Press fast forward for advice on the biggest decisions: In the first of a new series of 'audio paperbacks', Vincent Duggleby offers financial help to younger people

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The Independent Online
THE BEST bit of advice I ever gave my elder daughter was not to buy a flat. It was 1989, she was 24, living at home, settled in a job, and with friends only too eager to buy property.

In fact two of the friends did go ahead and paid pounds 68,000 for a small terraced house in north London, which they hoped to do up and sell at a profit - a typical young person's dream, which very nearly turned into a nightmare.

People in their twenties tend to be mobile. They find new partners, change jobs and discover that owning a house or flat can be more of a liability than an asset.

Three years later in 1992 all three had indeed found new jobs well away from London. The terraced house, now worth perhaps pounds 50,000, remains unsold, although it has been let, so at least the mortgage repayments are covered by the rent. As the market picks up there is hope of a sale but a substantial loss seems inevitable.

Meanwhile my daughter, settling down in her new job, was finding out that renting in the open market was a good deal more expensive than living at home, where heating, lighting, telephone calls and meals tend to be subsidised, if not free.

I believe children should hand over a percentage (say 10 or 15 per cent) of after-tax income. It avoids an argument over pay rises or indeed unemployment, and it is easy for parents to restore the balance with occasional gifts of clothing or other essentials, if they wish. It is also very important for young people to learn to budget, not just to appreciate exactly what they spend on a regular basis but also what they can afford to save.

Credit cards are a great convenience but the discipline of paying them off as soon as possible, and preferably each month before interest starts to accrue, has to be explained. The speed at which debt can rise through compound interest is too little understood, except by those who have seen their homes repossessed.

You can only be a first-time buyer once and when in the late summer of 1992 my daughter again broached the subject she had done her homework. She had several thousand pounds saved and the outlay on a pounds 30,000 mortgage at a fixed rate of 7.5 per cent for three years was well within her means, even if by that time she had to go back to a variable rate in double figures.

The building society (on my advice) was also one of the few prepared to offer interest only without insisting on a particular method of repayment. Was an endowment policy a good idea? For a young single woman in her twenties I cannot see the logic of saving through a 25-year insurance policy. The building society benefits from substantial up- front commission and the policyholder is left to pick up the pieces if (as happens all too often) circumstances change.

This is certainly not an argument against the principle of insurance for protection. Term assurance is an essential for a young couple with a family but you must ask yourself: who are you trying to protect against what? Of course, it needs self- discipline to save, if the money is not automatically going out with the mortgage, but the alternatives should be looked at with the help of an independent financial adviser.

My suggestion was to put some money in a tax-exempt special savings account, a Tessa, and some in a personal equity plan, with the aim of reducing the outstanding mortgage after five years or having the money available in the event of a move.

An interest-free parental loan meant she could look for a slightly bigger flat in a better area, as well as avoid mortgage indemnity premiums, and despite some hiccups over the lease the purchase was completed in just over three months.

Her main concern was 'extras' that had to be paid for - the survey, the solicitor ('the hardest bit was pinning him down to an estimate'), the arrangement fee. Driving a hard bargain for some of the existing furniture and fittings, including the carpets, meant the place was habitable if somewhat spartan.

For the time being the flat is the only thing that matters in terms of her longer-term financial planning, but there are other considerations. For an employee with no occupational pension scheme, opting out of the state earnings related pension scheme (Serps) was an obvious move, but the rebate by itself (plus the reduced bonus for the over-30s) will have to be supplemented by additional contributions sooner rather than later. A pension mortgage might even be worth considering at some stage.

What you need to manage your money is confidence and the ability to talk the same language as the professionals. If they cannot answer questions in a straightforward way, as likely as not they do not understand the problem themselves.

(Photograph omitted)

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