Smart money moves for parents

Webinar transcript

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Kyle Johnson  0:00  
Great way to start a webinar is a few stats just from the champion health report from 2024 and key things we're looking at here is a 40% of 35 to 44 year olds experience financial pressure. One in two parents cite parenting as a cause of stress outside of work. Now I'll be honest my household that's two in two. So I'm not 100% sure where these numbers are coming from. And then really the top three causes of stress outside of work are things like money pressures, relationship, parenting. Hopefully we'll be able to help you out on one of them with the money something's relationship and parenting. You be on your own there. Let's get into the rest of the slides amazing. So what we're going to do, we're going to run over a bit of an agenda of what we're going to talk about this afternoon. One key thing to begin with is just understanding for you what government benefits that are available to you. So if you've tried to do your own research in the past before, the government website isn't the clearer. So we're going to try and break them down as clear as possible. Does she have a good just you have a good idea of exactly what is available, how you claim it, if you can claim it, and what there is for yourself. Once you've done that, we'll get into planning for your second mortgage, or be able, aka childcare. So understanding what you can do around that, then we're going to look at the most important year for financial life. So you're going to have a lot of expenses for the next couple of years while children are in child care, so planning about what you actually do once you get to the end of that. And then finally, one of the big things that we don't really talk about are the risks they're facing to all families, and how you can deal with them as well, looking ahead in the future. So little bit about Movado. I'll keep this short and sweet. I don't want to take too much time on this, but we're independent financial advisors offering advice on mortgages, protections, investments and pensions. Our main clients are lender professionals 30s and 40s with a lot of the same kind of problems and issues, whether it be from mortgages, re mortgages, as you can see here, buying a dream home, starting family, the different things that we can help you out with.

Gregory Deer  2:13  
Excellent thank you, Kyle, we want to start by giving the most value possible. And one of the things that we find, and we hear from a lot of parents, is they just don't know where to start in terms of what the government benefits are. We're going to run through the five government benefits that are available to you as parents. At the top there, we note the National Insurance credits, maybe one that you haven't come across before, but very, very important, there's child benefit, which I'm sure most of you will have come across before tax free childcare, free childcare hours. And also another one, which may be not quite so well known, is a bit about parental leave. There. We're going to run through all five of those in more detail now. And the first one, which I noted, is National Insurance credits. Now, in order to receive the full state pension, you require 35 years of National Insurance credits, 35 qualifying years to get the full state pension. Now, often we find that when children are younger, you might not be earning enough in order to get that qualifying year for a National Insurance credit. So if you're earning less than 6500 pounds a year, maybe you're taking some time out of work to support young children. You may not be getting that qualifying year. However, if you have a child under the age of 12, you get a National Insurance credit for that as long as you apply for child income benefit. So the potential benefit of this is six pound 57 a week in state pension, or 341 pounds a year if you're living for 20 years in the state pension, it's well over 6000 pounds, which you can benefit for each year. The key thing is you must apply for Child Benefit, even if you don't receive child benefit, because, as we're going to come on to when we speak about child benefit shortly, you're one of your partners is earning too much. You must apply for Child Benefit. Applying for Child Benefit has a couple of benefits. Number one is the National Insurance credits that you can receive for an under 12 that go towards your state pension. The other one is that you automatically get a national insurance number for your child when they turn 16. There's no faffing about at that point, you will automatically get a national insurance number for your child age 16. So key thing make sure you apply for child benefit. Now, Child Benefit is universal entitlement for all parents, and you can receive 26 pounds, five pence a week for your first child and 17 pounds, 25 a week for children that follow. Now it is tapered down for people with adjusted net income above 60,000 pounds, up to 80,000 pounds, where actually beyond 80. 1000 pounds, effectively, you will not receive any benefit from getting child benefit. Now this can be a little bit complex to work out. And I know I've mentioned adjusted net income there, some people are probably thinking, oh, goodness, what's that? We are going to discuss what adjusted net income is later, and this is assessed based on the highest earning parent or carer, with more details available when we send the slides out after. So two benefits that I've covered there National Insurance, credits and Child Benefit. Kyle's going to take you through the remaining three.

