AMA: Ask Me Anything

Q: Are all debts bad to have?

Chantelle, 17, from Sevenoaks

Bola Sol, author of How To Save It: Fix Your Finances, answers:

“Despite what you might think, not all debts are bad. So many people in the UK have a mortgage which is a really long-term loan. However, once the debt has been paid off, you own 100% of your home! And being mortgage-free is a dream for many.

Another example of good debt is when a student takes out a loan to study in the hope that they will then get a job within their chosen field. If someone spends £30k on their education but they are able to earn significantly more over the next 10 years as a result of their education, then that's a great return on their investment. Of course, I'd assume that their salary rises with time and experience, too. 

Bad debt is when you aren't able to generate income from it and the debt can't go up in value as it does in a house or investing in your education. Examples of bad debts are cars, clothes or anything else that only has value at present and not in the future. Always try remember the difference between the two so you make the best decisions.” 

Q: Do I really need to be thinking about a pension when I start work? Retirement is ages away…

Ant, 21, from Glasgow

Russell Winnard, Director of Programmes at Young Money, answers:

“Put simply, yes! The fact that retirement is ages away is even better for you – the earlier you start to save your pension the longer your money has to grow. The first £1 you put into your pension pot should grow the most because it has the longest time to increase in value. Starting a pension later in life means you'll have to put in much more to get the same amount out at the end, so starting early is to your advantage. 

Think of it this way: would you turn down free money? Because once you have a job, your employer will probably also make a contribution to your pension on your behalf, as long as you are also paying into it. If you choose not to, you won’t get these extra contributions. 

Better still, the tax you would have paid on your pension contribution also gets paid into your pension – more free money! So, while it might still seem ages away, you can see why thinking about it early is really important. Your future self will thank you for it.”

Q: What on Earth is a mortgage and how does it work?

Ben, 16, from Newcastle

Jaishree Nagarajan, a Sustainable Finance Manager and MoneySense Employee Volunteer, answers:

“Good question! A mortgage is a type of loan provided by a bank to help people buy a house or flat, because most of us don’t have enough cash to buy these large purchases outright. A bank makes money from a mortgage through the interest they charge on the loan.

To qualify for a mortgage, you will need to meet certain criteria, including having a stable income with a good credit score – that way, the bank can feel confident you can pay for your mortgage. The amount you can borrow will depend on that credit score, your yearly income and how much money you’ve saved up as a deposit (the money you pay up front when you buy the property).

Once you’ve taken a mortgage out, you’ll then make monthly repayments over a long period of time – usually 25 years – to pay back the loan plus interest. There are several types of mortgages available, but the main differences are the length of the loan (in other words, the time it will take you to pay it back) and the interest rate.”

Q: Is it worth getting a credit card for small purchases each month, to improve my credit score? 

Tanisha, 18, from Ashford

Iona Bain, founder of Young Money Blog, answers:

“The short answer is yes, but you've got to be smart about it. Firstly, nail the basics when it comes to building your credit score. Paying all your bills on time, getting on the electoral register and monitoring your credit score to make sure it doesn't have any errors are all easy wins.

Also, if you have an overdraft, prioritise paying that off as soon as possible. For example, students should start whittling down their overdrafts as soon as they graduate. Otherwise, stick to a low balance on your credit card – no more than 10% of your overall credit limit – and ideally, pay off the balance in full every month to really ramp up that credit score over time.

Never spend money on your credit card that you're not absolutely certain you can pay back in full, so keep budgeting like a boss to avoid losing track of your spending. Remember, credit isn’t free money: the bill will come, so make sure you're ready for it. If you follow these guidelines, you'll be hustling your way to a better credit score in no time.”

Q: I’m rubbish at maths and don’t really know where to start with money. Is it rude to ask other people about it? 

Jack, 19, from Manchester

Selina Flavius, author of Black Girl Finance: Let’s Talk Money, answers:

“I don’t know who started the rumour that to handle money you need a PhD in maths, but it's totally untrue! You're not alone, though – I used to think the same thing before I realised that ordinary people with different levels of education can still make good financial decisions every day.  

