One in 10 parents make house purchase choice based on schools, study shows

Research by Nationwide demonstrates increasing desperation of parents scrambling to secure best education for their children

Nearly a quarter of UK parents of children of school age would be prepared to pay between 2% and 10% more for a new home – potentially thousands of pounds extra – in order to be in the catchment area of a good state school, according to research by Nationwide.

In a sign of the growing desperation of parents scrambling to secure the best education for their youngsters by living close to the top state schools, nearly one in ten (8%) admit they would shell out a premium of more than 10% extra for their house, while 8% would pay up to an additional 2%.

The research, published today by the UK’s largest building society, the Nationwide, and carried out by YouGov, also shows that parents are already making house purchase choices based on schools. Nearly one in five parents (18 %) admit that a school league table or school Ofsted rating has influenced where they chose to live. It comes as parents are currently doing the rounds of open days held at primary and secondary schools, for admission next year.

More than half of students get no parental help

The majority of students are applying for controversial new student loans.

More than half of university students receive no financial help from their parents – resulting in most having to take out loans to cover tuition and living expenses.

In a survey by website Topcashback.co.uk almost three quarters of students said they did not expect any help from parents. But a smaller number – 57 per cent – did not actually receive any.

The backdrop is steeply rising university costs and the introduction of a complex and controversial new student loans system, which launched in 2012. From that year annual university fees in England rose from up to £3,000 to up to £9,000.

The site’s research shows two-thirds of students take out student loans to help cover the cost of university and 54pc have a job while studying. Smaller numbers – two in five – use savings to help meet the costs.

A report on new loans system – effective from September 1, 2012 – is complex. All students in England can apply for tuition loans, covering their course fees, and maintenance loans that help with living costs such as accommodation, bills and books. 

Young people lack financial skills

Young people are entering adult life with “dangerous gaps” in their financial knowledge, according to a new survey.

Under 25s are showing worrying gaps in their financial knowledge relating to bank statements, overdrafts and interest on loans, according to a new survey from Barclays and charity pfeg (Personal Finance Education Group) to mark the beginning of My Money Week, which runs June 3 to June 9.

Of those surveyed, 42pc could not interpret the difference between being in credit and overdrawn on a bank account statement, while more than a third did not know the correct meaning of APR in relation to interest charges on loans or credit cards.

Around one in eight (13pc) did not know what an overdraft was, with 8pc thinking it was a low-cost one-off loan from a bank.

Tracey Bleakley, pfeg chief executive, said: “It is clear that many young people are entering adult life with dangerous gaps in their financial knowledge that could lead them into serious financial difficulty.
“These findings underline the need for all schools to teach their pupils about personal finance, to equip them with the skills, knowledge and confidence they need to manage their money well.”

Financial education will likely become compulsory in schools across England for the first time next year, following its inclusion in the new draft curriculum.

Personal finance is already taught in schools in Wales, Scotland and Northern Ireland.

The Money Advice Service released research last month which found that most children’s financial habits have already been formed by the time they reach seven years old.

It published a report compiled by behaviour experts at Cambridge University, which found that most seven-year-olds have already grasped how to count out money and know that it is used to buy goods. They have also worked out what it means to earn money and what an income is.

Money habits are ‘formed by age seven’

The government-backed Money Advice Service has warned parents “not to underestimate the effect of their own bad money habits”.

Most children’s financial habits are formed by the age of seven, it was claimed today by the government-backed Money Advice Service (MAS), as it urged parents not to “underestimate the effect their own good (and bad) money habits will have on their children”.

The organisation pointed to a Cambridge University study that suggested that most young children had grasped all the main aspects of how money works and formed “core behaviours which they will take into adulthood and which will affect financial decisions they make during the rest of their lives”.

Caroline Rookes, chief executive of the Money Advice Service, said: “This study really demonstrates the power of parental influences, and illustrates how much of what you learn and absorb when you are young, both consciously and subconsciously, affects the choices you make throughout the rest of your life.”

The MAS said it would establish a forum to create “world-class parenting and teaching resources” and has called for money education to be included in the primary school curriculum in England.

Michael Gove, Education Secretary, announced plans earlier this year to put personal finance education on the curriculum for secondary school pupils.