Speaker 1  5:33  
You. Greg, yeah. So I think the next two definite are ones that are most popular than most people know about understanding exactly what they are. Who's eligible, is it kind of keeping so the first one tax free childcare. It is money towards kind of childcare for you. You can get up to 2000 pound per year per child. You'd have to get a separate account online, and it's very straightforward. You pay money into this account, and the government will top it up up to 500 pounds every three months, or 2000 pounds over the year. Now there are a few rules around this in regards to eligibility. Now, both parents need to be working, and this is one of the big things. You need to be earning under 100,000 pounds. Now, as we'll get into a little bit later, when Greg gets into adjustment income, if you are earning above that, even just one of you, then you will lose the whole benefit, and it's not something you can look for. Now, this is something you have to keep on top of, and the government asks you to make sure every three months you'll get a message. It's fairly straightforward. They usually email you and text you just to say the time's come. Now, can you reconfirm you're still eligible for the free month for the income side of things. Click a button, and then it's done. And then for the next three months, you can claim your 500 pounds per child for the tax free childcare and again, as Greg mentioned, there's more information at the bottom on the website, then we have free childcare hours. Now. Again, this means that rather than you payment out of your pocket, you'd have to you get free childcare. Now in this scenario, you get after 30 hours, free childcare per week. And how they work it out is that this is used to set over 38 weeks. But with most nurseries, your child, your children can be in full time, so it'll be over 52 so it actually works out when you get your I don't know if any of you have children in nursery already, or they're going to be going to nursery soon. You'll get your invoice, and only invoice, it'll mention 22 hours, and it's just averaged out over the full year now, 22 hours that'll be coming off the cost your your bill and reduce the overall cost for you. But there are a few other things you'll have to pay yourself, such as food, nappies and all the other things that come with it, sun cream, whatever it may be, but that's an additional cost you'll pay on top of this when you are paying for childcare now, same as the tax free childcare, you have to confirm the income every three months to make sure you still fit within that level, and it covered there as well and further details. Now this is a bit of a snapshot of the hours and when the kind of things are coming up. So at this moment in time, all the way up until September, you get up to 15 hours free childcare for children nine months to three years old, and then as it feed to four, that'll go up to 15 or 30 hours free childcare. Now, from September 2025 you will get up to 30 hours free childcare for all children between nine months and four years old. And again, that's something that you have to reconfirm every three months to make sure you fit within that kind of the rules and eligibility come with that as well,

Gregory Deer  8:46  
perfect, and just to cover off as well. Kyle, the timing, it's not exactly when your child turns nine months, is it?

Speaker 1  8:52  
No, it's definitely not. So it's usually the month after or the month after the term of the your child turns nine months. So for example, let's say in you have a 10 month old or nine month old in October, they turn nine months. You're not going to get that straight away. In that September, October term, you'll have to then wait to the new term, which will be January 2026, to get those free childcare hours as well for yourself. So what I will I will say. And for clients I've had in the past, and for myself, personally, the nurseries and the registered providers are really clued up on this. Now, obviously we're here to help you out as well. But if you do have any questions on this, contacting them will be fantastic thing. I know from personal experience, the nursery sent out a form and more details about kind of what to expect, because when you get that first bill, seeing all the different outgoings and deductions can be a little bit confusing, but they obviously making the most of that, and so you can kind of reduce the cost for the childcare as well. Now the next kind of benefit is one that's maybe not that well known. It's something that. That every employed parent will get so it is unpaid parental leave. It just means that you get to spend some more time with your children if you need to not everyone employed who has been working for the employer for over at least a year will get after 18 weeks leave until the children are 18, the maximum amount of time that you can have within a 12 month period is four weeks, and you usually have to take them in complete week periods. Now this would be used for something that may be, you know, taking that extended holiday, or leave, bereavement, schooling, those kind of things as well, but it is a flexible benefit that you is your rights while having children, and something that a lot of people are unaware of, something that can sometimes be a massive benefit as well. I'm gonna pass you on to Greg for the

