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From Harvey Jones
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RD Money
Save thousands on tax - if you’re quick
February 22nd 2012
If you've noticed a heap of articles and adverts about individual savings accounts (ISAs) lately, you're not alone. It's the start of the so-called ISA season, when the financial services industry blows its marketing budget trying to persuade us to use our tax-efficient savings allowance, and buy their products. Every UK adult has an ISA allowance, which allows them to save up to £10,680 in the current tax year and take all the returns free of income tax and capital gains tax.
Your annual ISA allowance is issued on a "use it or lose it" basis. If you don't use your allowance by the annual 5 April deadline, you have lost it for good. That's why there's always a last-minute panic in the days and hours before the midnight deadline expires, as savers rush to snap up the tax benefits on offer. These benefits are well worth having. If you make good use of your ISA allowance, year after year, you could save many thousands of pounds in tax. That's good news for you, bad news for the taxman.
You don't need to invest the full £10,680 to benefit, you can start by saving much smaller amounts. ISAs aren't actually an investment. They're a tax "wrapper" that you can place around a range of savings accounts and investment funds sold by banks, building societies and fund managers, as well as individual company stocks. Your annual ISA allowance comes in two parts: the cash ISA and stocks and shares ISA. This tax year, you can invest up to £5,340 in a low-risk cash ISA. Cash ISAs work like a standard savings account, with a couple of differences. First, you don't pay tax on the interest you earn. Second, if you withdraw cash from the account, you lose all the tax benefits on that money. That's because cash ISAs are supposed to be a long-term savings vehicle.
If you take out a cash ISA, you can also save up to £5,340 in a stocks and shares ISA. If you're brave, and plan to invest for 10 years or more, the stock market can generate a better return than cash. If you're really brave, you can invest your full £10,680 allowance into stocks and shares. You can spread the risk by investing via "pooled" investment funds - there are thousands to choose from - or buy individual company stocks. Anybody who has followed the news over the last five years won't need telling just how risky the stock market can be. But if you can hold on for the long-term, it should generate fatter returns. Consider taking independent financial advice, to guide your choice.
If you don't have any spare cash to put into an ISA this tax year, don't despair. You get a brand new annual ISA allowance from 6 April, and this one is worth £11,280. That's because the annual allowance now rises in line with inflation. That means you can shield even more of your hard-earned savings from HM Revenue & Customs next year.
QE is enough to send pensioners bananas
February 16th 2012
I remember the days when only a banana republic would print money to get out of a financial fix. Welcome to banana Britain, where the Bank of England has resorted to printing hundreds of billions of pounds in a desperate bid to get the economy moving again. Last week, it unleashed another £50 billion of quantitative easing, on top of the £275 billion it has already printed. This may only be virtual money, but it is doing some serious damage in the real world. Especially if you're a pensioner.
It is debatable whether QE, as it is known, is saving the UK economy. Banks seem to be sitting on most of the money, rather than lending to businesses as intended. But there is no debate over who are the victims of QE. British pensioners. The Bank is using all that freshly-minted money to buy UK gilts. This phoney demand has forced up gilt prices, which reduces the amount of interest rate they pay - known as the yield. Gilt yields are used to set rates on annuities, the income for life you buy with your pension fund. Thanks to QE, annuity rates have fallen by 25% over the last four years. If you have £100,000 in your pension pot at 65, you would be lucky to buy an income worth £5,000 a year. That's barely one-fifth of the average salary. If you want that annuity income to rise in line with prices, you probably wouldn't even get £4,000 a year. And since the average pension pot is a meagre £25,000, most people will get a lot, lot less than that.
Once you have bought an annuity, you are stuck with it for good. Thanks to QE, more than a million pensioners will be permanently poorer for the rest of their lives. This isn't the only way the Bank of England is punishing pensioners. By holding base rates at a record low of 0.5% for nearly three years, it has savaged the return on their savings. Letting inflation rise above 5% last year further eroded their spending power in real terms, especially since pensioners spend a greater part of their money on things like food and fuel, which increased most.
After a lifetime of diligent saving, pensioners are being forced to pay the price for the nation's profligacy. And by the Bank of England, no less. Analysts have come up with several measures that would be more helpful and less damaging than QE. Some have even suggested printing money and dropping it from a helicopter, so that people actually spend it. It's a measure of just how crazy QE is, that this apparently insane alternative is starting to appear quite rational.
Fraudulent insurance claims
February 9th 2012
Rdmoney.co.uk
8 February 2012
Half of us are willing to commit fraud
The British have always prided themselves on being an honest bunch with low levels of political and financial corruption compared to most foreign lands. Sadly, that is rapidly changing. As we saw in the MPs' expenses scandal, our politics isn't as clean as we thought. Our elected representatives were out to grab every penny they could. The rot may have started at the top, but it smells increasingly musty at the bottom as well. Growing numbers of Britons are exaggerating their home insurance claims and don't see anything wrong with it, according to new research from Axa.
The number of fraudulent claims leapt 17% in 2011. Around 200,000 customers added fraudulent extras to their claim, worth £607 on average. They can't all have been MPs. It's partly a male thing. Men are nearly twice as likely as women to have exaggerated a claim. And it's also a London thing, because the capital generates most false claims, and the biggest. Insurance is seen as a soft target and more people are now willing to try their luck. The research showed that 12% of us would be more likely to consider making an exaggerated claim now three years ago.
Just as most MPs didn't see anything wrong with fiddling their expenses (and many still don't), less than half of us believe that exaggerating a claim is dishonest.
The survey asked people what type of behaviour they considered to be dishonest when making a claim. Nearly six out of 10 said it isn't dishonest to say their windows or doors were shut at the time of a break-in, when in fact they had been left open. Incredibly, almost half see nothing wrong in submitting a receipt belonging to someone else, a blatant fiddle if ever I've seen one. And more than four out of 10 believe deliberately damaging an item to make a claim isn't being dishonest either.
The definition of dishonesty has clearly changed since I was a boy, and for the worst. It looks like half of us have no qualms about committing fraud, providing the victim is an insurance company. Some people have always seen insurers as fair game. They feel they deserve something in return for their premiums. They know other people are trying it on as well. Many think insurance companies deserve everything they get. Most of all, they see it as a victimless crime. It isn't, of course. We are all the victims, as exaggerated claims add up to £13 to every home insurance policy.
Insurance fraud isn't risk-free either. If you're caught, your entire claim could be turned down. You could also have trouble getting insurance in future.That clearly doesn't deter people from trying it on, just as the danger of seeing their reputation publicly trashed didn't stop MPs. Where our elected leaders go, we follow. Who said politicians don't have much influence these days?
You only die twice - Plan now for your digital death
February 2nd 2012
As if dying once wasn't enough, these days we have to do it twice. The first is our paper death, which is pretty straightforward, as long as you write a Will. The second is our digital death, and that's a more complicated matter.
Digital death is a new phenomenon. Most of us simply aren't prepared for it, but we need to be. Yes, I know it's a bit of a chore, this dying twice business. But if you don't make the effort, you could get it all wrong, and leave a nasty legacy for your loved ones. Your body may die, but your online persona will live on after your death. It needs to be given a proper burial.
More of us have net-based bank and savings accounts, pensions and investment portfolios. We also store personal effects online, such as music, movies, photographs, blogs and social media accounts.
In the online world, you won't leave a paper trail when you die. An electronic trail could be harder to pick up. Your relatives could overlook an online savings account or pension plan, a mistake that might cost them thousands of pounds. So make sure you give them all the relevant account details (even if you don't want to give them your passwords). Otherwise your wealth could be buried with you.
Be careful, because you don't want these details to fall into the wrong hands, otherwise an unscrupulous relative or friend could run off with your life savings. If you have uploaded photographs and videos to social media such as Facebook and YouTube, somebody you know and trust will need login details to access them. People are starting to include this sort of information in their wills. The danger is that a will is a public document, which anybody can view for £6 by applying to the Probate Registry. You won't want your login passwords publicised this way.
Several years ago, I tackled this problem by printing out all the account numbers for my pensions, investments, insurance policies and so on, and handing them to a relative for safekeeping. The trouble is I have failed to update the information. I know that one or two accounts are closed or absent. I keep meaning to overhaul it, but haven't got round to it yet.
Alternatively, a number of companies offer online digital "legacy lockers" which give your family access to your essential digital property if you die. They say that death is not the end, and it's a motto that ID fraudsters certainly live by. They are happy to assume the identities of dead people, and use them to swindle cash out of the living. You should start preparing now for your digital death. It's important to make a proper job of it. If you don't, your mistake could return to haunt your family.
House prices - Would you bet against the UK housing market?
