Saving graces
MONEY HABITS CAN HELP BUILD UP YOUR RAINY DAY FUND AGAIN AFTER THE STORMS OF LOCKDOWN. VICKY SHAW LEARNS MORE
ADOPTING SOME GOOD
MANY people have seen their savings pots wiped out by the impact of the pandemic. At the other end of the spectrum, some have built up extra amounts of cash that’s now just sitting in their account – when that money could be working harder. So whether you’re trying to repair the damage to your nest egg, you don’t have a savings pot at all, or you’ve got some extra cash put aside that could be put to better use, we asked Tom Riley, Nationwide Building Society’s director of banking and savings, for some top tips on being a savvier saver...
1. Cut your bills
By making sure you’re on the best deals and cancelling unused subscriptions, you’ll free up more cash for savings. Tom says that by reviewing your outgoings, “you’ve given yourself the best chance to be able to save something”.
2. It’s fine to start small
Even if you only have small amounts to save each month, get in the habit anyway, and your pot could quickly grow.
Tom says: “It really is the principle that anything’s better than nothing. Just keep the habit going, that’s the important thing.”
Younger adults are particularly keen to build a savings pot right now, figures suggest. The majority of account openings for Nationwide’s Start to Save account, which is aimed at those who want to start or grow a savings habit, are being made by 18-39-year-olds, according to the Society’s data.
3. Pay yourself first on Payday
Tom explains: “One of the main tips for people who are just starting out with saving, is to try to get into the habit of saving on the day that you’re paid.
“Generally speaking, if you’re not in the savings habit, you’ll find that even if you’re fairly disciplined, you’ll end up spending down to zero by the end of the month.”
So plan what you’re going to save and get it put aside quickly.
4. Don’t give up
“You may have an ‘off month’ with your savings, or you may have to dip into your savings. But at least you’ve got some savings there to dip into,” says Tom. “It’s about not getting discouraged if you do have a tricky month.”
5. Dip into savings
Your new savings could help you avoid paying to borrow money to cover a sudden big expense, such as an unexpected bill or a holiday.
Nationwide found that for threein-10 (29%) people, a holiday will be their top priority, as pandemic restrictions ease.
Tom explains: “It actually helps you to build up that short-term financial resilience so that you’ll be in a better place to deal with those unfortunate shocks when they come along.”
6. Don’t park cash in current accounts
“It is worth trying to set up a savings account,” says Tom. “Then it becomes a conscious decision, rather than it perhaps being a subconscious thing where further down the line, you realise your current account balance has gone up and then gradually gone back down, and you don’t really know how you’ve arrived in that situation.
“Secondly, you can then earn a return on it. And although interest rates are low by historical standards at the moment, that money can still be working for you while it’s sat in that pot.”
7. Consider splitting savings pots
Tom says: “Some people like to have a few different pots. So they might have a long-term pot, they might have one that’s saving up money they want to spend. But they are just separated a little bit from everyday spending.
“And then you can get as into it as you want to, in terms of looking for the best rates, or perhaps even looking at investments. It’s up to you. But the key thing is having that little bit of separation.”
8. Consider using savings to cut debt
“As always with financial matters, it depends on individual circumstances. “You might have an early repayment charge on your mortgage, for example,” says Tom. But for those who currently have expensive debts, it could potentially make sense to use of any savings towards paying loans off. People will need to weigh up their own personal situations to work out what is best for them.
Your savings could help you avoid paying to borrow money to cover a sudden big expense Nationwide’s
Tom Riley
9. Use tech to save
Lots of apps have tools to help people top up their savings. “A lot of these tools will take very small amounts of money and put it into savings as you go through the month,” says Tom.
THE pandemic has shown all of us the importance of saving for a rainy day and we need the next generation to learn it too.
Almost nine out of 10 young people aged between 16 and 24 say school did not teach them financial lessons. And many face debt problems as a result, according to research from money-saving app Student Beans.
More than one in three have credit cards and overdrafts, owing almost £2,000 on average, but don’t know what interest they are being charged.
It is never too young to start learning about money, so here are some lessons worth passing on.
LEAD BY EXAMPLE
Cathy Crewdson, partnerships manager at netvouchercodes.co.uk, says balance your household budget and live within your means as children will learn from how you handle money.
“If you have a flippant attitude to managing your finances, chances are they will too.
“When the shops reopen, take them with you. Show them how much – or how little – you get for your money.”
TEACH THEM THE VALUE OF MONEY
When you are out shopping with your family, resist pester power.
This will save you money and pass on a valuable lesson, says Abigail Yearley at topcashback.co.uk.
“Teach children the difference between wants and needs.”
Nicholas Agwuncha, co-founder of Money Medics, suggests teaching an economic concept that is called “opportunity cost”.
“Tell them if you buy this toy, you will not be able to afford that video game. That way they will understand they can’t have both.”
GET THEM SAVING
Banks and building societies offer children’s savings accounts and
most of them will pay higher interest than adult accounts.
HSBC pays 2.5% on balances between £10 and £3,000 for children aged seven to 17, while TSB pays 2.5% on up to £2,500, from age 11 to 18.
Pete Mugleston, money expert at Online Money Advisor, says the responsibility of running an account is a great life lesson.
“Monitoring their balance will make them feel grown-up,” he says.
Old-fashioned methods such as a money jar can pay off too.
LET THEM EARN THEIR KEEP
Children may value their pocket money more if they have worked for it, Pete says.
“Start off simple, by rewarding them for doing household chores, and you can encourage teenagers to get a weekend job.”
START SMALL, THINK BIG
Martin Goycoolea, head of growth at maths learning platform Eedi, taught his nephews to do a simple budget in Excel to track where their pocket money went over a year.
“They learned they could swap a short-term gain such as sweets for long-term satisfaction, say, saving up for a new guitar,” he says.
WARN ABOUT DEBT DANGERS
As well as lessons on saving, teach your children the danger of debt. Lucy Cohen, co-founder of online accountancy service Mazuma, says: “Go into the consequences of buying things you cannot afford and becoming reliant on credit.”
Teach children how interest rolls up if you do not pay it off in time, until it races out of control.
PUT THEM IN CHARGE
Emma Hammond, financial planner at wealth management firm Charles Stanley, suggests putting children in charge of the family budget for a week or even a month, under your supervision, of course.
“Talk them through your income and regular costs, such as household bills, food and clothes, and extras such as dental appointments, school trips and sports clubs.”
At the end of the month, discuss their experiences.
CHARITY BEGINS AT HOME
Laura Laidlaw, head of customer savings at Standard Life, says you should teach the importance of giving.
“As a family you might have a favourite charity you support, alternatively, awareness days and events like Comic or Sport Relief are a great time to discuss donating.”
FRAUD WARNINGS
Your children may be more tech savvy than you, but also more casual about sharing personal information on social media or email, Laura says. “Warn them that their bank would never ask them for personal or account details by email or text.”
IT’S DIFFERENT FOR GIRLS
Vivi Friedgut, founder of student financial wellbeing company blackbullion.com, says women earn less, save less and invest less, and have less money at retirement as a result.
“Teach girls to take responsibility for being financially independent. Talk about the opportunities money provides rather than the stuff it buys.”
If you have a flippant attitude to managing your finances, chances are they will too Cathy Crewdson
INVEST TIME IN THEIR FUTURE
Educating children about pensions and investments won’t be easy, but should pay off in the longer run.
Emma-Lou Montgomery, associate director at Fidelity International, says setting up a junior ISA which will pay out at 18 can give them a healthy start.
“While cash seems safer, shares should give a higher return,” she says.