Kyle Johnson  10:50  
excellent Thank you. Getting on to something a little bit more more technical now, and that's around adjusted net income, something that we've mentioned in terms of child benefit, and also around tax free childcare and free childcare hours, something that you need to be aware of, adjusted net income is your total taxable income before any personal allowances and less certain release. So let's get into the detail of what that actually is. Now, when we calculate total taxable income, a lot of us will just think, Oh, my salary is x. Now that salary might not necessarily be your only income that goes towards adjusted net income. You need to consider whether you've got any savings interest that can be simple as that five pounds a month that goes into your to your bank account, or any investment income or rental income, all of that income gets totted up into your adjusted net income. Now there are ways to reduce your adjusted net income. The first one there is by giving charitable donations that qualify for Gift Aid. You can input those on your tax return, and they will reduce your adjusted net income. And the second one is pension contributions, where tax relief is added. So these are pension contributions that are made after you've already pay tax on your income so they're from your net income. You're making pension contributions and receiving basic rate tax relief with the pension provider. That is broadly what makes up your adjusted net income. And staying on top of this as a parent for an under five is imperative. It's super important. Let's take you through an example now, with a couple that we worked with recently, Adam is earning 95,000 pounds a year and is offered a 20,000 pound bonus. Ella is a teacher working full time, earning 45,000 pounds a year, and Adam contributes the minimum of 5% of qualifying earnings, 2188 pounds a year to his pension. Adam and Ella have a one year old and a three year old, and are currently receiving childcare support. So in their current position, Adam's adjusted net income is, quite simply, his 95,000 pound salary minus what's going into his pension. So just over 90,000 pounds there, they're receiving tax free childcare of 2000 pounds for each child, totaling 4000 pounds a year. This is money the government is giving them to support childcare in terms of free childcare hours. At the moment, they're qualified for 30 hours a week of free childcare for their three year old eight pounds an hour. That's estimated a value of just over 9000 pounds and 15 hours a week of benefit for their one year old, again, estimated at 4560 pounds from September, however, that will increase to 30 hours for their one year old and 30 hours for their three year old estimated a total of 18,000 pounds. So currently, the government is supporting Adam and Ella with 17,680 pounds, and from September actually just over 22,000 pounds a year. The government is really supporting them if they can keep their adjusted net income below 100,000 pounds. Now let's look at this bonus of 20,000 pounds that Adams receives, and let's assume that he takes that as cash, so as income. Now tax free childcare, it has vanished because of that adjusted net income being over 100,000 pounds, Adam and Ella will not qualify for tax free childcare. In terms of free childcare hours, the amount of free hours for their three year olds reduced from 30 to 15 hours, and actually there's no support available for their one year old, meaning their childcare value, if Adam takes this bonus as cash, has reduced to 4560 pounds, quite a drastic difference. Now, with some planning, Adam and Ella can retain their childcare benefits. So let's look at the left hand side, taking the bonus as cash in terms of net income, broadly, Adam would receive an extra 8600 pounds as net income, but you can see the losses. To childcare there, meaning that actually, as a pocket to pocket difference, they would have minus 4500 pounds, that bonus would end up actually costing Adam and Ella money. Now on the right hand side is an example where they took some action to reduce their adjusted net income. They've decided to take 5000 pounds as cash and then allocated 15,000 pounds towards the pension. This means childcare benefits can be retained as Adams adjusted net income remains below 100,000 pounds. Now the difference between these two scenarios is quite vast. On the right hand side, they'd have an additional 7420 pounds in their pocket and an additional 15,000 pounds in the pension. The monetary difference is very, very large, but we do have to consider other things as well as Kyle's going to cover now.