January 27th 2012
What's this? Is confidence returning to the housing market? Now that would be a big surprise, given all the desperate economic news around, but it does seem to be the case. One in three Britons expects house prices to rise this year, while nearly four million say they expect to buy a new home, according to new research from Santander. This follows figures from the Council of Mortgage Lenders showing that the number of people taking out new mortgages rose 4% in November.
Another survey suggests even first-time buyers are making a comeback. Nearly four out of 10 mortgage seekers are trying to get onto the property ladder for the first time, according to financial advice website Unbiased.co.uk. That's a positive development, because first-time buyers are the lifeblood of the property market. Without a fresh injection of first-timers, the market will soon look anaemic. Given the importance of house prices to general confidence, this is one of the few pieces of good financial news to emerge about the UK recently. And a surprising one.
The resilience of the UK housing market since the start of the banking crisis has shocked most people. In the US, house prices have fallen by more than one-third, and are still falling. In Spain, they have fallen even further. But after a brief initial panic, the UK property market has stood firm. It's quite incredible. If I had a pound for every article I read (and written) warning that the housing market was set to implode, I would have enough money to slap down a deposit on a small flat (at least, outside London). But they've all been proved wrong, so far. So what's so special about the UK?
Low interest rates have been a massive help, enabling hard-up homeowners to keep up with their monthly mortgage repayments. Lenders have also gone relatively easy on people in arrears, rather than simply turfing them out of their homes. Repossession rates are still astonishingly low, given the troubles we face. The shortage of property has also pushed up demand. So we can thank our tight planning laws for that. And deep down, most Brits still believe in the benefits of owning bricks and mortar. And rightly so, given that buying a home is 16% cheaper than renting, according to the Halifax.
The biggest obstacle buyers face is saving a big enough deposit to get a competitive mortgage. With lenders demanding applicants slap down a 25% deposit to qualify for their best rates, the average buyer needs to save up nearly £40,000. In London, they need a lot more. That's an awful lot of money. Quite frankly, I don't know how people do it. But nothing about our property market should surprise me these days.
Will it continue to surprise us this year? Given its track record, I wouldn't like to bet against it.
Loyalty pays, but only for the banks
January 19th 2012
Loyalty is a great virtue. And like most virtues, it is disappointingly rare, and completely absent when it comes to the banks. They see loyalty as a weakness, to be exploited at every opportunity.
If you're loyal to your bank or building society, don't expect to be rewarded. In fact, the reverse will happen. You will invariably be punished.
If you think I'm over-egging it, just look at how they treat their loyal savers. If you stick with the same savings account year after year, your loyalty will be thoroughly abused. You will be lucky to get 0.5% a year. All too often, you will get just 0.1%. Yet those same institutions are likely to be chasing new customers with interest rates of 3% or more. Loyal savers can go rot, the banks want fresh blood.
It's the same with mortgages. Plenty of lenders leave their loyal customers stranded on standard variable rates (SVR) of 4%, 5% or even 6%, while tempting new customers with rates as low as as 3%. In many cases, existing customers are banned from applying for new customer rates.
So much for loyalty.
Credit card issuers are the same. If you stay with the same card for years, you can expect to pay an APR of 18% or 19%. Yet the same issuers will cheerfully launch cards offering zero per cent introductory interest rates on balance transfers or new purchases, for an incredible 12 or even 24 months. Who funds those amazingly low rates? Loyal customers, of course.
Perhaps the worst time to be loyal is when you take out an annuity, which is the income for life you buy with your pension pot when you retire. Two out of three people buy their annuity from the company that ran their pension, even though they have absolute freedom to shop around for the best deal, a process known as "taking the open market option". Shopping around for an annuity is vital, because tracking down the best annuity on the market could help you generate an extra 10% or 20% income. And that's up to 20% more income, for the rest of your life.
Don't expect the banks to clean up their act. It's simply not in their interests. They use eye-catching rates as loss leaders to attract new business, then claw back those losses in subsequent years.
The same thing happens with motor and home insurance. After the first year of low premiums, you can brace yourself for a string of sharp premium hikes. The longer you stay loyal to your insurer, the more you pay.
Save your loyalty for friends and family, don't squander it on the banks. Take those great introductory rates, by all means. But be prepared to move on when they expire.
Loyalty works for the banks, but it doesn't work for you.
Good news, but not for everybody
January 11th 2012
The financial gloom is so entrenched these days that I like to deliver a little bit of good news from time to time. So here goes.
If you want to change your mortgage, take out a new credit card or personal loan, or get a better return on your savings, you can find a better deal now than a year ago.
Interest rates on mortgages and personal loans have fallen to new lows. Rates on trackers, for example, are up to 1.5% lower than one year ago. Fixed-rate mortgages are also cheaper.
You can now take out a personal loan from as little as 6%, depending on how much you want to borrow. And if you want to switch your credit card balance to a new card, you can get 0% introductory balance transfer rates lasting up to 24 months.
Savers have had it hard lately, but growing competition between the banks and building societies is giving them some respite. You can now get easy access rates from 3%, that's six times the Bank of England base rate at 0.5%.
And if you're prepared to lock your money away for five years, you can get a fixed rate of up to 4.5% a year, an impressive nine times base rate. That will look even better, if inflation falls this year as expected.
So it isn't all financial bad news. By shopping around, and being prepared to take advantage of short-term offers, such as introductory bonus rates on savings accounts, you could save yourself hundreds or even thousands of pounds.
There is a catch, of course. To get the very best mortgage and personal loan rates, or to qualify for a 0% credit card, you need a squeaky clean credit record.
If you've missed any repayments in recent years, say, on your mortgage, credit card, utility bill or mobile phone contract, that will show up on your credit report.
Lenders always check your report when deciding how much to charge for credit, or whether to lend you money at all. And right now, they're very fussy about who they accept.
If you're worried, check your report with a credit reference agency such as Equifax or Experian before you apply for any form of borrowing.
You have the right to see your report for a nominal fee, and dispute any inaccuracies. It is worth checking before you apply for credit, because any unsuccessful application will show up on your report, making it harder to get credit.
As I said, rates on credit and savings have improved over the past 12 months. Let's hope they continue to do so (although mortgages can hardly get any cheaper).
Whether you're in a position to celebrate this good news depends on how you have handled credit in the past. Things are looking brighter, but sadly not for everybody.
Retire at 65?
January 6th 2012
Keep calm and carry on working
For some reason, I've been gazing longingly at my projected retirement date. It could be the post-Christmas blues, the dark nights, or recently turning 45, but I feel like putting my feet up.
My projected retirement date was originally 2031, but I'm unlikely to hang up my laptop then. The state retirement age is being pushed further and further back, and this means I will be working for at least a couple of years longer. And so might you.
By 2020, the retirement age for both men and women will have increased from age 65 to 66. By 2026, it will have been hiked to age 67. So now I'll be working until 2033. Many people feel cheated by this, and I can understand why. Effectively, we've been robbed of two years' worth of state pension. Except we haven't really.
We may lose a couple of years' pension at the start of our retirement, but thanks to rising life expectancy, we should gain them at the other end. Some people won't mind working beyond the state retirement age, because it keeps them active and sociable. Others will mind very much.
If you still fancy retiring at 65, the government can't stop you. It just won't give you any pension for the first couple of years. That isn't a problem if you have saved enough yourself. But exactly how much do you need to save?
Your first step is to decide how much income you want in retirement. Can you live on half your salary? Next, you have to work out how much you need to save. If you are entitled to a single person's full basic state pension, you will get around £5,300 a year. That ain't much, unless you get state second pension as well.
Each £100,000 of company or personal pension you save on top of that will currently buy you an annuity, which is an income for life, worth another £5,000 a year. So if you want to retire on, say, £20,000 a year, you will need full basic state pension and almost £300,000 of pension or other savings. That's a tall order, especially since the average pension pot at retirement is worth just £25,000. If you only manage to save, say, £100,000, you will have to scrape by on just over £10,000 a year, plus any state benefits you can claim.
If you plan to retire a year or two before your state pension kicks in, you will need extra funds to plug the gap. You and I may still dream of retiring at 65, but it will take a lot of hard work to make it a reality. No wonder one in six now expects to work until age 70, according to research from the Association of Consulting Actuaries.
For most of us, there is only one thing we can do. Keep calm and carry on working.
Enough moaning - it’s Christmas!
December 15th 2011
If you're exhausted by all the hype over Christmas, try being a financial journalist. My inbox has been clogged up with topical yuletide-related press releases for weeks now, and there's no end in sight.
Ping! Here's a release telling me parents expect to spend on average £200 per child on Christmas presents this year. Ping! Here's another claiming people are dropping friends off their Christmas list to save money. Ping! Consumers are set to spend a record £47 billion in the festive period. Ping! Most Brits fail to save for Christmas. Ping! Christmas is set to plunge 10 million people into the red.
It's the most wonderful time of the year, or so the song goes, but that isn't the tune for this festive season. By far the most popular theme this year is the amount of financial damage that Christmas causes.
