2022-2023 LIBF FINANCIAL ABILITY ASSESSMENT AND CHALLENGE NATIONAL FINALS

CASE A INFORMATION

Stefan starts to save

Stefan is 14, lives in Leicester and has decided that he would like to start saving for a mountain bike. He
knows that his parents cannot afford to buy one as a birthday or Christmas present.

Stefan is at a stage in the life cycle where his previous birthday and Christmas presents have been chosen
and bought for him by his parents and extended family. Stefan has always been grateful for what he has
received as he knows that his parents often struggle for money, but in future he will be asking for cash so
he can save for what he wants.

As Stefan is 14, he can legally start working and he has been offered a job ‘mucking out’, cleaning the
horse stables of his mum’s friend. This is not a pleasant job, but Stefan is focused on the money. He has
been offered 3 hours a week, at £4.50 per hour, paid in cash.

Stefan does receive weekly pocket money from his parents, which he often spends on sweets and drinks
during the week. His parents give him £5 a week, only if he completes his chores. Occasionally, Stefan’s
gran gives him 50p or £1.

Stefan has never had a savings account but thinks that it would be a good idea to keep his money safe
and stop him from spending. He has done some research and found out that banks add interest to his
money so he cannot lose out by doing this.

Stefan has seen various mountain bikes that he would like, ranging between £310 and £750. Stefan knows
that he will have to be focused on his savings in order to afford this. He has also done some research that
shows he will need money for a bike safety helmet, bike insurance, gloves, elbow pads and knee pads,
which will cost another £60 in total. He would also like to join a local mountain-biking club, which will cost

£10 per month for a junior membership.

Research

With personal debt in the UK causing stress to personal budgets, this article looks at what we can do to
combat this problem in the future. Teaching children how to save money might break the cycle that debt
is an acceptable way to purchase items.

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“Is teaching children how to save money important?

Much of the debt today is caused by the financial climate – zero hours contracts, increasing costs, low
incomes and unexpected events such as redundancy or unemployment. There is also a significant
proportion of debt caused by lack of knowledge of how to make good financial decisions, including how
to save money. This is why teaching children how to save money is vital.

As well as the financial climate, the ‘I want it now’ culture has had a massive impact on the level of personal
debt in the UK. And it’s not just the children who want it now. Some of the debt today is caused by people’s
inability to regulate themselves.

How many people do you look at and think ‘How on earth can they afford to do that?’ ‘How can they have
3 holidays a year?’ ‘Where do they get the money for a new sofa every couple of years?’ How can they
afford it?

Many of them can which is great; however, many of them can’t! For some, it gets put on the mortgage,
and they pay interest on it for 25 years. Others finance it on credit cards and pay massive interest on it for
years and years. Some will have personal loans, again costing them in interest payments.

The average cost of a new kitchen is £7,000, and below are the cost comparisons of paying for it in different
ways over a 5-year period. The difference in cost between the various methods is considerable.

Figure 1: The costs of a £7,000 kitchen

Credit card – £176/month. Total cost £10,523.

Secured loan – £137/month. Total cost £8,887.

Personal loan – £128/month. Total cost £7,692.

Remortgage – £125/month. Total cost £7,500.

Saving up for it – £109/month. Total cost £6,540. (£506 in interest)

The difference between the most expensive and the cheapest method is £3,983 or £66 per month

over 5 years.

Our children’s generation could end up in even more debt than this one, if they are not taught how to
manage and how to save money.

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2022-2023 LIBF FINANCIAL ABILITY ASSESSMENT AND CHALLENGE NATIONAL FINALS

How can we help future generations to avoid getting into the situation that their parents are in?

Financial education is now in the curriculum in all four countries of the UK. We can be hopeful that the
next generation will be exposed to some level of money education, including teaching children how to
save money.”

(Source: www.yourmoneysorted.co.uk)

The next article looks at if teaching children to handle money will have an impact on their future.

“How to teach teenagers about money

The teenage years can be difficult, and money matters can seem insignificant. But good money
management is important for them to learn financial independence as they get older.

Pocket money

Just over half of 15 to 17-year-olds who receive money on an ad-hoc basis keep track of their income and
spending. Whereas almost two in three of those who receive a regular, fixed amount are aware of their
financial incomings and outgoings.

How much pocket money you give isn’t important. Giving even the smallest amount of money regularly is
a great way to help them learn how to manage money.

For many people, pocket money is their first taste of financial responsibility. Giving a teenager a regular
set amount of money and the responsibility of paying for something they want gives them the opportunity
to practise good money management.

Ways teenagers can budget

Here are some ideas to help them get in the budgeting habit:

• Help them find a free budgeting app – many of these apps make budgeting fun by tracking goals
and progress. Gamification – using gaming elements for real-world tasks can work really well.

• Set up a savings challenge – it needs to be related to something they really want, and they’ll have
to budget to succeed at the challenge.

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2022-2023 LIBF FINANCIAL ABILITY ASSESSMENT AND CHALLENGE NATIONAL FINALS

• Give them three jars – when they get their weekly pocket money or allowance, help them divide
their money into three categories: needs (for example lunch at school); wants (such as driving lessons);
and a rainy-day fund. (See ‘Consequences’ below for more about unexpected costs).

Consider what strategies will work best. Gamers will love the app approach, while a competitive teenager
will more likely be up for a savings challenge.

Consequences

Teenagers who are responsible for paying unexpected expenses themselves (rather than asking their
parents for the money) are much more likely to keep track of their money.

Part of teaching teenagers how to manage their finances comes down to setting boundaries with the
money you give them and not bailing them out if they overspend.

It’s better to learn the hard way now, while the amounts are small, rather than later when overspending
can lead to problem debt.

Practise what you preach

If you’re the type of person who saves up to buy something, it’s more likely that teenagers who observe
this will do the same.

However, if you’re quick to turn to credit to fund non-essential purchases, they’re likely to follow this
example.

If there’s something you really want but can’t afford, such as a family holiday or a spa break with a friend,
talk about this openly with them.”

(Source: www.moneyadviceservice.org.uk)

Stefan has found three possible savings providers, as shown in Table 1, and is considering these options.

All interest is calculated daily, and accounts can be opened online or in branch (HSBC, Halifax and
Nationwide Building Society have branches in Leicester).

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2022-2023 LIBF FINANCIAL ABILITY ASSESSMENT AND CHALLENGE NATIONAL FINALS

Table 1

Savings accounts options

Provider HSBC Halifax Nationwide BS

Account name MySavings Kids’ Monthly Saver Future Saver

Minimum opening £10 £10 £1

balance

Minimum monthly None £10 per month None

deposit

Maximum monthly £250 £100 Not applicable

deposit

Withdrawals allowed? Yes, anytime None allowed Only one allowed per
year

Interest paid Monthly Annually Annually

Interest rate 2.50% AER variable 3.50% AER fixed 1% AER fixed

You will receive a One year savings If 2 or more withdrawals

debit card to spend as plan. are made, interest rate
Additional information you wish. goes down to 0.05%AER.
Transfers to a Kids’
Saver account after a
year at 1.45% AER.
Interest rate applies Maximum age is 17.
until child becomes Maximum age is 17.
18.

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2022-2023 LIBF FINANCIAL ABILITY ASSESSMENT AND CHALLENGE NATIONAL FINALS

ADDITIONAL INFORMATION

Stefan has now started working at the stables and is doing a good job. The stables owner has asked Stefan
to do a few extra hours every now and again, which Stefan is looking forward to.

Stefan has told his parents not to give him any pocket money as he is earning and knows they are
struggling financially because they have just bought a new kitchen, costing £7,000, using their existing
credit card.