How to talk to young adults about money

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In the final part of a three part series, in this article we discuss how to talk to young adults about money. The right financial education can make your children feel more confident about money so, when they are older, they have the knowledge and skills to meet their financial goals.

Fortunately, we can instil positive habits such as regular saving and living within your means from a very young age. As they get older, they may need advice on buying their first home or choosing the right protection cover. You may need to discuss intergenerational wealth planning with them too.

Ultimately, having these conversations as a family can benefit all of you. Yet, many people shy away from talking about money and you may be unsure how to start the conversation.

You never stop being a parent, and even your adult children may need some advice about their finances as they face new hurdles and begin thinking about their long-term goals.

There are also important aspects of intergenerational wealth planning that you may need to discuss as you get older.

However, statistics show that many people fail to have these crucial conversations. For example, research reported by MoneyAge5 found that 57% of parents have not discussed their will with their children and 49% said that talking about long-term finances in the event of death was difficult.

Fortunately, if you broach these difficult topics with your adult children, you can both be in a better position to protect your wealth, and you may even be able to pass on more of it to your loved ones when you are gone.

You might wish to discuss:

The importance of protection

The right protection creates a safety net for your child’s wealth. Cover such as life insurance, income protection, and critical illness cover can all act as a buffer against financial shocks and ensure that they can continue working towards their long-term goals, no matter what happens.

But, as FTAdviser6 reports, only 44% of people have enough cover to protect their family. That’s why you may need to discuss the importance of protection with your child and explain the benefits of different types of cover.

Mortgages

Buying their first home is a huge financial milestone for your child, but figures from the HomeOwners Alliance7 suggest that they may be lacking knowledge about mortgages. For example, 27% of mortgage holders do not know what rate of interest they pay and 64% of UK adults said their understanding of mortgage terminology is ‘not good’.

If they are buying a home for the first time, your child may not understand the different types of mortgages available to them or some of the key concepts that could affect their decisions about borrowing. So, sitting down with them to explain the mortgage process may make things easier for them.

It may also be a good idea to refer them to your adviser, who can offer guidance and help them find the most appropriate mortgage in their circumstances.

Gifting and Inheritance Tax protection8

Lifetime gifting may be a useful way to support your adult children financially and potentially mitigate a large Inheritance Tax (IHT) bill in the future when you pass on your wealth.

A cash gift, for example, could help them with large costs such as a wedding or buying a home. Additionally, you can make contributions to their pension or give regular “gifts from income” to help them cover living expenses.

Talking to your adult children about their financial needs can help you find ways to support them and reduce the size of your estate for IHT purposes at the same time.

However, it is important that you understand the gifting rules so you can be as tax-efficient with your wealth as possible and avoid any surprise tax charges for your family after you die.

Your estate plans

According to Canada Life9, 31 million UK adults don’t have a will in place. If you or your adult children fall into this group, it is vital that you both start thinking about estate planning together.

You can take the opportunity to make sure that you both have a will and Lasting Power of Attorney (LPA) in place. Once you have done this, go through your estate plans with your child and show them where all the relevant documentation is, so when you pass away, the process of dealing with your estate is as simple as possible.

It is also a good idea to revisit these discussions about estate planning after milestones like marriage, having children, and buying property, as their will may need to be updated.

Remember…

Your adult children may be able to offer you some useful advice too. So, make sure that they know their input is valuable, and listen to what they have to say.

Did you know?

In the 2019/2020 tax year, the average IHT bill was £216,0009.

Talking to your children about money is one of the best ways you can support them in building their own financial plan.

Once they are adults, you can give them advice about long-term financial goals like buying a home and saving for retirement. You may also want to discuss your estate plans with them and find ways to pass on as much of your wealth to them as possible.

If you need more advice about any of the topics covered in this guide, and how to help your children at each stage of their life, please get in touch with your financial planner.

5 Majority of parents yet to discuss will with adult children, study reveals MoneyAge.
6 Savers must prioritise life cover FTAdviser.
7 Mortgage Understanding – Two thirds admit it is ‘not good’ HomeOwners Alliance.
8 Inheritance Tax statistics: commentary UK government.
9 31 million UK adults don’t have a will in place Canada Life.

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Sources: Your Guide to Talking About Money

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