We may all dream of living in a winter wonderland, but many of us will come back to earth with a nasty bump in January, when the bills for our annual festivities come rolling in.
Ping! Right on cue, here's a press release giving me 10 tips to avoid a festive financial hangover. This one is full of common sense stuff such as "save money by eating in", "don't overstretch yourself buying expensive Christmas present" and plan your Christmas dinner in advance to avoid "excess food going in the bin".
I bet none of you thought of that.
I shouldn't scoff, this press release came from a debt management charity, and they're only trying to help. And it certainly will be a tough Christmas for many, especially those who have lost their job or are already in debt, even before this year's seasonal splurge.
I wish I could cheer you all up by claiming we're heading for a brighter 2012, but you probably wouldn't believe me. There is just too much financial gloom around right now, with the eurozone imploding, unemployment exploding and stock markets going Boom!
It looks like the bill is coming in for all the good times we had in the boom years running up to 2007.
In fact, the credit crunch is rather like Christmas. We all maxed out our debts beforehand, it was on us before we could blink, and we've been left with a hefty bill that will take ages to clear.
But enough of the misery. It's Christmas, after all, so let's enjoy it while we can. Christmas is meant to be a period of good cheer to bring light and warmth to the bleak midwinter.
This year we need it more than ever. Merry Christmas!
A bad year for investors
December 8th 2011
You need strong nerves to be an investor
There's no doubt about it, 2011 has been a rotten year to be an investor. At the start of the year, the FTSE 100 stood at just over 6000.
At time of writing, it stands at 5300, a drop of nearly 12%. By the time you read this, it could be anywhere, quite frankly.
As the eurozone crisis drags interminably on, we can expect plenty more volatility over the coming months.
This is grim news for anybody with their life savings in a stocks and shares Isa. It is equally grim tidings for anybody with a personal or workplace pension that is invested in the stock market.
Over the past 12 months, the average UK investment fund has fallen a painful 13%. If you had, say, £10,000 in a UK fund at the start of the year, it may now be worth just £8,700. That's a loss of £1,300.
The good news is that this is only a paper loss, and you could make the money back when share prices eventually rebound, but it will still hurt.
The UK stock market isn't the only struggler. You probably won't be surprised to hear that European markets did even worse over the past year, falling 17%.
But you might be surprised to hear that global growth success story China suffered a 24% drop. That's bad news for the many private investors who were advised to put their money into emerging markets to escape problems in the West.
I've just done a trawl through every major stock market in the developed and emerging world, and I found only one that has posted positive returns during 2011.
Yes, just one. Ireland. Its market rose 5%.
It isn't just stock markets that have had a lousy year. The average UK property price fell 3.2%, while prices fell 7.2% in the North East. London was the only place to see price rises, and then by just 0.3%.
You could have left your money in cash, but with inflation topping 5% and most savings accounts paying 1% or 2%, your money would have shrunk in real terms.
I've just been looking at the full range of investments out there, from commodities to corporate bonds, and I have found just two that posted a double-digit return over the past 12 months.
The first is UK gilts. The average fund investing in UK gilts, which are IOUs issued by the government to raise money, rose 13%. Unfortunately, few private investors invest their money in gilts.
You will know a lot more about this year's other investment success. Gold. Like gilts, gold is another safe haven. Investors have flocked to it during this turbulent year, pushing its price up 25% to around $1,700 an ounce.
So in the 2011 investment stakes, gold takes gold. Ironically, silver came in second, rising 17%. Gilts take bronze, with the rest also-rans.
2012 is set to be another turbulent year. Don't believe anybody who claims they can predict which investment will succeed next year. Now more than ever, nobody has a clue.
We’re all in a property market fix
November 25th 2011
Funny thing, house prices. Almost everybody agrees they are too high, but most people don't want them to fall. It's quite a paradox, and one that is proving hard to resolve.
High house prices are seen as bad for a host of reasons. First, they squeeze young people off the property ladder. Only first-time buyers with wealthy and willing parents can find the huge deposits lenders now demand.
Sky-high prices also mean that buyers have to take on massive debts to fund their purchase. This isn't just risky, it also sucks money out of the economy. If people spend a hefty chunk of their salary servicing their mortgage, they can't spend it on stuff that keeps the economy ticking over.
I hoped the financial crisis might make property affordable again, but it hasn't happened. The Bank of England policy of slashing base rates to 0.5% has prevented a house price crash.
Yet I can also see that's a good thing. A property slump is the last we need right now. Falling house prices would kill what's left of consumer confidence, plunge hundreds of thousands into negative equity, and destroy any chance of escaping a double dip recession.
This leaves us in a fix. We need more affordable housing, but can't afford to let prices fall. Politicians certainly don't want to see a slump, they know it puts voters in a bad mood.
That may explain why Prime Minister David Cameron has just announced a new scheme to help first-time buyers purchase new-build properties with a deposit of just 5%.
By encouraging new buyers into the market, it should help prop up prices across the board. That's good news for existing homeowners and property developers, but I'm not convinced it will help first-time buyers.
What they need are lower house prices, but this scheme will effectively use government money to maintain artificially high prices, distorting the market.
I would also question whether we should be encouraging young people to buy a property with 95% deposit right now. Prices only have to fall 5%, which is highly likely over the next couple of years, and they will go straight into negative equity.
If interest rates rise sharply, their plight could worsen.
I thought the housing market boom and bust had taught us the danger of encouraging buyers to take on ever larger amounts of debt. Politicians have forgotten the lesson already, it seems.
Ironically, I was beginning to think we might wriggle out of our housing market fix. With prices sluggish and inflation soaring, property was steadily becoming more affordable in real terms. A government-funded subsidy for the housing market could scupper that natural process.
Here's another property paradox. The market needs a steady stream of first-time buyers to sustain prices, but it won't get them until prices have fallen to affordable levels.
I wouldn't buy a property with a 95% mortgage at the moment. I would watch what's happening in the eurozone, and wait.
Events elsewhere may ultimately determine what happens to house prices over here.
The best things in life are… shockingly expensive
November 18th 2011
They say the best things in life are free, but that's nonsense. If you're a parent, the best thing in your life is probably your kids (maybe because everything else has fallen to pieces…) but they certainly aren't free.
The average total cost of raising a child to age 21 has risen to £210,000, according to annual research from insurer LV=. This includes food, clothing, holidays, toys, pocket money, childcare, school uniforms and tuition fees (but not private school fees). Astonishingly, the cost has jumped 50% since 2003.
Kids were expensive enough before the financial crisis, now they're putting even more strain on overstretched budgets. Rising inflation and stagnating salaries are only making things worse.
You won't be surprised to hear that many couples are now thinking twice about having children, given the current financial uncertainty. More than one in five couples aged between 18 and 34 have chosen to delay having children until their finances are more secure, according to new research from Churchill Insurance.
Given that the financial crisis looks likely to drag on for several years, they could be in for quite a wait.
I have two kids with my partner, a seven-year-old girl and nine-month old son. I'd forgotten how expensive babies were, until my bank balance started sinking at double speed in the middle of February.
Prams, playpens, nappies, wet wipes, baby food, car seats, clothes and yet more clothes are a real drain, and child benefit simply doesn't cover it. Especially since it has been frozen for three years. It makes you wonder how some people cope.
Just about every rite of passage is getting more expensive. Getting through school (all those uniforms and school trips). Going to university (soaring tuition fees). Buying your first car (inflated insurance premiums). Climbing onto the property ladder (you need a massive deposit). Marriage (the average wedding costs £18,500). And now, having children.
I'm 45, so most of those life events are now behind me. But I still have to pay off a super-size mortgage and somehow save enough money to afford to retire one day (while simultaneously spending a whopping £420,000 raising my kids).
Things will be even worse for the generation below mine. Not only will they have to beg and borrow their way through school, university, car, property, marriage, children and pension, they will also have to pay for the pensions and welfare benefits of a spiralling number of retired baby boomers intent on living until 90 and beyond.
No wonder the retirement age is being pushed back to 68, and a record 823,000 people are already working beyond the state pension age. The best things in life are so expensive most of us will have no choice.
Investors - watch out for those pterodactyls!
November 18th 2011
If you don't like this headline, you could say:
Timing the stock market is for dreamers.
It's the dream of every investor. Buy a stock or fund shortly before it go stratospheric, and reap a big fat profit. Whether you're a hardened trader or dabbling amateur, the dream is the same.
The reality, unfortunately, is rather different. Timing the stock market is almost impossible. You might get lucky once or twice, but you will get it wrong far more often.
I know. I've tried. So have wiser people than me.
Why can't we get our timing right?
The truth is, human beings aren't emotionally equipped to be successful investors. One weakness is that we repeatedly succumb to the herd mentality. When we see people rushing to buy a share or sector, we want to join them. Just look at how many people piled into the dot.com boom in the late 1990s, just before it went bust.
