Sarah: Welcome to Ask the Experts we're going to be talking about family finance tonight, how to support your child beyond their school years. We're going to be looking at what parents can expect from the years ahead if your children are entering higher education or if they're looking for their first job. We'll be exploring how to organise family finances if you're on a squeezed budget, and who isn't these days, and also looking at how parents can help their children get ready to leave the nest. And we've got a great panel of experts to help us with this: on my far left we have Clare Francis, she's the Editor in Chief of money supermarket dot com, she's a consumer finance expert who's spent years helping households make the most of their money; next to her we have Owen Woodley, he is the Managing Director of Lloyds Bank Retail so he's in charge of all of the personal customer accounts the type which you and I would have if we banked with Lloyds; on my right we've got Tracey Bleakley, she is the Chief Executive of the Personal Finance Education Group and they are the UKs leading financial educational charity; and on my far right you'll probably recognise Alvin Hall well known independent financial expert, he was the host of BBC 2 Your Money or Your Life as well as many other broadcasts across television and radio where he offers practical and psychological financial advice and he'll be able to do that for us here today as well. So we're lucky to have such a spread of expertise across our panel to answer some of the questions that you may have about family finance.
Sarah: Danielle from Facebook has asked us she says her son will be going to University next year and she's worried that with an overdraft and with a student loan his debt will get out of control. How can she help him with that Tracey?
Tracey: There are lots of ways to help. If you think about it, the maintenance grant is paid termly, it seems like a huge amount of money and if you add that up with the overdraft that your child is almost certainly offered with a student bank account and potentially then the credit on a credit card it can seem like a lot of money and it can run out very very quickly. So first of all work out how much you need on a weekly basis and if you don't think you can stick to that then maybe as a parent you can help, you can keep the money in your account and send it through on a weekly basis. Budgeting is massively important, sit down with your child before they go to university and tell them how much different things cost. Think about all the things that they absolutely have to spend money on and then work out how much is left for things that they might like to do. And the big thing is to make sure that you can talk to your child about money because I think you'd rather have the phone call with a child to say "I've got a question" rather than the phone call saying "I'm in deep trouble, I've spent too much money".
Sarah: Is there good debt and bad debt for a student?
Clare: I've had letters from parents outraged that their son or daughter has been offered a credit card when they're only a student and actually it can be quite a good idea for them to have a credit card as long as they know how to manage it. Because as long as they're paying it off every month or at least making the minimum repayment. You know the credit cards available to students they get low credit limits but it's a way of helping them build their credit score so that once they're graduated they've got a better credit score already in place which will mean that they then have access to more competitive loans if they need it. If they understand and can learn about how to manage the good debt and take advantage of things like credit cards offers offered by banks for students, and overdrafts on student bank accounts, that actually they're not something to be afraid of they're just something that needs to be managed well.
Owen: Look very carefully in any lending proposition at the rate and the fees that are proposed because payday loans can be incredibly expensive. And the other thing is, different lending products are there for different purposes and I think it's very important that people are clear on why they're borrowing money and therefore what the right solution is. So an overdraft is not designed for long term permanent borrowing, its designed to deal with the ebbs and flows that we all have in our cash flow and there are alternative borrowing solutions for longer term requirement, so it's really important that people are clear on what they need.
Sarah: We've had a question from Felicia; Alvin if you've only got three years before you know a child is going to be leaving home and going in to education is it too late to put together major saving for them?
Alvin: No it's not too late. I think a critical part of it is to determine the amount that you want to save over that three years. You have a set target you know what you're going towards, you'll know the sacrifices you need to make to reach that goal. That's the key component.
Tracey: The one thing that I'd remember is that you don't need all the money for day one. So you don't actually have three years, you have six years. Or rather you have three years but then the payback, the money that you will want to take out, you will be taking over a period of three years so sit down and budget for that eventuality as well and think about that. So it's really important to make sure you can get access to your money as and when, some savings account for example will allow you to make a certain number of withdrawals a year and that might work out very nicely in terms of term time or when your child needs the money so I'd just factor that in to your planning.
Clare: Advisors often recommend that you only consider stock marketing investing if you've got a sort of five-year time horizon. But it's a case of looking for the highest rate of return, it's looking at where you can get the best return on your money and keeping an eye on what rates are available and reviewing it at least once a year and being prepared to move and just getting in to that habit of working out how much you can afford to put away each month and just keep putting it there to maximise and save as much as you can over the next three years.