Speaker 1  15:56  
Thanks, Greg. So as Greg mentions, some really valid points there, but majority for every client, when they are putting children through child care, you can add up, especially in London areas, and you're talking 1000s and 1000s for a child to go to nursery. So it is, in effect, like another mortgage. Now there's going to be two ways you're going to handle this. It's kind of either looking at month to month and really struggling in these high costs periods, or with a bit of planning, a few things being changed, you can look to change things around so it's not as a bit much of a big impact as well. So trying to balance that right and get a plan in place is vital and important to reduce the stresses you have. Now, one thing that you can look at, especially for maybe clients of a remortgage coming up, or they're looking to change them in the future, is to reduce that monthly cost of your mortgage, because we know that the nursery costs are going to be fixed, so reducing your monthly cost down initially could be a good way to ease some stress and pressure. Now, there will be a number of things and levers that you can pull to change this. So the main ones being you can extend the mortgage term, a lot of lenders these days are allowed to go up to 75 years old, some even up to age 80, which means if an extended mortgage period will come down, you also have things like interest only, so putting a large part of the mortgage on interest only just to get that lower monthly payment so it isn't cost you as much every month is another thing you can look at doing. Now you can do a mixture of both of those things. And like you said, planning is important part of that, just to make sure you're making the most of the options you have. Also looking at, when you say your remortgage is coming up, whether you go for a shorter term fix or a long term fix is an important factor to pay. One thing you may do is that if you know, for example, one of you were to be out of work for a time looking after the children, or deciding not to go back to work straight away, there may be a longer fixed deal could be a better option, just because it's going to give you the stability of knowing exactly what your payments are going to be for that extended period. And then when the kids obviously, in state school, then you haven't got to worry about the knowledge costs changing. Now, one thing I will mention is that Greg did talk about the adjusted income and reducing your income so you can fall into the thresholds. But sometimes that may not work out with the kind of bigger plans that you have. And what I mean by that is that, let's say, in a couple of years time, you have an idea that you're going to take the next step on the property ladder and you want to buy that forever home or the larger family property. Now, if you had taken the advice and reduced your income to get the benefits from the government, you then no longer use those incomes towards the mortgage affordability, so where you can now get a larger mortgage. At the moment, with all of your income, all of your bonus, if you were to drop them, it may mean that you can no longer get the mortgage that you need. Now, with a bit of planning ahead, you can make sure that you know exactly what you need to get to the property you want, and that's why it's so important to try and balance these and make sure you're making the most of any advice you can get as well.

Gregory Deer  19:03  
Absolutely, I think what Kyle's mentioned there is perfect, and it just comes back to that point that this is going to be very individual and different for every person. So if you do have a chance to take advice or think about it just with your own terms, that that's super important. Okay, we know, and Kyle's experiencing at the moment even more so that when children are young and you're balancing those two mortgages, it is a very, very challenging time in terms of managing that income and expenditure. But I wanted to highlight the most important year of your financial life, and this is the point where your youngest child turns five, those childcare commitments have reduced substantially, and now you're going to have that additional net income available to go towards lifestyle or something else. Now when we come to financial. Planning, we earn money every month, and we have to allocate that between what we spend, what we owe, and what we own, but one day, we're not going to be earning that income, and we're going to have to rely on what we own to meet our expenditure. So getting these allocations of where we allocate the earnings correct is absolutely essential. And the year after you you come away from childcare, you've got a clear choice. You can either allocate more money to spending or you can start building up those assets that you're going to rely on in the future. It's really important, once childcare stopped, that you start to understand exactly, from your earned income, what your surplus annual income is and then with that surplus, you need to try and make that work as hard as possible for your family, and that is by building assets. You're going to be allocating some, hopefully towards overpaying your mortgage, some to stocks and shares ISA, lots to your pension in an ideal world. And then you may also use a general investment account at that point. This is where taking financial advice or making sure you're super clear about how much you need to save into order to get to financial freedom. In the future, you want to be getting these allocations right for your family, and that is why the most important financial year of your life is the year your youngest child turns five. Kyle's going to cover off the three main risks facing parents, and this is one we don't like to talk about, is it? Kyle, no,

Kyle Johnson  21:27  
not at all. And I think, I think it's kind of a British thing that we didn't really talk about the big risks, because most of us, then are, you feel superhuman, and it wouldn't happen to us. It always happens to someone else. But there are massive risks. When you have a young family. There's so many important things relying on two incomes or one income coming in. So the main free risks that we see kind of are unexpected expenditure. So things that might pop up that will take you off track and may cost a couple of 1000 pounds being able and able to work. So if you're off work due to an accident sickness, you know, how are you going to maintain your lifestyle that you've created for your family? What's going to happen? Are you going to be okay? And then the big one that there would be a huge impact for most families is the death of the parents. So how the family are going to move forward from that, and what options are in place for yourself? So if we look into them in a bit more detail, now, when I talk about unexpected expenditure, we're talking about the things you don't foresee happening. So roofs blowing off, roof blowing off at tiles blown off the roof, water leaks in the kitchen, kind of car working, those kind of things that are going to cost you reasonable amount, and you're going to eat into your month to month. So having something in place, we usually advise having one solution and just having an emergency fund so you can rely on that, and that's what that fund is there to do. Now, in the ideal world an emergency fund, you'd be looking at all of your fixed costs. So we're talking your mortgage, your rent, your bills, your food, shopping, everything that you pay out every month. That means that you can kind of maintain your lifestyle and carry on. Now in the ideal world, you'd be looking at three, six or 12 months for fixed costs. That's any expenses that you got coming up in the next five years, and that would equate to your emergency fund. Now some of you might be sitting here and thinking, buddy, I'm never going to get to 12 months of emergency funds, even if you had one or two months. I think the position you'd be in compared to other families would be a lot better, because you aren't going to get knocked off track or something unforeseen happening, and you've been putting yourself in a much better position and not having or adding to the stresses of something happening as well,

