Luis Amato
The term “HENRY” was coined by American journalist Shawn Tully back in 2003, to categorise a High Earner, Not Rich Yet. It’s a designation that might well apply to your children.
With substantial income from a successful career alongside earnings from a property portfolio or other investments, say, your loved ones might be in a strong financial position – on paper at least. It’s possible, though, that significant and sustainable wealth eludes them.
Professional financial advice might help them to think long-term. And the lessons you can teach could prove vital too.
Keep reading for your look at how to help your HENRY children attain genuine wealth.
7 simple financial lessons to help your HENRY children build a stable financial future
There are several reasons why your HENRY child might struggle to achieve genuine wealth despite a high salary. Lifestyle creep is one.
Your HENRY child might appear wealthy, but the material wealth of expensive clothes and cars is very different from the genuine wealth that provides freedom and choice.
While hard-earned money is, to some extent, there to be spent, this should only ever be within a carefully controlled long-term plan and resisting the urge to overspend is key.
The ultimate goal should be financial stability and future security, which means focusing on these seven areas:
1. Simple budgeting will help your child understand their financial baseline
Encourage your child to track their monthly expenses with simple budgeting tools. This will help them to identify their discretionary and non-discretionary spending and highlight areas where they can afford to cut back.
It’s important to be clear that with careful budgeting, cutting back doesn’t need to mean compromising their lifestyle.
2. An emergency fund is vital to protect against unexpected shocks
The unexpected can occur at any time so building a cash buffer is essential.
An emergency fund comprising between three to six months of essential outgoings means that your HENRY child will have the liquidity to keep themselves and their family afloat, should their income be cut off for any reason.
3. Your child should protect their most valuable asset: themselves
Covering lost income is one thing, but what about if the worst happens?
As UK consumers, we’re generally very good at insuring our pets and our homes, but we often forget to insure the most important asset of all, ourselves. It’s a valuable lesson for your child to learn and it’s never too early to put protection in place.
Preparing for the unexpected – whether an accident, illness or a sudden job loss – is fundamental to building genuine wealth.
If your child falls ill, protection will ensure that they can maintain the roof over their family’s heads even while undergoing treatment or recuperating. A payout could help to pay bills until they are back on their feet, without the need to dig into savings or investments, which could tip their plans off course.
4. Maximising tax-advantaged investment options can help your child achieve meaningful returns
Tax-advantaged wrappers like a pension or ISA can provide significant potential for growth over the long term.
Your child must understand the role these products play in paying their future selves. Contributing to savings and investments immediately each month, and then budgeting with what is left, should ensure that your child’s wealth grows, however they choose to spend the rest of their earnings.
As a high-earner, your child might find that they max out their ISA Allowance and that the tax-efficient pension contributions they can make are severely limited. This is where advice can be particularly useful…
5. Tax-advantaged investments don’t stop when your child maxes out their pension Annual Allowance
As a high-earner, the Tapered Annual Allowance could hamper your child’s ability to make tax-efficient pension contributions. But there are some other, more sophisticated tax-efficient vehicles to consider.
These might include:
- Venture Capital Trusts
- Enterprise Investment Schemes.
It’s worth noting that both of these options carry significant risks, hence the importance of seeking professional help.
Another option may be to encourage your child to plan their finances with their partner. Understanding each other’s financial position can help them to effectively “pool” their allowances in some cases, to build tax-efficient wealth as a family.
6. Paying their future selves first can turn long-term goals into reality
One of the key – but often overlooked – benefits of financial advice is that it allows us to sit down and think seriously, maybe even for the first time, about what we want our future to look like.
Talk to your HENRY child about the value of the financial advice you’ve received and the importance of your long-term plan.
Whether it’s early retirement, world travel, or funding a child’s education, having a clearly defined long-term goal to aim for can improve engagement, helping your loved one to buy into their future. In turn, this will help them to keep on track to achieve their goal.
7. Start early… but remember it’s never too late
The earlier your child begins to think seriously about their financial future the better. Albert Einstein is often credited with naming compound growth the “eighth wonder of the world” and it’s certainly true that compounding helps to grow wealth significantly over time.
It’s important to remember, too, that’s it never too late to start. Right now might be the perfect time for your HENRY child to think seriously about their future and advice can help.
Get in touch now for professional guidance
The world of finance can be a confusing place, especially when you start earning significant sums of money for the first time. Seeking professional guidance from a professional financial planner could prove the key to unlocking genuine wealth.
If you think we might be able to help your loved one on the next step of their financial journey, please get in touch.
Contact us online or call 020 7400 4700.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