And when we see stock markets plunging, it's hard to resist the temptation to sell everything we own.
In practice, we should do the reverse. As billionaire investor Warren Buffett famously put it: "Be fearful when others are greedy, and greedy when others are fearful."
That's easier said than done. When our ancestors were hunting woolly mammoth and pterodactyls on the African plains, they quickly learned it was wise to be fearful when others were fearful. Otherwise they would get eaten.
By trying to time the markets you are fighting against thousands of years of evolutionary instincts. Investing is hard enough, especially these days, without having to battle your own instincts.
There is also a danger in trying to be too clever.
I was recently talking to an experienced investor who was so convinced the latest eurozone bailout package would be a flop that he sold all the banking stocks he owned.
Instead, stock markets soared, led by banking shares which rose more than 10%.
In a blind panic, he bought those banking stocks back before they rose even higher. Next day, Greek Prime Minister George Papandreou announced he was putting the EU rescue package to a referendum, and the stocks fell 10%.
The unhappy investor thought he was being clever by playing the market, but it ended up playing him. Twice.
He called the bailout package correctly, it really was a flop. But he got his timing wrong. Even if you think you can second-guess the future, you don't know when it is going to happen.
For most of us, the best way to invest in stocks and shares may be to play safe by setting up a direct debit or standing order to pay in a regular amount month after month, year after year. That way, you don't have to worry about timing at all.
If you still think you can time the market correctly, I have a message for you. Dream on.
Just imagine if Britain had actually joined the euro…
November 18th 2011
Hands up who wanted us to join the euro all those years ago? Go on, don't be shy. What, nobody? Somebody must have been in favour, because we came perilously close to joining.
Phew, that was a close one. Whatever damage Gordon Brown did to the UK economy, his finest hour was preventing Tony Blair from dragging us into the single currency.
If we had joined, the UK would have been in an even bigger financial mess than it is today. Eurozone interest rates were lower than ours during the property boom, which would have sparked an even greater house price bubble.
They were notably higher than ours after the banking crisis, which would have pricked the UK housing bubble at record speed. It would have been very ugly. Think Greece, but without the sunshine.
You may question the Bank of England's decision to slash base rates to 0.5% and embark on a massive campaign of printing money, but without it, we would have suffered a far bloodier recession.
It is hardly surprising that nobody admits to wanting to join the single currency now. We should all be celebrating the fact that we remained in charge of our own monetary policy.
Mind you, if we had joined, the world would have been spared endless debates over how to bail out Greece. Instead, there would have been a brief debate over how to bailout the UK, before everybody realised we are too big for anybody to bail out, even the Germans.
The euro would have collapsed overnight, all thanks to us. So the rest of Europe is glad we didn't join either.
Or maybe not. Instead, the eurozone crisis drags on and on, with EU politicians producing one half-hearted rescue package after another. Each new bailout has been greeted by a short-term rally in stock markets, only for reality to sink in.
Everybody has known for ages that Greece is bankrupt and has to default, but the EU has maintained its charade that the stricken country can one day repay its debts.
It has finally facing up to the truth, but far too late. People have given up on Greece now, they're too busy worrying about Italy.
The UK may have been spared the worst of the eurozone implosion, but we won't escape the fallout. If Europe slides into recession, as seems increasingly likely, we will surely follow. After all, the eurozone takes nearly half of all our exports.
All you good people out there (yes you lot, with your hands down) who always knew the eurozone would end in disaster won't have time to celebrate your foresight.
Even though we never joined the euro, it seems we share the same destiny.
Inflation is the thief at your door
October 24th 2011
There's a silent thief roaming Britain, picking pockets everywhere. It's called inflation, and it's a bigger menace than ever.
Worse, it has the official backing of the authorities, as the Bank of England appears to be encouraging the menace.
Inflation has just hit a whopping 5.2%, although it is actually 5.6% according to the older measure, the retail prices index (RPI). Savers and pensioners on fixed incomes are its most high-profile victims, but workers are also suffering, as wage rises fail to keep up with inflation.
Inflation is a silent thief, because you only occasionally see it at work, for example, when your energy bill lands on your doormat, or at the supermarket till.
If your boss directly hit you with a 3% pay cut, you would certainly notice it - and be furious. But if inflation is 5.2% and you get a pay rise of just 2.2%, you are effectively getting that 3% pay cut. Since many people won't be getting any pay rise this year, their spending power will have fallen more than 5%.
Nine out of 10 workers now earn less than they did four years ago in real terms, thanks to this sneaky robber. Many have seen their income fall by up to 20% in that time.
If your pay was cut by 20% any other way, you would be out on the streets protesting. But that's the twisted thing about inflation, it does its dirty work but is never held to account.
The good news is that inflation is predicted to retreat to around 3% or less next year, as January's VAT hike and recent fuel price rises fall out of the annual figures. The bad news is that it's the Bank of England predicting the drop, and it has called inflation consistently wrong for more than two years.
It doesn't help that the Bank has just announced that it will print another £75 billion worth of money in its bid to save the UK, under its quantitative easing programme. More money in the economy typically means more inflation, so watch out.
If workers start demanding higher pay settlements to keep up with rising prices, that could spark an inflationary spiral. Some alarmists are even warning about hyper-inflation.
Inflation has turned £10,000 in cash into just £9,000 over the past two years, in real terms. No wonder people feel swindled.
A basic rate 20% taxpayer now needs to earn 6.5% on their savings to keep with inflation, and a 40% taxpayer needs to generate 8.67%. It simply can't be done.
Fixed-rate bonds, inflation-linked bonds and your Isa allowance can help you offset some of the damage, or you could use your savings to pay down any debts such as your mortgage. Mortgage rates are typically higher than savings rates, so that might be a better use of your money.
Inflation will continue to do its dirty work, but if you keep your wits about you, you can prevent your pocket from being picked.
Property is the bubble that simply won’t burst
October 24th 2011
You've got to hand it to the UK property market, it is amazingly resilient. It has shrugged off everything the world has thrown at it in the last three years, from the credit crunch to the current eurozone crisis, and defiantly refused to crash.
It stumbled just once, in the early months of the financial crisis, but quickly bounced back. 2011 may have been a turbulent year but property prices have still risen 4.7%, according to Nationwide.
Prices could rise 14% to a record high by 2015, according to the Centre for Economics and Business Research, taking the average house price above £200,000 for the first time ever.
Bricks and mortar have shown a lot more staying power than the stock market, which has plunged 20% in recent weeks, and is still way down on the all-time high it hit on 31 December 1999. Over the same period, house prices have doubled. So how did UK house prices get to be so tough?
The short answer is low interest rates. When the Bank of England slashed base rates to 0.5% in March 2009, it spared us a brutal housing crash. Rates are still at 0.5% some 28 months later, and prices have stayed firm.
You may think UK property is expensive (I certainly do) but it is actually more affordable than it has been for 12 years, according to new figures from Halifax. The average first-time buyer or home mover now spends just 28% of their disposable income on their mortgage, compared to 48% in autumn 2007. That is well below the long-term average of 37%.
So by some measures at least, property is cheap.
There are other reasons why the long-awaited house price crash hasn't happened. The UK is a small and crowded country, with a shortage of decent property. It needs to build 225,000 houses a year to keep pace with rising demand, but builds around 110,000. This helps to keep demand high.
The weak pound has also helped, at least in London, where wealthy foreign buyers are flooding into prime areas to pick up discounted properties.
The enduring popularity of buy-to-let has also underpinned prices.
The losers in all this, once again, are young people trying to get on the property ladder. Mortgages may be cheap, but you need a 15% or 25% deposit to get the best deals. On a £150,000 property, that means you need to slap down a deposit of either £37,500 or £22,500. Few young people have that, unless they get a little help from the Bank of Mum and Dad.
This latest leg of the financial crisis could still spell bad news for house prices, particularly if the eurozone finally implodes.
The UK property market has beaten allcomers so far, for better or worse. Can it last the distance? You would have to be pretty brave to bet against it.
You’re broke, buster
October 17th 2011
The baby boom generation have handed their children a big fat inheritance, but they shouldn't expect any gratitude.
The early 1990s "baby buster" generation have received a miserable legacy from their 1960s parents. They won't be able to buy their first home until age 35, will be drowning in student debt of £90,000, and have much smaller pensions and their parents, according to a new report from PwC.
Baby busters, by the way, is a freshly-minted term for the generation of students just starting university.
What a start in life - being labelled bust before you've even started. Worse, they will never catch up. Those poor, blighted busters will be around 25% less wealthy at age 65 than their booming, bloomin' parents. With student debts to clear and sky-high mortgages to repay, saving into a pension will come low on their list of priorities.
They may be born into a wealthier society with more advanced technologies, but they will be personally poorer.
