with your mortgage balance. The result is that if the person covered by the insurance falls critically ill near the end of the mortgage term the pay-out may be quite small but at least it would clear whatever mortgage is outstanding, if an appropriate level of cover was taken and updated if the mortgage amount was increased. A problem with critical illness cover is that only specified illnesses are covered and different providers cover different things. This means if you or your partner get ill and can’t work and your specific illness isn’t covered then you don’t get a pay-out from the insurance provider. The cover usually also has a condition that you need to be ill for a specific amount of time before a pay out is due to you, e.g. you need to be ill for 6 months plus or in an intensive care unit for at least 3 months and you’re not due a pay-out if you don’t fulfil those conditions. 2. Employment insurance You can also buy insurance to cover you if you’re unemployed, e.g. due to redundancy. This type of policy would cover you even if you were not ill but may specify that you need to be unemployed for a given number of months before you are due a pay-out. The key problem here is that unemployment insurance tends to be expensive during turbulent times. When I first started working in 2005 I bought unemployment cover and it was very cheap. When the 2008 crisis hit the cost of the cover increased so exponentially that I cancelled it, it wasn’t worth it. 3. Rental insurance If you own rental property you can buy insurance to cover tenancy gaps. This could be a good idea so that you never have to worry about both being unemployment and having to support a vacant rental. The policy will likely state that the property needs to be vacant for specific amount of time before payouts are due. I buy my rental protection via RentGuard, however, they did stop writing new policies when the government made it harder to evict non-paying tenants during the covid-19 pandemic so, it is not always available. 4. Emergency fund A good idea would be to keep an emergency fund of 6 to 9 months of living expenses. This would give you peace of mind that you would survive even if you didn’t have both incomes coming in. If only one person was unemployed, then a 6 month fund would last longer too, 5. Live on one income Last, but certainly not least, if you arrange your finances such that your family can survive on the lower of your two incomes then the loss of one income is never something you need to worry about. This is our personal favourite. Our household saves the equivalent of one income every month either as actually cash saved or as repayments on mortgage debt. Should one of us be unemployed the most we would have to do is call our bank and pay interest only for a limited period. Banks are usually very happy to do this. In the long run, we would also like to build up a cash emergency fund but for now we do invest all disposable income and we have made peace with that risk. Hope this helps. Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now! 
Fifi asks about how best to manage her money when her income from month to month fluctuates a lot with some months bringing in just enough for her to get by. She also wonders how best to manage her credit score and to boost her monthly income.
I give a broad answer covering:
Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now!
Hey Heather, my name's Jennifer, I want to start a side hustle but I don't know where to start or how to organise myself. No one that I know has a side hustle; they just do the 9 to 5 then chill...are side hustles just not a British thing? Please help me with some tips, I need some direction...thank you!
I stumbled upon Sylwia when I read her post on The growing trend of side hustles in the UK - this was written before the covid-19 pandemic and seems to be very topical right now as people think about ways to diversify their income.
The most shocking thing about my intial catch-up with Sylwia was that she knew recognised my name because she read my book To Become An Investment Banker which i wrote in 2012. I was shocked and please in equal measure. I learnt a lot in our discussion in which we covered, among other things:
Sylwia Kotarba-Harris Accounts and Legal 0207 043 4000 s.kotarba@accountsandlegal.co.uk Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now!
Hi Heather
My name’s Grace. I’m looking into saving money for my little one so that it can be invested in the same way as government-backed child trust funds. My older one has a child trust fund but I don’t know how to go about opening something similar for my younger child. As I understand it, banks don't offer government-backed child trust funds anymore. 
Click image to read more about "lost" Child Trust Funds.
Hi Grace,
Thank you for this message. In podcast episode number two, I talked about how you can save and invest for children in today’s world. All that information is still relevant so please have look at that post for ideas on the best saving strategy. A Child Trust Fund (CTF) is a long-term tax-free savings account for children. You cannot apply for a new Child Trust Fund because the scheme is now closed. The alternative available for today’s parents is the Junior Individual Savings Account or junior ISA. What is a junior ISA? A junior ISA like its adult equivalent is a tax-advantaged account that can be used for saving or for investing in the stock market. Once you place money into a junior ISA it cannot be withdrawn until your child is 18 and it legally belongs to your child so you would not have control over how that money is used. This is not necessarily a bad thing but it’s something you will need to consider when you’re making a decision. I know a few people that don’t want to use junior ISAs because they don’t want their children having cash that they as parents can’t fully control. Personally, I think that I would still be able to guide my children about the wise thing to do with the money and if they didn’t want my advice that would still be useful information for me to know. My approach is that because you won’t have full control over the money you might want to limit how much you put into the junior ISA so that your child doesn’t have too much money available at the age of 18. The junior cash ISA Saving into a junior cash ISA is like saving into any bank account, it earns a very poor interest rate and is therefore not a great idea at a time when interest rates are so low. A junior stocks and shares ISA The alternative option is a junior stocks and shares ISA. The value of the stock market falls and rises but when money is invested over a long period of time it tends to rise. For example if you are investing for a 10-year period or more you can have a reasonable degree of confidence that your investment pot will produce a good return – certainly a better rate than current savings rates. In podcast episode 2 you will see that my strategy is to invest £4k/year from birth to age 5 and then stop once I have put £20,000 into each child’s ISA. Once I reach that I stop and just watch the money rise and fall. My son’s £20k investment now has a value of £26,000 and he isn’t 6 years old yet. If the stock market enjoys a 10% return on average over the next 14 years he will have just over £100,000 in his stock account from that £20,000 that I invested – that is the miracle of compounding, something Einstein called the 6th wonder of the world. Even if the pot only grows at half that rate, that is at 5%, he’ll still have £50,000 – that’s a princely pot of cash that could be used for university or a deposit on his first home. How to set a Junior ISA up If you want to open a junior stocks and shares ISA there are many brokers you can use. To start off with, I would suggest you look into I have provided you with links to pages that will give you more information on the junior ISA. Personally I use Hargreaves Lansdown for my children. The fee for using the platform is 0.45% per year versus 0.35% at Fidelity. HL have a user-friendly app and have made setting up direct debits so that investing for my kids is easy. The key difference between HL and Fidelity besides the platform fee is that Fidelity also create investment products and may therefore have an incentive to push some of their own products to you. HL aren’t completely innocent though, they earn more if you invest in actively managed funds so they have an incentive to recommend actively managed funds to you. The best strategy is to know what you want to invest in. As a new investor you might want to keep things simple and put the money in low-cost diversified index funds. These are funds that are invested in many companies so you won’t be putting all your eggs in one basket. Here are example of funds that my children are invested in:
I have given you a link to each fund’s page so that you can read more about what the funds are invested in and what the fees look like. I hope this helps you kick start investing for your children. Junior ISAs do not have the government boost that the Child Trust Fund did but they are a very similar product and have much more flexibility attached to them because you can invest in a wide range of products. Even if you start of with a small amount, it will give you some confidence and you will begin to learn how the stock market works. Investing for our children is the path that got us investing for ourselves too. Good luck and keep in touch. Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now! |
Heather on WealthI enjoy helping people think through their personal finances and blog about that here. Join my personal finance community at The Money Spot™. Categories
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