Owen: So I think there are a couple of critical things that I would say: one is that the usual rules apply, in terms of making sure that whatever it is that you put away it is affordable to your own budget; and the second thing is, you can clearly tie up your money in saving products for different periods of time and with different penalties if you need to come out early so it's really critical to think about what you may need to do in an emergency situation and whether you can afford to wait for those funds to become available if you need to.
Audience: My name's Susan and I have two students that are dependent on us. One of them is just finishing her master's degree in chemistry and has the offer of a job, but is now thinking of doing a PHD. And the other one is finishing his degree and is thinking of doing a Masters, so these things that we budgeted for three to four years are now looking like they might
Owen: I'm sure it's not the case with your children, but I guess there are situations where people will be continuing in education perhaps to put off entering the real world. I do think it's absolutely critical that it's affordable for you and is not putting your long term financial future in jeopardy because they're extending their education. I do think that with that comes some obligation for them to share some of that burden with you and I guess the nature of studying for a PhD, very intense though it is, is that you can mix that with some part time work and lots of people do.
Sarah: Does there come a point when you have to say to your children, that's it I'm done helping you?
Alvin: Yes that time comes when it starts to undermine your retirement. You need to secure your retirement first because you can't borrow to fund your retirement, they can borrow for their education. If it's undermining you the answer is take the job, work a year, save the money then go and get a PhD.
Tracey: There can be bursaries available that you can go out and look for that can make a big difference. If you're doing a PHD or Master's degree regardless of where you did your first degree can you move back home? Can you mitigate some of the costs that way? But the one thing I really would say is does it have to be now? And in many cases it can really benefit you going to work for a while and then doing a degree. Learning is about learning all the way through life. You don't just learn, do your degrees and then go and work, you can go back and do degrees all the way through in lots of different innovative ways now.
Sarah: If it gets to the end of term, you've got five pounds left, can you advise a student to go out and have a good time with it or do you have to encourage them to save it for the next month or the next term?
Alvin: If the student has no fall-back position, no parents who can help, even if there is additional money coming in they're not sure when it's going to hit I'd hold on to the five pounds because I think you always want to give yourself the option and a sense of security because not every parent will step in. I know several people with well to do parents and their parents said to them "I am not paying for your education, you're going to have to go out and work and earn the money yourself" – they would hold on to that five pounds.
Sarah: Tracey would you spend the five pounds?
Tracey: I'd say it depends where the under spend comes from in your budget, it's always going back to your budget. If you've got five pounds because you haven't spent the money and it came from your social fund, the money that you put by to go out with your friends and have fun, say fine go out and spend it because actually part of going to university is about having fun, it's not all about having fun but some of it is. But if it came from another area like your utility bill was lower than you expected this month for example or telephone bill, I'd say put it to one side because it's a cash flow thing and maybe next week, next month, next term something's going to be higher than you expected so put it to one side.
Sarah: Parents can't be too hard on students about money can they? They have to be allowed to enjoy themselves a little bit if they can afford it?
Owen: I think the obligation of parents is to give your children a sense of responsibility for their future and it's very difficult. So I have two teenage children and I've made it very clear to them, I hope I can follow through on this, I've made it very clear to them that for as long they are in education we will support them to the extent that we agree to. And then as soon as they finish education they then need to support themselves. And if that includes staying at home with us then they will have to make a contribution, and I think these things are really hard, particularly in this day and age, for parents to apply, particularly if you can afford to do more. But I think you have to remind yourself that this is all part of your responsibility as a parent to educate your children for their future.
Sarah: How can you work out what's the right amount for a student to have?
Tracey: I think you need that little bit of time to sit down and think ‘okay, let's do some research, let's look online – so how much are rents in the area?' Let's look at how much gas and electricity we'll be using, how much that costs. And then being that savvy consumer together – going to the different supermarkets together, looking at the different costs of food in the different supermarkets. Figuring out travel and transportation – can you get a rail card? What kinds of deals can you get online? What's the best deal to get with the bank account that I choose? If you spend time upfront working out those things together, there's a good chance you're going to be fairly right – at least about the fixed costs, you may not quite know how much the beer costs in the student union bar, but you're going to have a good idea and be able to put that budget together.
Sarah: It's much harder to know now, isn't it, how much a student needs to get by through an academic year. How can parents work it out?
Clare: It is very difficult. There's two different types of loans available – so there's the tuition loan which will cover the cost of the tuition fees, and then there's a maintenance loan as well – and that depends on where you're studying – so students in London get a bigger loan than students studying outside London. If you live at home you'll get less than if you're living in university or private rented accommodation. I know when I went to uni, my dad was totally unrealistic and he gave me £20 a week – and it was actually really stressful – and it wasn't because I was being stupid with my money.
