Your starter guide to talking about money

How you can make #ElephantSavings ✨and prepare for the future

Talking about money isn’t always easy. So much so that 90% of young people feel uncomfortable discussing finances. It’s become ‘the elephant in the room’ for many. Not talking about money can trap you. People end up keeping things bottled up instead of reaching for help.

We know the result of not seeking help earlier. Last year, we helped 2.66 million people with one-to-one advice. And 1 in 5 young people who come to us have a debt problem. So we know it’s pretty important to reduce the stigma around money. We’ve teamed up with our experts to create the *perfect* starter guide to talking and finding out about money.

Working out what your finances are 🤔

How to decide your budget

One of the first steps to understanding your money is looking at what you have and how to spend the right amount. Budget planners help you understand what you’re earning and spending, and where you might be able to cut costs. You can use the free budget planner on the MoneyHelper website. The planner will be most useful if you give accurate figures. You can use rough figures if you just want a general idea of your budget.

Try to find your most recent:

• bank statements
• Payslips and proofs of income
• debit and credit card statements or bills
• receipts for things you usually pay for

Make sure you include all your expenses, for example money you spend on your partner or family. If you want to understand your first payslip, we’ve written a blog which breaks it down.

Finding out if you have any savings you don’t know about

You may have savings you don’t know about. Your parents might have bought Bonds when you were younger or you may have a Child Trust Fund. A Child Trust Fund isn’t as exclusive as it sounds, it was actually a government run scheme. If you were born between 1 September 2002 and 2 January 2011 you may have a Child Trust Fund waiting for you of up to £1000 or more.

If you’d like to find your Child Trust Fund but you’re not sure how, The Share Foundation and Gov.uk can help you.

How to open a bank account

To open a bank account, you usually have to fill in an application form. You can usually do this in a branch or online, and sometimes you can also do this over the phone.

You’ll have to provide proof of your identity including your full name, date of birth and address. You usually have to show the bank 2 separate documents that prove who you are, like your passport, and where you live, for example, a recent bill. If you don’t have any of the documents that the bank wants, they should accept a letter from a responsible person who knows you, such as a GP, teacher, social worker or probation officer. There’s more information on our website

Working out your credit score

Credit scores are used by creditors to work out how risky it would be to lend to you. For instance, if you’re looking to get a mortgage or a credit card. Credit scores might not seem super relevant to you when you’re in the initial stages of thinking about money. You don’t want to borrow money yet, so why should you care what your score is? Actually, credit scores are important at all stages of life. You’ll often need a decent one for smaller things like a mobile phone contract. Credit scores take time to build and you can take easy steps to improve yours or maintain a reasonable credit score. Credit scores vary from one credit reference agency (CRA) to another. It may be worthwhile to check what information each CRA has about you and see what scores each gives. There are 3 major companies in the UK called ‘credit reference agencies’ (CRAs)that compile the information on your credit report: Experian, Equifax and TransUnion.

How to save money 💷

Tips for your weekly shop

1. If you can afford to, bulk-buy foods that don’t go off, particularly if they are on offer
2. Use comparison sites to find out which shops have the cheapest products
3. Check the reduced section at the supermarket to find great deals.
4. Don’t go shopping hungry
5. Use cash instead of cards so you can see what you’re spending
6. Make sure you use loyalty cards, you can either use them to claim money back or swap them for other things, like cinema tickets

What pensions are and how to put money into them

You might not think pensions are worth thinking about at this stage in your life. But they’re really important, and easy to start putting money into.

We’ve tried to explain what they are…

You can also read more about them in this blog.

Choosing the right savings account

You can use savings accounts to put away money that you’d like to save for the future, for emergencies or to buy expensive purchases like a new car or a holiday. There are lots of different types of savings accounts, we’ve explained them here…

Instant and easy access accounts

• This is a basic savings account where you save and get paid interest on your savings
• Usually, receive a better return compared to your current account
• You can open an account with a deposit of £1
• You withdraw your money whenever you need it
• Savings are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000.