Gregory Deer  23:43  
exactly. Thank you, Kyle. And that brings us on to the other two big risks facing your family, or not necessarily big risk, but high impact situations. What we like to say about the impact of death and long term ill health is the risk is the size of a fish in the ocean. Now, the risk of this happening is relatively small that one of you were to die or one of you were to become ill, but the impact of it happening is a whale in a bathtub. It's a huge impact on your life if you were unlucky enough to suffer a long term illness or a death of a parent. So we often ask our clients, and when we're going through the mortgage process, what would you rely on if you were unable to work or lost a co parent? And too often, we hear the answer is friends and family or ask for more cash savings and and ultimately, that's not going to be enough as a parent of young children, your biggest asset is likely to be your future earnings. It's not necessarily something you have in your pocket at the moment and you can rely on, and those future earnings are at risk if you were to die or be unable to work. So whenever we think about insurance and protecting we're. Trying to maintain that income for your family so you can continue to do the things that you want to do, continue to live in your lovely family home, continue to go on holiday, to eat dinners out, to be able to support your children when they go to university. That is where insurance is absolutely essential, because it's protecting you against those small risk, high impact scenarios and the insurances that you can have in place, they they do range, and they do vary. We do recommend that you speak to a qualified advisor, such as ourselves, around protections that you can put in place and make sure that you're getting not only the best deal, but also you've got sufficient insurance in place. So if you were to be covered in any of these situations, then you have money coming in to support your family. The last thing you need is financial stress in those situations. But Gregory insurance companies never pay out. Well, I rally against that. Over 7 billion pounds of claims were paid out in 2023 for bereavement, illness and injury, and 98.3% of claims were paid out. That is a hugely high numbers on both of those proving that actually insurance companies do pay out in these scenarios of long term ill health and death. But Gregory, it's not going to happen to me. I'm superhuman. This is the sort of thing that happens to other people? Well, there's a one in three chance of a 35 year old being unable to work for two or more months before age 65 so one in three, a third of all the people on this called are going to not be able to work for two months or more before they reach age set age 65 and there's also a three to 4% chance that a 35 year old will die before age 65 so a three in a 100 or four in 100 chance, okay, it's a small risk, but it is a risk that we do need to take seriously. And the last one there, we can't afford it. Well, Kyle and I, when we're advising on protection, we very rarely provide a protection advice. Where it's the premium is more than 5% of net income. Usually it's less than 5% of net income in order to ensure the financial security of your family going forward, which if you were to be told that you're always going to be okay for less than 5% of your income. It's certainly something that I would take people up on. Nobody ever complained about having too much insurance when they claimed. Look, we hope financial protection is a waste of money. That means that you haven't died or been ill. That's great. But often, when it comes to claim stage, nobody has ever complained about having too much and that's something that we always keep in mind. Now, just bear with us. We are rounding off in the next slide. Thanks, Kyle, 

Kyle Johnson  27:46  
as Gregory mentioned, thank you. I know there's a lot of information to go through in 30 minutes, so appreciate the information and kind of listening to all of that, and hopefully you're taking some kind of nuggets away from there, or at least a bit of information you weren't aware of, and a bit more clarity on what options you have. But just to recap now, we looked at the kind of government benefits available to you. A little overview on adjusting the income, holding around two mortgages, so making the most of your mortgage that you have, and planning ahead for the future, and then things around allocating your surplus income and then making sure that the family as a whole are protected from any emphasis. Now, there was a lot to cram in. You may have further questions. You may have things you want to run over. So by all means, you know you have our details, we're going to follow up with an email. Please get back to us and let us know if you have any questions. And that's the QR code there. You can book a call directly, and hopefully we'll speak to you soon. But again, thank you very much for taking your time out of your day to spend 30 minutes to kind of discuss this as I run through this with us, and hopefully we'll speak to you very soon.