There is a silver cloud for the busters, but even this comes with a dark lining. Baby busters can expect to live five years longer than their parents, mostly due to medical advances. The drawback is that their threadbare pensions will have to stretch even further.
And because they will be living longer, they will also be working longer. That process is already kicking in, with the retirement age to be raised to 67 sooner than expected.
Some people have tried to stir a generational war between the boomers and busters, blaming the older generation for stealing their children's futures. Hardly. They weren't to know the banking crisis was lying in wait, with a depression to follow.
But as youth unemployment nears 1 million, it does look like the younger generation has been abandoned. The coalition government has preserved elderly benefits such as winter fuel payments and free bus passes, but axed aid for young people such as the maintenance allowance for staying on at school and the future jobs fund.
A cynic might suggest that politicians have targeted the young because they are less likely to vote than older people.
This doesn't mean all baby boomers are living the high life. Many will have lost their jobs in recent years, and a record number are heading into retirement with unpaid mortgage and credit card debts. Life is getting tougher at every end of the scale. But there is a big danger that we are raising a lost generation.
Another problem is that the busters grew up with elevated expectations. They have enjoyed much more comfortable childhoods than their parents, and must have assumed things would continue to get better. They've had a rude awakening.
Their best hope is that their boomer parents will leave them a generous parting gift, in the shape of an inheritance. Now that's a legacy they will be thankful for - if they're lucky enough to get it.
A foreign dream that is forever British
October 12th 2011
Owning a second home abroad was a dream for millions of Britons, at least before the financial crisis. For many, it has turned into a nightmare, especially in Florida and Spain, where prices have fallen by as much as half.
But it will take more than a global recession to kill the British foreign property dream, especially as it may be getting affordable again.
If you're thinking of buying a home in the sun, vendors and developers will welcome you with open arms. This is a buyers' market, and you can use your negotiating power to bag a bargain.
I've heard stories of people bidding €200,000 for a property on the market at nearly €300,000, and seen their offer accepted. With that size of discount on offer, now could still be a good time to buy, even with the weak pound.
Low interest rates will help. If you're raising the money against your UK home, you can benefit from the cheapest mortgage rates ever. Tracker rates start at 2.5% and five and 10-year fixed rates from under 4%, provided you don't need to borrow more than 75% of your home's value.
With most people expecting the Bank of England to hold base rates at 0.5% into 2012 or 2013, cheap mortgages should be around for some time yet.
In some countries, you might even do better with a local mortgage. French mortgage rates, for example, are even lower than ours. But if you're paid in sterling, think twice about taking a mortgage in a foreign currency, as your monthly repayments could shoot up if the pound gets even weaker than it is now. It is also quicker and easier to arrange a mortgage with the UK-based lender, and you understand the language.
Buying a second home overseas is exciting, but don't rush it. You're buying in a foreign country, they do things differently there. You need to hunt down a local English-speaking lawyer who is thoroughly independent, rather than one recommended by your property developer.
You also have to be careful where you buy. Spain in particular is awash with properties, thanks to rampant overdevelopment in the boom years. Make sure you buy in an established area with proper infrastructure, or you could find yourself stuck with an unsellable property on a half-finished development with no street lighting or shops. There are plenty of them around.
When sending money abroad, don't just go to your local bank. Compare foreign exchange and commission rates against specialist currency transfer services, to see which offers the best deal. Reader's Digest has its own foreign exchange service.
Your foreign property dream may be more affordable than you think. But don't be dazzled by all that sunshine, you need to keep a cool head. As many Britons buying abroad have discovered, dreams can be very costly.
Let’s talk about debt, baby
October 12th 2011
The British were always a famously pent-up bunch. We didn't talk about sex, and we certainly didn't talk about money. Now things are changing, on both fronts.
Brits have dropped their inhibitions and are shockingly happy to talk about their sex lives, especially if it will get them on TV. I'll leave you to decide whether that's a good thing. Increasingly, we are willing to talk about debt as well, which is a trend that most of us should support.
Fewer people are now hiding their debt problems from their partners, according to new research from national debt charity the Consumer Credit Counselling Service.
In 2008, some 17,477 people who contacted the agency said they were hiding their debt problem from their partner. That has now fallen to 14,071, a drop of 20%.
They say it's good to talk, and given the damage that debt can do to your home life, it's particularly good to talk about money worries (if not exactly fun). Hiding debt from your loved ones can add to the emotional strain, the charity warns.
A problem shared is a problem halved, as the old saying goes. If you don't share your debt woes, it could be a problem doubled. That's because couples who live with each other, and jointly own property or have debt in joint names, aren't just romantically entwined, but financially as well.
If your other half has a blemished credit record, you might also find a nasty stain on your report. This could take time to erase, and you could struggle to find credit in the interim.
If you love somebody, let them know you're broke.
And if you have broken up with your partner and severed all financial links, contact a credit reference agency such as Equifax and Experian to make sure this is reflected on your report.
So why the change in cultural attitudes to debt? Unlike our more open attitudes towards sex, you can't blame this on reality TV.
The financial crisis is surely one of the main reasons. During the boom, few people liked to admit they were in debt. After all, we were all supposed to be getting richer.
We take a different view in the age of austerity. Debt is no longer a four-letter word. It could happen to anybody - I can think of three of my friends who are struggling right now.
Sex is everywhere, and now debt is as well. The country is drowning in the stuff. Our total public debt is £3.6 trillion, by some measures, which makes the UK the most indebted country in the world. How could we not talk about something that big?
The British have found discussing debt difficult in the past. We're over that. Talking is the easy part, however. The tricky bit now is doing something about it.
Oh no, not another pensions article!
October 12th 2011
It's a quirk of my job that the more important the subject, the less people want to read about it. Take pensions. Everybody needs a pension. Everybody knows they need a pension. They just don't want to think about it, and they certainly don't want to read about it.
I'm not the only personal finance journalist who finds writing about pensions frustrating. It isn't the most glamorous subject. Plus you feel like you are trying to bully or frighten your readers into doing something they don't want or can't afford to do, by warning them of the dire consequences of doing nothing.
Far better to write about, say, the latest lurch in house prices, or where to buy a cheap holiday home. Readers gobble up property articles. Pensions leave a bitter taste in the mouth.
The antics of the pensions industry haven't helped. For years, pension companies and advisers ripped off their customers in a series of mis-selling scandals, turning a generation off pensions for good. If I had £1 for every person who has told me that pensions are "a scam", I wouldn't have to worry about my own retirement.
I don't like to make party political points on this blog but it isn't exactly controversial to say that New Labour's treatment of pensions was a disgrace. Gordon Brown's £5 billion a year stealth tax raid sucked tens of billions out of the system, and with a new pensions minister appointed almost every year, much-needed reforms ran into the ground.
That's another reason people don't like to read about pensions. The system is a shambles.
The coalition government is pushing through two radical reforms that may turn things around. From October 2012, the new auto-enrolment scheme (first proposed by New Labour, to give them credit) should give millions of workers a company pension scheme for the first time. It is far from perfect, and the big worry is that many low-paid workers will be scared off by the fact that they have to contribute 4% of their pay, but it is better than nothing (which is the current alternative).
The proposed £140 a week flat-rate state pension may also help, by giving every pensioner a basic income and putting an end to the dreaded means test. Let's hope the Treasury can afford it.
The bit I really hate about writing pensions articles is the part where you remind people how important it is to set aside a little every month towards their retirement.
You know that half your readers can't afford it, and the other half won't get round to it. Given the disastrous performance of stock markets over the past decade or so, they are rightly cynical about the benefits of doing so.
Still, I've done my professional duty by reminding you how important it is to save for your retirement. And you have shown a spark of interest, by reading this far. You know what to do next, don't you? That's right, start saving.
I live in hope.
You don’t like the cold – and neither does your house
September 29th 2011
I hate to be the one to point this out, but winter is coming. Amateur meteorologists are warning of snowstorms and arctic blasts as early as October, so we could be in for another cold one.
You're probably not looking forward to it, and neither is your home. Severe weather can be tough on bricks and mortar, and even tougher on pipes and roof tiles.
Insurance claims for snow, ice and water damage exceeded £1.4 billion last year, according to the Association for British Insurers.
Don't wait until the snow comes before weather proofing your home, start thinking about it before the cold sets in. Your first step is to check what insurance you have and whether it is up-to-date. If you've recently added an extension or conservatory, and the new roof starts leaking in the autumn storms, your insurer won't cover the damage unless you told them about the building work.
You may have to pay a slightly higher insurance premium to cover the extension and fittings such as furniture and carpets, but it is a price worth paying.
Check you have the right level of insurance. Millions of homeowners are under-insured, a fact they only discover after making a claim. If you only have, say, half the cover you need, your insurer will only pay half of any claim you make.