Regular savings accounts

• You agree to pay in a regular amount each month — usually between £10 and £500.
• You may have to commit to paying this over a minimum number of months — usually 10 or 11 months.
• You might need a current account first in order to qualify for the regular savings account
• The bank or building society will give you a higher interest rate on your savings compared to current or instant access accounts.
• Savings are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000

Cash Individual Savings Account (ISA) (there is also a Junior Isa for anyone under 18 which is managed by a parent/guardian)

• Your savings grow tax-free.
• You get an annual allowance where you can save without paying any income tax
• The allowance for 2023/24 tax year is £20,000
• A Cash ISA is usually a simple savings or deposit account.
• You can only open one Cash ISA a year however you can transfer to another Cash ISA or a Stocks and Shares ISA with another provider during the tax year
• Savings are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000

Credit union savings accounts

• To become a member you have to have something in common such as where you live, your job, where you work etc.
• There are several ways you can save e.g. through a local collection point, by direct debit or money deducted from wages.
• Most credit unions don’t give you interest on your savings, instead, you earn a ‘dividend’ (a share of their annual profits made).
• Savings are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000
• You can usually withdraw money at any time.

Junior Individual Savings Account

• Junior ISAs let you (the parent, carer or guardian), save and invest on behalf of your child under 18.
• It works in the same way as a Cash ISA where you get an annual allowance and you don’t have to pay income tax on your earnings below this allowance.
• The Junior ISA allowance is £9,000 for the tax year 2023/24
• The account and the money belongs to the child and they can’t usually withdraw it until they’re 18
• When the child turns into an adult (18) the account automatically turns into an adult ISA
• Savings are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000

Sharia-compliant savings

• A savings account in accordance with Islamic law that is FSCS protected and regulated by the FCA.
• Savings grow through Sharia-compliant profits, not through interest and instead of an ‘annual interest rate’, you will earn an ‘expected profit rate’.
• Although accounts are tailored for those who follow the Islamic faith, accounts are open to anyone.
• Providers will generally not invest or lend money to businesses that provide goods or services which are against Islamic principles such as alcohol, tobacco and gambling.
• If using a Financial Conduct Authority (FCA) regulated and UK-authorised bank, building society or credit union — your savings of up to £85,000 is protected by the Financial Services Compensation Scheme (FSCS).

There’s also lots more useful information on the Money Helper website

Investing: the basics

Investments are assets or items that you buy or pay into with the goal that over time the item will increase in value. You need to be really careful when it comes to investments as there is a risk that you could receive less than you pay in. The value of investments can go up as well as down, they can also end up being worth nothing at all so it is important to consider the risks as well as the returns. A return is simply the profit made on an investment over a period of time.

When considering investing, one option available to you is to take professional financial advice. There will usually be a cost to this, but financial advisers can look at your circumstances and your financial plans and recommend products to help you meet your needs. More information can be found on our website.

If you own more than one asset or type of investment then this is called your portfolio. More information about the most popular types of investment can be found on the Money Helper website.

Staying out of financial trouble 🛑

Using Buy Now Pay Later to shop

Buy Now Pay Later firms have grown in popularity over the past few years. They let you split or delay payments to make them more manageable in the short term. They’re sometimes interest-free for a short period of time, meaning it won’t cost you anything extra to buy your items this way. Whilst this may feel like an easy way to pay for something in the short term, lots of people don’t know what they’re fully signing up for. For instance, many people don’t know that it is technically a form of credit, and if you miss payments, it can affect your credit score. Or that interest rates can be high and you have less protections than other forms of credit.

Understanding your debt

If you can’t pay all of your bills, it might help to work out what is a priority and non-priority bill. Priority bills should always come first as falling behind on them can lead to priority debt which can lead to particularly serious problems. These include losing your home, being cut off from essential supplies like gas or electricity, having essential possessions taken away, or being sent to prison. Priority debts include:

• Rent arrears
• Mortgage arrears
• Council Tax arrears
• Gas and electricity
• Phone or internet bills
• TV licence payments
• Overpaid Tax Credit
• Court Fines
• Unpaid income tax or VAT

You can’t be sent to prison or be evicted for not paying non-priority debts. However, if you don’t pay and don’t give an explanation, the people you owe money to, known as creditors, may take you to court. Non-priority debts include:

• credit card or store card debts
• catalogue debts
• unsecured loans, including payday loans
• overdrafts
• unpaid water bills — your supplier can’t cut off your water supply
• overpayments of benefits — apart from tax credits
• money owed to private businesses such as vets, nurseries, solicitors, garages, builders and funeral directors

More information on dealing with your debts can be found on our website.

