Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
This article is the latest part of the FT’s Financial Literacy and Inclusion Campaign
Laureen comes from an ordinary background, yet she earns an extraordinary salary.
Living in a council flat in London with her parents, the 22-year-old already out-earns them after winning a place on the graduate scheme at a City of London bank, with a salary of £49,000 plus bonus.
“Because of that, I’m so conscious of my money story and where I come from,” she told me on the FT’s Money Clinic podcast this week.
Others in this situation might just go out and spend the money but, impressively, not Laureen! She wants to make the best possible decisions with her monthly pay cheques but feels “overwhelmed with choice”.
Her parents don’t know much about pensions and investing, so she thought she would find a financial adviser. She also felt colleagues who came from more affluent backgrounds knew much more about managing their personal finances.
“Everyone earns loads of money, but we can’t talk about it, ironically,” she says. “I’m always curious as to what my manager’s managers do with their money, or what they would say to us if they were grads and on our salary.”
Well, we gave Laureen lots of pointers on the podcast including maxing out her company pension, seeing if her employer offers a share save scheme (most UK listed companies do) and exploring tax-free investing using stocks and shares Isas.
Since the episode aired on Tuesday, I’ve been contacted on social media by FT readers who wanted to share their advice and personal experiences.
“Don’t assume that your manager’s managers know what they are doing with their money,” advises Sarka Halas via Instagram. “Many people across the income scale live beyond their means and live pay cheque to pay cheque.”
Plenty of you encouraged Laureen to “pay herself first” by automating savings and investments to come out of her account on payday, so she doesn’t succumb to lifestyle creep.
Another popular piece of advice? Don’t spend your bonus — invest it (FT Money’s bonus survey shows this is what the majority of readers do).
Others offered careers advice. “A salary of £49,000 is fantastic but through personal development she can grow that, and income growth goes hand in hand with investing for your future,” says Carl Mba, a financial planner commenting on LinkedIn. “Starting small is fine, but as your salary grows, increase these deposits accordingly.”
Another thing that many people on social media advised that Laureen shouldn’t do with her salary or bonus? Talk about it.
Olivia says she was in the exact same position as Laureen in her early twenties when she landed her job in fund management. “There is no upside to sharing the details,” she advises. “People who earn less than you will start expecting things from you.”
There could also be an expectation that you will be the family’s banker. Clem, one of my Instagram followers, has been in this situation herself as a fellow young black professional.
“When I was living at home I paid towards the household, plus I had to take a loan out for my mum,” she says. “It is very common. You end up paying for so much, we call it the ‘black tax’. My friend is currently paying towards her parents’ rent and bills, so she can’t save.”
Timi Merriman-Johnson, better known online as Mr MoneyJar, is very familiar with this term.
“The sense that you must support your wider family financially is felt acutely by people from African, Caribbean and working-class backgrounds,” he says. “If you are the first in your family to go to university or get a high-paying job, you can find yourself being the go-to person for loans and requests for money. Or sometimes we can simply place this obligation on ourselves.
“It’s a very difficult story for a lot of us. We’re at the start of our wealth creation journey and want to be saving, investing and having fun, yet our disposable income is reduced. You simultaneously want to help, yet be the last generation of your family who has to send money back up the chain.”
Merriman-Johnson’s advice to those in similar situations is to set limits. “You can’t pour from an empty cup,” he says. “Pay off expensive debts, save up your emergency fund, max out your workplace pension and maybe start saving into a Lifetime Isa to buy a property. After that, if you choose to help out, treat it like a high-risk investment — you may never see that money again.”
Those from wealthier backgrounds may get money passed down to them but building knowledge about investing is also valuable.
Educating yourself by reading the financial press, listening to podcasts and following social media accounts dedicated to personal finance can go some way to fill this gap. However, others flagged the need to understand your emotional relationship with money, and what effect a scarcity mindset could have on financial decision making.
“For me, coming from a low income background has affected how I view money but that’s only something I’ve come to realise in adulthood,” says Lucy Cook, commenting on Instagram. Favouring cash savings over investing and feeling uncomfortable taking risks or making longer term financial plans are some of the ways this could manifest itself.
Laureen’s instinct was to approach a financial adviser for help. However, her inquiries about becoming a potential client at the age of 22 were largely met with polite bafflement.
A salary of £49,000 may feel like an extraordinary amount for someone of her age, but many financial advisers are only interested in taking on older clients with much more in the way of assets to manage (and fees to extract from these).
One question we debate on the podcast is whether people like Laureen, whose financial affairs are relatively simple, really need a financial adviser. But, clearly, there are millions of people who could benefit from trusted guidance as they strive to educate themselves about different options and make the best possible decisions with their money.
So what could fill this advice gap? More workplaces are offering staff financial coaching and so are some banks. Investment platforms and fintechs are urging regulators to review current definitions of advice and guidance to make it easier for younger, less affluent clients to access more personalised services spanning debt, saving and investing.
There are risks attached to broadening these definitions, but surely the greater risk is leaving those like Laureen who are eager to improve their financial situation to fend entirely for themselves.