Next, take a careful look at your roof. Can you spot any loose, cracked or missing tiles? When it rains, the water will find them quickly enough. And so will the wind and snow. Repairing or replacing them now could save a lot of cost and bother later.
The autumn leaves haven't really started falling yet, but when they do, they could block your gutters and downpipes, causing them to overflow in rainstorms, and possibly give your house damp. In winter, your guttering could be festooned with very pretty (and lethal) icicles. When the trees around your property are stripped bare, dig out your ladder and scoop out all the fallen leaves and other gunk.
Frozen pipes are a big worry. The pipes in my home froze last year and it cost me hundreds of pounds to put them right (it would have cost a lot more if they had burst and flooded our home, as happened to thousands of people).
Ironically, modern insulation can make burst pipes more likely, by making your attic cold. A frozen and burst pipe in your loft could drench your entire home. Find out where your stopcock is, and how to turn it off in a hurry. And if you're going away during a cold snap, keep your heating on low and consider leaving the loft door open.
Check whether your boiler needs a service, they have a habit of packing in over Christmas, just when you need them most. You might even consider taking out home emergency cover, which will guarantee to send a tradesman to your property within 24 hours, even on Christmas Day.
Personally, I like the snow and cold, but most people I know complain bitterly about. Their homes aren't too happy either.
Compact, bijou and filthy. Yours for £250,000
September 21st 2011
Good luck if you're trying to sell your house in the current market, because it won't be easy.
Buyers are scared that if the economy tanks further, they may lose their job. Others are struggling to get affordable finance, as lenders tighten their criteria.
You won't have too many problems if you're selling a home in Kensington and Chelsea, or other prime parts of London. Thanks to the weak pound, the market is flooded with foreign buyers. Million pound properties fly off the shelves, while homes in the cheapest parts of the country gather dust.
But many vendors make their task harder by doing such a sloppy job of selling their home. They probably take more trouble over flogging off their old car or some knick-knacks on eBay, than marketing their most valuable possession.
I'm amazed by the dismal quality of most of the photographs on property websites. At least one in three postings don't even have an exterior shot, giving online browsers absolutely no idea of what the building looks like. I wouldn't buy a bar of chocolate without looking at the wrapper, let alone a home.
You might expect people would tidy up their properties before taking the interior shots, but most don't. I've lost count of the number of washing racks, old socks, upturned chairs and half-pulled curtains I've seen decorating people's living rooms.
Many people don't bother tidying up for the viewing either. I remember one family keeping me talking for ages in the kitchen, in full view of a mountain of dirty plates and scattered cat food. They were desperate to sell their property. Did I buy? No, I couldn't wait to get out.
A friend of mine is trying to buy a flat, and invited me along to a recent viewing. I felt sorry for the embarrassed estate agent as she guided us across a floor strewn with shoes, underpants, towels, DVDs and lad mags. The vendor wanted £250,000 for a property, but it looked like a squat. And no, my friend didn't buy either.
Buyers are nervous right now, vendors should be doing all they can to make life easier for them. Cleaning up your house, outside and in, is the least you can do.
You might also want to give tired walls or garish wallpaper a lick of neutral paint, and box up some of your surplus belongings and store them out of sight, so potential buyers don't have to wade through all your old clutter.
With the average house going for around £166,000, it's worth spending just a few pounds and a little bit of time making your house look like it's worth that kind of money.
You could get away with being lazy during the property boom, but you can't now. And maybe that isn't such a bad thing.
If only we’d listened to our grandparents
September 21st 2011
They say you should always listen to your mother, but where money is concerned, it's your grandparents who know best. And finally, we're beginning to appreciate their accumulated financial wisdom.
More than a third of Britons believe their grandparents are good role models when it comes to money management, according to new research from money management.
In these austere times, you can see why we appreciate how the older generation handled their finances. Money was scarce in their day, so they had to treat it with a lot more respect than we have.
I think of my grandparents, who scarcely had two pennies to rub together (and wouldn't have wasted either of them). They never borrowed a penny in their lives, and never bought anything they hadn't saved for first. Credit was taboo. They didn't owe a bean, and were proud of it.
Britons forgot these tough lessons during the boom years, when we racked up nearly £1.45 trillion worth of personal debt. Now we're finally beginning to rediscover traditional values. It is just a shame it took a credit crunch to do it.
Last year, we paid back more than £28 billion of housing equity, the largest sum on record. We're unlikely to repeat that feat this year, but are still on course to repay more than £20 billion.
I'm sure our grandparents would approve, after ticking us off for getting into this mess in the first place.
I would like to think that we have all learned our lesson, but I'm not convinced. My grandparents would have been shocked by the way some of my friends still squander their money, then claim to be broke.
I spent last Saturday afternoon shopping with my friend, er, let's call her Daphne (in case she reads this and gets annoyed). She owes £6,000 on credit cards, yet managed to squander another £150 in on a lunch she barely touched, a coffee and cake she didn't want, shoes that didn't fit, and various other nonsense. And then she wonders why she's broke.
When my grandfather died, he left just £300 in his bank account. That was what he called his nest egg. I don't know how Daphne would describe £300. Small change, maybe.
Our grandparents' generation did have a couple of advantages when it came to managing their money. First, credit cards hadn't been invented. You can't get into debt if nobody will lend you the money first.
Second, there wasn't so much stuff to buy. Think about it. No fancy stereos, laptops, mobiles, iPods, iPads, Blu-ray players, flat-screen TVs or home cinema. No broadband connection, digital TV package or mobile phone tariff either. All they had was a TV, radio and maybe a phone. None of it bought on tick.
Our grandparents were a product of their time, just as we are. They had to be financially virtuous, because they had no choice. If the downturn worsens, it seems like we won't have much choice either.
Whatever happened to stock markets?
August 22nd 2011
Like it or not, a fair chunk of your future wealth is tied up in the stock market, through your workplace or personal pension. If you have a stocks and shares Isa, global stock markets will also have a big impact on your financial wellbeing.
Which is bad news, given what's happened to markets lately. And I'm not just talking about the last few turbulent weeks, I'm talking about the past decade.
Remember the great shareholder democracy politicians promised us? It started well enough, back in the 1980s, with the massive privatisations of state assets such as gas, electricity, telephones and railways.
The late 1990s gave us a great bull market, which culminated in the technology boom. On the eve of the millennium, the benchmark FTSE 100 index hit a peak of around 6700.
The FTSE 100 stands at around 5300, more than 20% lower than 31 December 1999. So what went wrong?
The dot.com boom went bust in March 2000, just three months into the new century, and markets continued to slide for the next three years. In a desperate bid to turn things round, central bankers in the US and UK slashed base rates, flooding the world with cheap money. A financial services and property boom followed, but that ended in the credit crunch. Stock markets collapsed again.
Share prices did rebound sharply from March 2009, but now they're falling again, and worse could follow. If you're expecting to retire shortly, you must be in despair, as the value of your pension has plummeted.
Ordinary people weren't supposed to be exposed to this kind of volatility, especially with their life savings. So what do you do now?
If you're brave, you might see the current volatility as an opportunity to pick up stocks on the cheap. In a few months, they might well be cheaper still. But this is a risky strategy, and only for the select few.
Most ordinary people will be reluctant to throw more money into the market maelstrom, and I can understand why. Here's a horrific pensions fact I read last week: In 1995, a 65-year old man who invested £100 a month into a balanced managed fund over 20 years would have enjoyed a retirement income of £12,324 a year. Today he would get just £2,475 a year, 80% less.
So much for building a healthy democracy on stocks and shares.
The problem is that the alternatives are little better. With the Bank of England recently hinting that base rates would stay at 0.5% until 2013, cash is hopeless. Few people expect to get rich by investing in property these days.
As any independent financial adviser will tell you, you need to build a balanced portfolio of shares, cash, bonds and property to protect yourself against volatility.
But what exactly can protect you against today's extreme volatility? Don't ask the politicians, they're helpless too.
To everything there is a season, including ISAs
August 18th 2011
Like Christmas, the Isa season comes around every year. Okay, it's not quite as exciting as Christmas, but it's much better for you financially, and if you've got any spare cash, you don't want to miss it.
Every UK adult can save up to £10,200 in a tax-efficient individual savings account (Isa) this financial year, and take the returns free of income tax and capital gains tax. But you have to act before the 5 April deadline, because if you don't, you have lost this year's allowance for good.
Use it or lose it, as they say.
The financial services industry is already gearing up for the Isa season with an all-out information blitz designed to shake people out of their savings apathy and complete their application. Some banks and investment fund managers will even keep their doors open right up until midnight on the final day, to give Johnny-come-latelys a last chance.
Don't leave it to the last minute, but start planning now. The Isa rules still confuse many people, but don't use that as an excuse to squander your allowance. Here are the basics.