Financial future bleak for a whole generation of young people

Sophie Robson at Centre for the Study of Financial Innovation has concerns about the financial future of ‘Generation Y’.group of young adults

Young people face unique challenges in saving for a pension. They are now largely on their own when it comes to retirement planning. Final salary pension schemes enjoyed by their parents are all but closed to new members, and existing personal pension schemes are confusing.  Life expectancies are increasing – and with it, the pension needed  to fund a comfortable retirement.

These, combined with a lack of knowledge about pensions, risks creating a ticking time bomb.

Young people now have little option but to start saving for retirement early in their working lives. Just 13% of employers still offer a final salary pension to new employees.  Attitudes to employment have changed: employees are likely to change companies (and careers) regularly, so companies no longer have the same responsibilities to their employees.

Sadly, understanding of pensions and access to information lags behind this change. A 2012 report by the CSFI, the London-based financial services think-tank, young people were unsure of how they worked, or in 40% of cases, what type it was. Although the majority recognised the importance of contributing to one, many struggled to find the spare cash to do so, especially as many were still paying off student debt. Others felt that years of government tinkering had left the future of pensions uncertain, inflexible and vulnerable to rising inflation – not to mention confusing. This was putting young people off paying into a pension scheme.

Another survey by Blackrock found that while young people expected to retire on a pension of £30,000 per year, only one in ten were actively saving towards a pension. Given that one in four 21 year olds can now expect to live to 100 – according to recent ONS figures – this would require them to build up a pension pot of at least £600,000, assuming they retired at age 67.

The government has stepped in, announcing changes to the way state pensions are paid. From 2017, pensioners will be given a single, flat-rate payment of £144 per week, rising with inflation. It hopes this will simplify the way the state system works, and cut out uncertainty.

Secondly, auto-enrolment, in force in larger UK companies since October 2012, aims to normalise making regular contributions to a workplace pension scheme – at the moment, just 30% of young people are contributing to one. Anyone over the age of 22 earning at least £8,105 per annum will now be automatically enrolled into a scheme unless they explicitly opt-out. If a sum of money disappears from gross incomes, as with student loan repayments, young people are less likely to see it as a financial burden. However, auto-enrolment risks causing unintended consequences for young people: the amount saved is unlikely to be enough to guarantee a comfortable retirement in itself.  The maximum contribution, equivalent to 8% of earnings, will only apply to qualifying earnings from £5,564 to £42,475 in the current tax year. So for an average earner, this would only be equal to £4,200 per year saved.

So young people still need to make other provisions for later life, particularly those on an average salary. This could mean actively contributing to other pension schemes – such as a SIPP, or investing in other savings vehicles, such as tax-efficient ISAs.

However, this is not as easy as it sounds. Another hurdle younger people face is that it is difficult for them to build up assets, compared with their parents at a similar age. The average age for first time house buyers is now 35 (according to research by the Post Office), compared to just 23 in the early 1960s. Stocks and shares remain volatile, with investors being forced to make increasingly sophisticated decisions in order to gain the same yields. At the other end of the spectrum, parents, who are also living longer than their own parents, are eating into inheritances, which would have given their offspring some measure of financial independence in later life.

A growing number of young people, and policy makers, believe the existing pension model is outmoded. A generation which is already weighed down with debt, as a result of student loans and diminishing job prospects, is then being asked to lock away a proportion of their salaries for decades, against a backdrop of increasing economic uncertainty. In the intervening years, they will need to find sufficient funds for necessities such as buying houses, cars and eventually raising a family. These purchases all require large capital expenditure, and they are likely to find it increasingly frustrating when they find that, even though they have built this up in a pension fund, they are unable to access it. There is also the risk that they will have to take on debt to pay for it. Not only this, but in some cases, it may not make sense to save. Means testing – particularly with regard to social care – raises the risk that it might be counterproductive to save.

So the problems are clear, even if the solutions are not. Recent government intervention may go some way to mitigating these problems, but it remains to be seen how pension schemes can evolve to meet the changing needs of Generation Y-ers as they move to the next stages of their lives.

Sophie Robson is the author of the recent CSFI (http://www.csfi.org/) report on young people and personal finance “Generation Y: the (modern) world of personal finance”, and is a regular commentator on issues affecting young people and financial services.

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