Glossary

APR

This stands for Annual Percentage rate. This tells you the cost of a loan, taking into account the interest you pay, any other charges, and when the payments are due. You can use the APR to compare the cost of one loan with another. For example, a loan with 20 % APR is more expensive than one with 15% APR.

AER (Annual Equivalent Rate)

this is the type of interest you receive in your savings accounts. It’s calculated based on the interest, bonuses and charges on your savings account over 12 months. For example, If you opened a savings account and put in £100 at the beginning of the year, and the AER was 10%, at the end of the year you would have £110 in the account (assuming you didn’t withdraw any money or put any more money in). If the AER was 1%, you would only have £101 at the end of the year. All banks use the same calculations for their AER so you can use it to compare savings accounts

Arrears

This is the amount of money that is still owed and has not been paid when it was due. For example if you have a monthly payment on a loan of £50 and you miss a payment one month, your account will be £50 in arrears

Assets

Assets are items you own that can provide future benefit to you or your business, like cash, property, or even office equipment

Compound interest

Compound interest is important in understanding how interest works on your savings and loans. The principle is that when you save money, as well as earning interest on the savings, you also earn interest on the interest itself. Therefore, every year that you keep your money in your account, you are earning interest on each previous year’s interest. This means the longer you keep money in your account the faster the money will grow.

Example — If you saved £1000 in your account and the AER was 10%, at the end of the first year you would have earned £100 in interest, £1100 in total. The following year you would earn £110 in interest (10% of the original capital) and 10% of the year one interest (10% of £100). The next year would be £121 and so on and so forth. This is what is referred to as compounding.

Credit

If your account is in credit, it means that you have money available to spend. If you buy goods or services on credit, it means that someone like a bank or other lender has given you the money to buy something now. This is with the understanding that you’ll pay it back later, usually in instalments, with something called interest on top and could include other fees and charges.

Credit Report

A credit report is a record of your financial history including how well you make payments, such as bills and rent, and manage credit such as loans and credit cards. Financial organisations, such as banks and credit companies, energy and broadband companies, use your report to help them decide whether to do business with you or not.

Credit Score

Information on your credit history is used to create credit scores. These scores show you how much of a risk you are to lend to. The lower the credit score the higher the risk you are to lend to.

Bank statement

A bank statement is a list of all transactions for a bank account over a set period, usually monthly

Bonds

Bonds are used by governments or companies to raise money by borrowing from you. In return, they will pay you back your investment and add interest on top over a certain period of time.

Budget

A budget is a financial plan that outlines your income and expenses over a specific period, typically monthly or yearly. It helps you track and plan your money to meet your financial goals.

Debt

This is money that’s borrowed that needs to be paid back. You can also be in debt if you fall behind on your bills.

Expenses

Expenses are essentially your outgoings, things that you pay for. Expenses can be fixed (stay the same) such as your rent or council tax, or variable (can vary month by month) such as your groceries or clothes shopping.

HMRC

His Majesty’s Revenue and Customs — the government department responsible for collecting tax and paying benefits

Income

Money you earn or receive. This could include salary, wages, allowances, investments, rental income, or any other money you receive regularly.

Interest

This is the amount of money you get for keeping your money in, for example, a bank or building society. It is also the cost you pay when you borrow money through a loan or credit agreement.

Loan

A loan is money, property, or other material goods that you borrow which you have to pay back within a set timeframe. You usually pay back in instalments and this could include interest, fees and other charges.

National Insurance Number

Your National Insurance Number (NI Number) is a series of letters and numbers, and it’s unique to you. It is made up of 2 letters followed by 6 numbers and 1 letter, like QQ123456A. To work in the UK, and access the welfare benefits system, tax system and certain government services, you will need a NI number. You will then pay a tax that all earners pay which is deducted directly from your wages and pays for benefits, pensions and the NHS