How to stop your little darling blowing every penny when they land their first job

STEPPING into full-time employment after school or university is fraught with anxiety and worries – often as much for parents as for young adults.

Will the newly employed enjoy their job or come back saying it is not for them? It is an issue I am grappling with at the moment as my youngest starts a short-term contract with a film and memorabilia company. Will it be the making of him – after all, he loves films? Or will he decide it’s not for him, resulting in a change in career path and more worry for myself and his mother Susan?

Although many young adults adapt effortlessly to full-time work, employment also triggers other issues, mainly of a financial nature. Work brings a degree of independence and a series of key money decisions to make. Choices that are often made against a backdrop of little knowledge of money – and a financial services industry that seems intent on making the simple complicated.

Should they join the company pension scheme as instructed or would it be wiser to opt out while money is tight? How do they arrange finances so they do not slip into debt? Should they try to save?

Charity MyBnk has done a lot of groundbreaking work helping young people get to grips with money issues. Fiona Montgomery, educational manager, says: ‘For a young person, embarking on a career is exciting, but it can also be overwhelming and stressful. They are faced with paying taxes, maybe living independently and, of course, enjoying the relative freedom of being a young adult earning money. This time is one where good or bad money habits are formed.’

So what are the key financial issues we should be encouraging our children to get to grips with as they embark on their career?

BUDGETING

WHILE a monthly salary may bring sudden financial independence, it is vital you urge your grown-up children to budget – and not blow every penny they earn on their new-found ‘wealth’. Even if they live far away from the family home and you have to deliver your promptings by email or phone.

Warren Shute is a successful chartered financial planner who has spent his life trying to debunk personal finance. He is author of

The Money Plan (Amazon, £11.79) that aims to help people achieve ‘financial mastery’ irrespective of where they are on their personal finance journey.

He advises newbies in the workplace to get to grips with their payslips, analysing the deductions (income tax and national insurance) that reduce their gross pay down to a net sum. Budgeting is then the order of the day. ‘As a parent, you do not need to tell them to become a budgeting nerd,’ says Shute. ‘You just have to gently push them to take control of their finances.’

He advises that new workers try to pay all their main bills by direct debit or standing order from their bank account – for example core expenses such as rent, gas, electricity, council tax and water rates.

He then recommends that they pay themselves a weekly allowance into a separate ‘spending’ account – for example, an instant access savings account. Regular withdrawals can then be used to buy food and fund social activities.

‘When the weekly allowance has gone, it is time to stop spending,’ says Shute. ‘Using such a system will ensure someone never overspends or misses a payment.’

He advises: ‘Never spend more than you earn and never borrow money to cover your lifestyle.’

Modern digital banks such as Monzo provide spending summaries and allow customers to set budgets. A free budget planner is available at website Moneyadviceservice.org.uk

PENSION

FOR those aged 22 or over and earning more than £10,000, an employer will automatically enrol them into the work pension scheme.

This means that as a minimum, the employee will pay two per cent of their salary into the pension with the Government and employer adding a further contribution equivalent to three per cent. These contributions are based on earnings between £6,032 and £46,350.

From next April, overall minimum contributions will rise to eight per cent, with employees paying three per cent.

Holly Mackay, founder of money website Boring Money, says: ‘In most cases, opting out of a company pension scheme makes no sense.

‘As a solid base for long-term savings, it represents a good bet. In effect a worker gets a free pension top-up from their employer and the Government, the benefit of which will just tick away in the background for years.’

She says that some big employers may also match any extra contributions a worker is prepared to make. An attractive ‘perk’ for those happy to receive a little less net pay.

FINANCIAL TOOLS

GETTING a job is often a good time to reassess whether it is time to change bank accounts.

A few banks such as Nationwide and Santander (123 account) now pay interest on a slice of any credit balance provided a salary comes into the account.

In addition, some such as Santander pay cashback if certain bills are paid through the account by direct debit. Those who are comfortable doing their banking digitally should look at the likes of Monzo and Starling. Switching bank accounts is now straightforward. Websites such as Moneysupermarket.com and Money.co.uk can help find suitable accounts.

Those dependent upon a car to drive to work can keep a lid on insurance costs by accepting a higher excess – a slice of any claim that they must pay – or opting for a telematics-based policy where premiums are dependent upon how well a motorist drives. Even a job title can influence premiums – cover for an editor is invariably cheaper than for a journalist as it is for a personal assistant rather than a secretary. Also, do not forget that some attractive travel discounts are still available after university – such as the £30 16-to-25 railcard that provides a 30 per cent discount on train fares.

SAVING

WHILE saving – on top of pension contributions – may not be a priority for someone starting work, it can reap long-term rewards. A tax-efficient Individual Savings Account, invested in shares or investment funds, is an ideal starting place. They can be set up online and are flexible to use.

Shute encourages young workers to adopt the ‘100 minus age rule’. This means that someone who is aged 25 should have 75 per cent of their Isa in equities – the rest in fixed interest bonds. He is also a big advocate of the use of low-cost funds that track the performance of a stock market. Big brands include BlackRock and Vanguard.

Mackay is a fan of the ‘pay yourself first’ rule. This involves diverting 20 per cent of any pay rise in the future into an Isa. She adds: ‘By doing this a worker does not miss what they never had.’

For new workers with one eye on a home, a tax-friendly Lifetime Isa is also an option. This allows anyone between the ages of 18 and 40 to save a maximum £4,000 a tax year – with the Government providing a ‘free’ 25 per cent top-up. Providers include building societies Newcastle, Nottingham and Skipton.

A Help to Buy Isa is an alternative – details at helptobuy.gov.uk.