- You can invest your full allowance of up to £10,200 in a stocks and shares Isa. If that feels too risky, you can save up to £5,100 in a low-risk cash Isa, and invest a further £5,100 in stocks and shares.
- Your investment returns free of income tax and capital gains tax.
- The Isa isn't an investment, it is a "tax wrapper" that you place around a range of eligible cash accounts and investment funds. Almost every bank and building society offers a cash Isa, and you can choose from thousands of funds from hundreds of different asset managers. So shop around for the best deal.
- You can't use your a cash Isa like a bank account. If you withdraw money, you have lost that part of the allowance for good.
- If you're unhappy with your existing Isas, you can transfer them to a different company. But there is one restriction: while you can switch money from cash into shares, you can't switch from shares into cash (I don't make up the rules).
- From 6 April, the Isa allowance will rise in line with the retail price index (RPI). Next year, the allowance will be £10,680.
- You have to be 18 before you qualify for a full Isa, but can open a cash Isa from age 16.
If you don't pay tax (and don't expect to in future), you don't need to worry about an Isa. Everybody else should seize the opportunity (if you've got the money in these cash-strapped times). But you should always take independent financial advice first. Isas can also help you beat inflation. If you earn 2.75% on a cash Isa, that's the equivalent of almost 3.45% if you're a 20% taxpayer, and 4.6% if you're a 40% taxpayer. Over the years, it can make a big difference.
Soon the Isa season will be in full swing. You can ignore all the fuss by sorting out yours now.
Who said finance was boring?
August 15th 2011
When I started out writing about finance, my friends thought it was all a bit dull. Why not write about politics, football, celebrities, whatever… but money?
The credit crunch changed that. I have found myself in the thick of the biggest story of the last three years (yes, even bigger than Wayne Rooney's hair transplant), and it's a story that still a long way to run.
The global economic meltdown has been hellish, but it has made my job a lot more exciting. May you live in interesting times, the Chinese proverb goes, and now I do.
Unfortunately, that proverb is meant as a curse. Interesting times actually means war, chaos and disaster, and we have plenty of that going round these days.
Plunging stock markets, street riots, the US dollar losing its AAA credit rating for the first time ever and the death of the euro make our times more interesting than we would like them to be.
So what can you do to protect your finances while the world goes mad?
If you're a saver, the news goes from bad to worse. The Bank of England has hinted it will keep base rates at 0.5% for another two years, while inflation will soon top 5%. That's a double whammy for savers, and the only thing you can do is shop around to get the best possible savings rate and make full use of your tax-efficient Isa allowance.
If you have debts, you are likely to pay a far higher rate of interest than you will ever earn on your savings, so think about using any spare cash to pay them off.
Bad news for savers is good news for millions of homeowners. If base rates stay low, so will mortgage rates. And with five-year fixed rates starting at well under 4%, rates have already hit an all-time low.
To get the best rates, you need to borrow a maximum 75% of your property's value. But gradually, lenders are offering more attractive rates up to 85% and even 90% LTV.
If you're paying too much your home loan, remortgage if you can. If you're one of the 800,000 in negative equity, hang on in there, two years of rock bottom base rates gives you breathing space to sort things out.
First-time buyers still need a big fat deposit to get a decent mortgage, and should be saving all they can. At some point, the housing market might finally throw up some bargains.
If you've got money in the stock market, say, through a stocks and shares Isa, its value will have plunged. But if you sell up now, you will turn your paper losses into real losses, so consider leaving your money invested. That way you will benefit from any ultimate rebound, although it could be years before your patience is rewarded.
Finally, we can save a bit of cash by shopping around for savings on gas and electricity, home and motor insurance, and all our other daily spending. There are plenty of price comparison sites that can help.
Finance isn't a dull subject these days. That's good news for me, but bad news for everyone else. Sorry about that.
Where to complain if your holiday takes you to hell
August 10th 2011
We spend the first half of the year looking forward to our summer holidays, and the other half moaning about everything that went wrong. Sometimes it's hard to say which we relish more.
There is certainly plenty of scope for holiday mishaps. A cancelled flight, budget airline battle, room without a view or bout of food poisoning can all tarnish your getaway.
Or your travel company could go bust, as they often do. Holidays 4 U is the latest to fold, leaving 12,800 holidaymakers stranded, and a further 50,000 bookings ruined.
What is it with travel firms? If planes crashed as regularly, nobody would dare fly.
If your travel company took you to hell and back, don't just grumble to your family and friends, make a proper complaint. Where you go depends on how your holiday went wrong.
Confusingly, there are two main UK channel bonding schemes, ATOL, run by the Civil Aviation Authority, and the Association of British Travel Agents (ABTA).
ATOL covers any package holiday that includes a flight. If the company goes bust, ATOL will let you continue your holiday, then bring you home as planned.
But it only covers bankruptcy. It doesn't cover delays or other disputes.
ABTA also pledges full protection if any of its members go bust. In addition, it has a code of conduct and arbitration scheme, to help you resolve any general complaints.
You must first complain to the holiday company itself in writing. If that doesn't work, try arbitration. ABTA will charge you an upfront fee of between £108 or £264, depending on the size of your claim, but you get this back if you win. Compensation is a maximum £5,000 per person, or £25,000 for the entire booking.
As a general rule, you stand a much better chance of getting redress if you booked a package than if you assembled a DIY holiday over the internet.
If you prefer to book flights and hotels direct, use your credit card (not your debit card). Your card issuer is equally liable for any losses if your flight company or hotel goes bust, under Section 75 of the Consumer Credit Act.
Under strict EU rules, your airline must offer compensation if your flight is cancelled, delayed or too full, and you are bumped off. It should give you food, drinks and overnight accommodation, depending on the length of the delay.
Finally, take out a decent travel insurance policy (not just the cheapest). This can protect you against everything else that can go wrong, such as getting robbed, ending up in hospital, or being forced to cancel your holiday due to ill health, a death in the family or redundancy.
Happily, most of you will have nothing to complain about when you get home - except rainy Britain.
You owe it to your kids to take out a Junior Isa
August 2nd 2011
It isn't easy being young these days. I'm sure it never was, but never before have the young had such a massive financial burden dumped on their shoulders.
First, there are the public debts built up by older and supposedly wiser generations, which will take decades of lower state benefits and higher taxes to clear.
Then there are university tuition fees and other costs, which will see students graduate with debts of £40,000 or more.
Fewer will be able to afford a home of their own, as house prices remain stubbornly high. The average first-time buyer is already 37 years old, a figure that should soon hit 43.
Even getting that first car, another rite of passage, is being priced out of reach, with young drivers expected to pay thousands of pounds a year in motor insurance.
Oh, we also expect them to work much longer, and save more for their pensions.
So what have we given young people to make amends? The Junior Isa.
This is the coalition government's wheeze to encourage parents to save for their children's future. Don't get too excited, it is only a watered-down version of the child trust fund (CTF), which was scrapped as being too expensive (how ironic that one of the government's first cuts was targeted at people too young to vote).
But the Junior Isa is better than nothing. So if you're a parent or grandparent, you should seriously consider taking one out. You owe it to the youngsters.
Junior Isas will be launched on 1 November, although any child born from 1 January this year (when CTFs were stopped for new members) will qualify.
You can invest in a Junior Isa from just £10 a month, but the maximum investment is £300 a month, or £3,600 a year. There will be a host of different savings accounts and investment funds to choose from, so shop around.
Most parents are likely to plump for the safety of a cash deposit account, but you should consider investing in a stocks and shares investment fund instead. Junior Isas will run for a maximum 18 years, and over such a lengthy period, stock markets have typically outperformed cash.
If you had invested £3,600 a year into the average investment fund over the past 18 years, the money would now be worth £147,541. Even £50 a month would have grown into a healthy £23,645.
Children can't open a Junior Isa on their own, but any family member, including grandparents, can do it on their behalf.
Young people have plenty of things we didn't have when I was a teenager, such as mobiles and iPods, Facebook and Twitter. But they also have things we didn't have, such as a mountain of debt to repay - debts that we have dumped on them.
It is time to redress the balance. A Junior Isa is a good place to start.
Don’t get crushed by new motor insurance clampdown
July 28th 2011
There are plenty of different types of insurance you should have, but only one that you must have by law. If you own a car, it's a legal obligation to have motor insurance.
There's a very good reason for this. If you fail to insure your life, your home or your holiday, the only person likely to lose out is you (and your family). That's why the government doesn't insist you have it.
But if you fail to insure your car, and seriously kill or injure somebody while driving, or damage their vehicle or property, they are the ones that suffer. That's why it is compulsory to have third-party motor insurance, to protect everybody else on the road. Comprehensive cover was only developed later, to allow motorists to protect their own vehicle as well.
Sadly, not everybody has been playing by the rules. As many as one in six motorists have driven without cover at some point, an astonishing figure that has accelerated lately, as motor insurance gets more expensive.
