What are some short and long term ways for a teenager to save?
19 July 2021
Question by Christine
Hi, my brother is 17 and I have instilled in him to save. He puts £40 a month in and 10% of what he earns. I want him to save for short term and long term. What are the best accounts for him?
Answered by Pete Matthew
Well done to you, Christine, on instilling the savings habit into your brother. And well done to him for adopting it.
If he keeps going, he'll be financially secure for the rest of his life...
As to where he should put his savings, as always it's a question of priorities.
Saving should generally be thought of in short, medium and long term pots.
Short term saving - So maybe he wants to take a holiday with his mates when he's 18 - that money should be held in a bank or building society account where it's accessible and where there's no risk of loss. Likewise if he wants to go to university, he would do well by building up a pot of money that he can draw from when he gets there - this too should be held in a bank account as the timescale is pretty short.
Medium term saving - Looking a bit longer, maybe he'll want to buy a car when he starts work, or get together a deposit to rent or even buy a place to live one day. As that is medium term, there's an argument for adding some risk to that money, hopefully to make it grow more quickly.
Perhaps a stocks and shares Lifetime ISA would be good if he wants to buy a home, or an ordinary Stocks and Shares ISA if not (a Lifetime ISA can only be accessed without penalty for the purchase of your first home, whereas a Stocks and Shares ISA can be accessed at any time without penalty). Be aware though, he'll have to wait until he's 18 to open such accounts.
Long term saving - There are not many 17-year-olds that are thinking about retirement, but before too long he would be well served to open a pension. When he starts work he'll likely be automatically-enrolled into one anyway. When talking to him about this, frame this auto-enrolment as one of the best days of his financial life.
I wouldn't over complicate his life right now - he's 17 and doesn't need complex financial arrangements to stay on top of.
A decent interest-paying account (many banks have monthly savers which pay half-decent rates of interest if you put so much in per month) and maybe a Stocks and Shares (L)ISA when he hits 18 - that's probably all he needs for now. But the habits he builds now will serve him extremely well for the future.
Look at some of the challenger banks like Monzo and Starling, because they have great apps which encourage saving.
Give him my regards and tell him, no matter what, to keep saving
Chartered Financial Planner
Pete is a Chartered and Certified Financial Planner and serves as Managing Director of Jacksons Wealth Management in Cornwall. He is also a prolific financial blogger and podcaster at MeaningfulMoney.tv with a desire to get decent financial information out to everyone who needs it.