Sarah: Are there tools online to look up, let's say, the average student gets £6000 a year to live on - £10,000 a year to live on, to at least give you a guide as to what you should be running a budget around?
Owen: So there are lots of tools. One thing that's definitely worth looking at is on the National Union of Students website, where there is all sorts of data that tells you, depending on which part of the country you're going to study in, what the costs of living are in those places and with lots of tools to help you budget, there are some really good things online.
Sarah: This question came in from Facebook – from Paul and Janet Barrow, who must be parents, and they say, considering the difficulty of getting a job these days, and the amount of student debt that you would accumulate, is it really worth going to university at all?
Alvin: I think so. But maybe not for everyone. I think the greatest gift parents can give their children is an education. I think an education - if you spend the money, and the person has the ambition, and they learn how to use their mind, they will find the path – it may not be there from day one – but you'll eventually find that path. I don't look back at all the debt I incurred in getting an education with one day of regret. And it took me over a decade to pay it back. But I never regretted it.
Sarah: Are families frightened of the debt that's left at the end of a university degree now, with tuition fees as well as your maintenance costs?
Owen: So – I'm sure they are, the numbers, when you look at them in aggregate are quite scary. But I think this is why we have to put it in the context that – everybody's circumstances are entirely individual and you've got to do whatever the right thing for you is. And it is of course partly a financial decision, but it's also a much broader decision about what you want out of your life. And I think if you boil it down to a simple ‘do I want to end up with this level of student debt, or not?' you're going to miss the wider benefits of potentially broadening your education.
Tracey: I mean what we've got to consider now, is that going to university is one of the major financial decisions that we'll make in our life. So – I would say, make that– make it almost a business decision: sit down, write down, figure out why you're doing it and then have the confidence to go ahead once you know you've made the right decision.
Owen: I think it's worth mentioning as well – it's much talked about isn't it, it's a really tough world for young people to go out and find work today. That is absolutely undeniable. Nevertheless, I think still about fifty per cent of graduates leaving university – are still ending up in graduate level jobs, with all the career potential – if that's what people want- that comes with that.
Alvin: I'm going to tell you all something, I think, will amuse you. So I went to this very prestigious school in America – a Junior Ivy League school – and when I go out it was in the nineteen seventies (I hate that phrase!) I couldn't get a job. I literally could not get a job. There was a huge recession – my first job was – selling furs in Florida. From selling furs in Florida to today! You never know where things are going to lead, and people say "people bought furs in Florida?" I was good at that job, I could sell furs to those ladies on Miami beach – like that.
Sarah: James in the audience points out that his daughter is looking for her first job after graduating from university and is probably going to have to work through some unpaid internships. So he wants to know how he can rejig his finances to help support her while she's not earning money before she gets her foot on the career ladder. What can he do to help himself help her?
Clare: Most parents would do that – and for some it might mean cashing in some investments- but if it's going to affect your standard of living and your ability to live and be able to afford things, then it might be that you have to say no, even if it means that the child can't take that internship and has to do something else that perhaps they don't really want to do.
Alvin: I think if you can help your child for a period of time, then you should do so. And I think there are many ways you could do it. You could tap in to the equity in your home if necessary for a limited period of time – and you could also talk very honestly with the child, or young adult about what will be the budget – how much you will contribute, what are your expectations for that period of time? That's really important because they can't live the same life they lived at university – it's going to be much more restrictive. There's also the fact that grandparents may sometimes be able to help, the key thing is to set that budget for them very, very carefully. I know a lot of young people who have gotten involved in unpaid internships, one of the things that has been consistent for all those young people is that they have constantly networked and looked for jobs at the same time.
Tracey: I'm personally quite against unpaid internships and when we've run them – and we're a charity – we've always paid the minimum wage. I think it's so important. And I've always made sure that that person coming in has a proper training plan. They're actually looking after a project – and there's a real chance that they'll be able to go on and have a career with the organisation later. This is not about bringing in unpaid labour to make tea and coffees. So the first thing that I would say is – when you're choosing an internship, make sure that there really is training offered, there really is a really good opportunity here, ask if the minimum wage can be paid and if it can't be paid, then at least make sure that you're asking for travel and food costs to be paid, subsistence costs – really important. And if the organisation can't afford to do that, or won't do it, then I'd question whether it's the right opportunity anyway for the young person.