Budgets, benefits and tax breaks: Money advice for young people after Covid

People under 35 worked in nearly 90 per cent of the payroll jobs lost since the beginning of the pandemic. Those under 25 have been hit the hardest, employed in 60 per cent of the jobs that have since disappeared.

That news was revealed in the latest labour market overview by the Office for National Statistics, published one year on from the first lockdown, which showed more than 700,000 jobs vanished across the year. There was already a generational money divide before 2020, with average earnings for young people not keeping up with rising house prices, stunted by the financial crisis of 2008. The shutting down of much of the economy during the coronavirus pandemic will blow this open, say those working in organisations supporting young people.

Nearly half of furloughed workers are aged under 24, according to charity Movement to Work, while the Resolution Foundation warns that younger adults have become the most likely to fall behind with housing payments. It believes there is a risk of long-term unemployment and pay “scarring” effects for those who start their careers during a downturn.

Liz Emerson is co-founder of the Intergenerational Foundation, which promotes fairness between the generations. She points out that recessions historically hit younger people the hardest, but the pandemic has delivered “a particularly cruel triple whammy”.

That is, a recession that has reduced job opportunities; the shutting down of sectors such as retail, travel and hospitality that predominantly employ teens and those in their twenties; and Brexit, which she believes has reduced the availability of jobs further still.

“In intergenerational fairness terms, while younger generations were far less able to cope with a 25 per cent drop in income before the pandemic, having to spend two thirds of their weekly expenditure on essentials, older generations, who rely on pension income, have been largely financially insulated and some have even seen their savings grow.

“We need a fairer post-Covid-19 settlement, one that invests in young people so that they are better protected from the danger of long-term economic scarring. That may mean dampening down rather than overheating the housing market, basing taxation on wealth rather than income, and reducing the burden of student debt repayment.”

While these policies would likely be very popular with young people, they are unlikely to

So, for now, a basic knowledge of personal finance – how to budget, save, claim the benefits to which you are entitled, and avoid the growing threats of high-cost debt, coupled with an epidemic of scammers preying on economic insecurity –  is becoming increasingly vital.

Andy Haldane, chief economist at the Bank of England, says more needs to be done to prioritise financial education.

“This need has only been exacerbated by the events of the last year, which have further increased young people’s anxieties about money,” he said.

The London Institute of Banking & Finance, in its 2021 Young Persons’ Money Index, found 82 per cent of 17 and 18-year-olds regularly worry about their personal finances, and nearly half didn’t understand how student loans work. Here’s our vital guide to how millennials and Gen Z can get a handle on their Covid-battered finances.

What practical steps can young people take in the meantime? Over the coming months The Big Issue’s Ride Out Recession Alliance (RORA) will be providing advice, flagging job opportunities, apprenticeships and training courses, as well as asking experts for their money help and tips to support those struggling with the economic consequences of the coronavirus pandemic, including our younger generations.

Start an emergency fund

Debt charities say that the most common reason people end up borrowing money, and getting trapped in paralysing debt, is an unexpected expense or sudden drop in income. Almost 6.6 million adults have nothing set aside for this scenario, according to new research from the money app Yolt, but financial shocks in the last year, such as pay decreases, saw people lose an average of £6,000 off their annual household income. Ask any financial adviser and they will insist on the importance of having an emergency fund, a sum of money that you can get your hands on if something unexpected happens.

Yolt reckons £12,500 is the ideal amount to aim for – a daunting sum for most young people. Debt charities suggest £1,000 as a minimum. Start backwards, how much can you afford to put aside each week or month? Pay that to a separate account.

Bola Sol, the millennial author of How to Save it: Fix Your Finances, suggests three to six months of essential bills. “If 2020 has taught us anything, it’s that we all need to pay attention to our finances and have a viable financial back-up plan. With things like furlough, unexpected redundancies and Universal Credit hovering in the wings, we cannot and should not be attempting to survive purely on what our monthly income happens to be.

“What constitutes enough savings can only be determined by you. For some people it may be 12 months of their salary. You choose what you’re comfortable with.”

The best budgeting apps

There are lots of handy apps that make it easier to look at where you could cut back on spending and help you build an emergency fund automatically.

Money Dashboard lets you view all your accounts in one place, giving a holistic view of your finances and where you might be going wrong. Emma does similar, helping you identify those recurring subscriptions that you forgot about, and warning you of bills and direct debits due.

Yolt offers a prepaid contactless debit card, to encourage you not to go overdrawn, as well as save without noticing
by rounding up your spending and moving it automatically into its Money Jar. Moneybox will also round up your spending, allowing you to save in an ISA or invest in the stock market.

Chip, Plum and Cleo all offer automatic savings functions, using AI to analyse your account and move money away from temptation into a savings or investment fund.

Claim benefits and tax reliefs, and top up a lifetime ISA before April 6

Make sure that you understand and apply for all the benefits or tax breaks you’re entitled to. There is over £15bn of money being unclaimed, including by young people, believes the charity EntitledTo, such as child benefit, tax breaks on childcare for parents who work (worth up to £2,000 a year) and Covid-specific help such as the self-employed income support scheme. Its website and turn2us.org have free benefit calculators showing you exactly what you may receive.

The end of the tax year on April 5 is a deadline to claim anything you might have been entitled to over the past 12 months, including money towards equipment for working from home, marriage tax allowance and tax breaks on savings in an ISA.

This includes a lifetime ISA (LISA) for young people saving for their first home. If you’re aged between 18 and 39 you can put up to £4,000 per tax year away, and receive a 25 per cent bonus, up to £1,000 a year, from the government, if you use the savings to buy your first home.

April is also the deadline to withdraw any money from your LISA penalty free. Usually you have to forfeit some of your savings if you don’t use the cash for a property – this was waived during the pandemic, but as of April 6 the penalty comes back in.

Free online money help

There is an increasing amount of brilliant, free online personal finance information, courses and communities to tap into for those who can’t afford or don’t have enough savings to make it worth shelling out for financial advice.

Be wary of the fraudsters or grifters, however. Social media is rife with unqualified influencers offering paid-for training courses in risky investing or cryptocurrency, which should be avoided.

Search, instead, for debtstagrammers, with hashtags like #debtfreecommunity and #debtfreejourney for people sharing their own money stresses and how they manage them.

Networks such as The Financial Wellbeing Forum by Clare Seal and vestpod.com, run by Emilie Bellet, are communities of millennial and Gen Z women offering free money guidance  on everything from how to budget to getting started in investing, in the form of  newsletters, workshops and podcast The Wallet.

The charity MyBnk has a new YP Zone aimed at 16 to 25-year-olds during the pandemic, with free digital money tools, videos, chatbots and e-learning courses and guides. Developed with The Mix and Money and Pensions Service, it has also introduced a new saving text message service and a special course on becoming financially independent at university, covering banking, borrowing, budgeting and spending.

If you are a young person on a pathway to housing you can refer yourself to The Money House, which has gone virtual this year. It’s a free live Zoom course run by an expert dedicated to helping you live independently and keep your home. They work with councils and are supported by the Berkeley and JP Morgan Chase Foundations, Pimco and L&Q.

Laura Whateley is The Big Issue’s RORA correspondent

Contact her with questions, concerns and ideas about jobs and money at laura.whateley@bigissue.com