Learning about how to handle money in day-to-day life is just like learning a new skill. It's totally okay to ask a question about money if you are unsure or simply curious. For example, if you’re not sure how to budget, why not ask a close friend or relative you trust about how they do it, or if they have any suggestions for you?

If you really don’t feel comfortable talking to someone close about money, there are also plenty of other options available, from books and websites to YouTube videos, all packed with helpful information.

Whatever you’re unsure about, don’t be afraid to ask. For instance, if you get your first payslip and you are unsure what all the figures on your payslip mean, speak to your company’s HR person or your manager. As you progress through your chosen career, being able to discuss money during salary negotiations is crucial to ensure you get paid your worth – that’s why being able to have conversations about money is essential. Good luck!”

Q: I’m learning to drive and want to buy a car once I pass my test. Is it worth taking a loan out to buy brand new?  

Raj, 18, from Bradford

Emmanuel Asuquo, Financial Advisor and TV personality, answers:

“This is a great question. The simple answer is no, it's not worth it, for a couple of reasons. I know when I passed my driving test and got my first car – a Hyundai Coupe – I made so many mistakes, including hitting the curb and scratching my alloy wheels, reversing into a bollard which put a dent in my rear bumper and smashing my wing mirror. I could go on, but you get the drift!

My point is, for your first car, it’s better to start second-hand and not over-stretch yourself. A car is an asset that goes down in value the older it gets and the more it's used; this is called depreciation. So getting a loan for the car's value plus interest on top, knowing the car's value will only go down, would be considered a bad investment.

I would suggest you save up – gathering any wages and birthday money you get – to buy a second-hand car. That’ll mean you won’t have monthly loan payments to worry about. The most important things you need to look for in a car are reliability, a good service history, that it’s comfortable to drive and that spare parts aren’t expensive if you need to repair it. The final thing to remember is you are not defined by the things you buy. You are valuable with or without them.”

Q: I get my student loan in a few big chunks through the year. What’s the best way to budget so I don’t run out of money?

Angelina, 18, from Hertford

Tom Allingham, Head of Editorial at Save the Student, answers:

“I hear you – having the loan in three chunks doesn’t exactly make budgeting easy. Unlike a salary, which is usually paid weekly or monthly, the Student Loan payment schedule doesn’t match up to any of the financial commitments you have at uni, like paying for rent and other bills. But there is a simple solution: create a budget. 

Take the total amount you’ll be getting in the form of the Maintenance Loan and divide it by the number of weeks or months that it’s meant to last. Then, week by week (or month by month), you can see exactly how much money you’ll have to spend, excluding any extra income you might have from your parents or a job.

As rent is usually the biggest expense for a student, it’s probably best to base the timescale of your budget on how often you pay for your accommodation. If it’s weekly, go for a weekly budget; if it’s monthly, go for a monthly budget instead. You should also plan how much you intend to spend on other essentials like food and travel.

If your projected spend is bigger than the amount of money you have from your loan, you’ll need to look at switching to cheaper alternatives or finding additional sources of income.”

Q: Taxes are confusing. How can I be sure I’m on the right tax code, and will I ever get the money back if I’m on the wrong one?

Cerys, 19, from Hythe

Clare Seal, journalist and founder of the Financial Wellbeing Forum, answers:

“You’re right – taxes can be very confusing, and the wrong tax code can have a serious impact on what you get paid, so it’s a good idea to make sure you’re on the right one. The government’s website has a handy tool for both checking your tax code and reporting an incorrect code to HMRC (Her Majesty’s Revenue and Customs, who deal with all tax related issues).

If you’ve been on the wrong tax code, you can get a tax rebate, which is where you get paid back the money that you’ve overpaid. You can claim a tax refund, but it will sometimes be applied automatically, and you’ll be sent a cheque (which you take and pay into your bank) or it will be added onto a future salary payment.”