Young men are by far the most likely to drive without insurance (as well as cause an accident, which is a toxic combination). Uninsured drivers kill 160 people a year and injure a further 23,000.
This costs motor insurers an estimated £500 million a year, and the ordinary honest motorist foots the bill in the form of more expensive premiums. This adds an average £30 to every insurance policy.
Now the government is taking action. From 20 June, a new law called Continuous Insurance Enforcement comes into force, making it illegal to own a motor vehicle without valid insurance, unless you have declared your motor is off the road. Previously, uninsured drivers could only be prosecuted if they are actually caught driving.
Police will use number plate recognition technology to check cars against a database, even if they're simply parked by the roadside, and legal action will follow.
Unless you have applied for a Statutory Off Road Notification (SORN) for every car, van or motorbike you own, you could face a £100 fine and possible court action. If the vehicle remains uninsured, further action will be taken (even if the fine has been paid). The vehicle may be clamped, seized and destroyed. You could face a further fine of up to £1,000.
You wouldn't deliberately drive without insurance - not you, you're the honest type. So make sure you don't accidentally fall foul of the new rules. The police say they will be targeting hard-core offenders, but you could still get caught out. so remember to renew your motor insurance in time, or apply for a SORN.
Although motor insurance is compulsory, motor breakdown cover isn't. Personally, I never drive without it. Nor do my parents, Luckily for them. They're in their late 70s, and when they had a nasty scrape earlier this month, the only good part of a bad day was seeing their recovery vehicle hove into view.
Buying motor insurance is a legal obligation. Buying breakdown cover as well is just a very wise thing to do.
Scream if you want to go slower
July 22nd 2011
Do you ever get the feeling that life is speeding up, and not always in a good way? That's how I feel right now, every time I read the financial news pages.
Vroom - here they come on the latest lap of the eurozone crisis. Who will crash and burn first? Greece? Italy? Portugal? Spain? And will the UK skid into the wreckage?
Whoosh - there goes the US debt ceiling crisis. Will the world's biggest economy really default on its debts for the first time? And if so, what on earth happens next?
Screech - watch out, the global banking system is on the skids. Has it finally run out of road? Keep watching, folks.
Aside from these global panics, there is plenty of local bad news roaring our way.
Like the UK's public sector debt, a lumbering £921 billion juggernaut that appears to have no reverse gear. Despite the government's austerity costs, it puts on another £10 billion a month.
Or an even bigger gas guzzler, the UK's personal debt mountain, which now stands at a crushing £1,452, and seems equally difficult to turn around.
Add to that the roar of rising food and fuel prices, falling incomes, shaky house prices, sinking savings, rising unemployment and an accelerating demographic crisis, and it looks like the economy is spinning out of control.
Scream if you want to go slower? Absolutely.
It would help if we felt the politicians and bankers were in control, but they're not. During the boom years, they were too busy fiddling expenses or pocketing bonuses to spot the warning signs, and drove us straight into the maelstrom, at full throttle.
Now the politicians are distracted by the collapse of the Murdoch empire, while bankers are distracted by the continuing hunt for bonuses.
Don't despair, there is still some hope that the global economy can find a new, safer course. Politicians in the EU and US might finally hammer out an agreement that works, the banking system might avoid systemic collapse, and the global economy could continue its slow recovery.
There is also some good economic news around.
Company earnings have been strong. It wasn't for the eurozone sovereign debt crisis, stock markets would be much higher than they are. China and other emerging markets are still powering ahead, and could pull us through.
There is even an upside to inflation, which is slowly eroding the UK debt mountain. Inflation at 5% a year would halve our national debt in a decade, which largely explains why the Bank of England is punishing savers by keeping interest rates as low as possible.
So this isn't Death Race 2011, at least not yet.
Now we're all wondering what lies around the next bend. A multiple pile-up, or a slow, steady return to recovery? For the most part, we are helpless spectators. All we can do is keep our own personal finances on track, to make sure we stay on the road whatever happens.
How to wreck your retirement
July 22nd 2011
After a long working lifetime, you're going to want to put your feet up. Enjoy your retirement. Do up your home. Maybe travel a bit. Treat yourself and any grandchildren.
You don't want to spend your time fretting about money, but too many people will. Some won't earn enough money to build an adequate pension, but many do, yet don't bother.
As life expectancy rises, you could live for 20 or 30 years after you retire. That gives you plenty of time to regret any mistakes. Here are some of the biggest to avoid.
• Putting your faith in the state. The state pension age is rising to age 66 by 2020, and could rise as high as 68 or 70. Future governments could struggle to fund even today's meagre state pension. Don't leave yourself at the mercy of future politicians, take care of yourself.
• Starting too late. The earlier you start saving, the bigger your pension. It sounds obvious, but the figures are startling. At 35, you need to save around £165 a month to build a pension pot worth £100,000 by age 65. If you wait until 45, you would need to save £300 a month, and at 55, a mighty £750 a month. Your early contributions are most important, because they have longer to rise in value.
• Squandering tax relief. Basic rate taxpayers get 20% tax relief on their pension contributions, as do non-taxpayers. Higher-rate taxpayers get 40% tax relief and top-rate taxpayers get 50%. You can also invest up to £10,680 this year in a tax-efficient Isa. The taxman isn't always this generous, so make the most of it.
• Snubbing your company pension. Many employers contribution between 3% and 5% of staff salary to their pension schemes. If you don't sign up, you are effectively turning down free money.
• Failing to do your sums. As a rule of thumb, the state pension should be worth about £7,000 a year in today's terms. Each £100,000 of company or personal pension will buy an annuity worth roughly £5,000 a year. Can you live on £12,000 a year? If not, saving another £100,000 could boost your pension to a more respectable £17,000 a year. These figures give you a rough idea of how much you need to save. And yes, it's a lot.
• Relying on somebody else. Too many people, mostly women, rely on their partner's pension. Others rely on an inheritance. But a divorce, or an expensive spell in long-term care, could scupper these plans. To be safe, build savings in your own name.
• Failing to shop around for an annuity. Two out of three people buy an annuity from their pension company, even though they are entitled to shop around for the best deal. This is called taking the open market option, and could boost your pension by up to 20% a year.
• Buying the wrong type of annuity. Most couples should buy a joint life annuity, which will pay out a monthly income after the first partner dies. Too many take out a single life annuity, usually in the man's name. If he dies first, the annuity will dry up overnight.
Nobody said saving for a pension was easy. But these mistakes could make it a lot harder. Consider taking advice from an independent financial adviser.
This is what happens when the money runs out
July 19th 2011
One phrase underpins almost every financial article I read or write these days. That phrase is "The money's gone".
So when I read a headline warning that we will all have to carry on working until we're 70, there's no need to ask why. Because the money has gone.
Or when the government sets up a commission to work out why elderly care is such a disaster, the short answer is that the money has gone. Or why the government is slashing state spending and squeezing benefits. Same answer.
During the boom years, there was plenty of money sloshing around. The government could throw pots of cash at all sorts of vote-winners, such as solving child poverty and NHS underfunding, and duck the difficult choices, such as tackling the benefits culture or the ageing crisis.
It can't now, because the money's gone. Instead, we owe lots of the stuff. Total public sector debt is £920 billion, roughly 60% of GDP. If you add the bank bailouts, it rises to £2.2 trillion.
We're running a deficit of 10% a year, bigger than Spain and Portugal. We have to borrow £140 billion a year to plug the gap, which goes on top of the national debt. The money has run out, the bills haven't.
So what does this mean for you? To a degree, we already know. Higher taxes, fewer services, slower growth. But there is more than that. It is going to lead to a cultural change in the way we run our own finances.
Politicians aren't the only ones who have been ducking tough questions, they have allowed us to duck them as well. So rather than pushing more of us to save for retirement, they bailed us out with pension credits.
Rather than letting house prices drop to their natural level after the credit crunch, they did all they could to prop up the market, including paying people's mortgage interest if they lost their jobs.
And rather than letting people who had over-borrowed during the boom years go bust, the Bank of England protected them by slashing base rates to 0.5%, and damn the impact on savers.
I can see why, the alternatives would have been much more painful. But they can't shield the voters from reality forever.
The cultural change is already underway. From next year, millions of workers will be nudged into saving for retirement through a company pension, under the auto-enrolment scheme.
Staff will need to contribute 4% themselves, employers 3%, and the state will toss in 1% tax relief. That's 8% in total. You can opt out, if you're daft enough, but your employer can't.
The government is currently trying to work out how to fund better elderly care. We don't know what it will decide but one thing is certain, most of us will have to pay more.
Students who go to university from September 2012 will soon learn about this harsh new environment, when they start racking up £9,000 a year tuition fee charges.
There will be more pain and expense to come. We can moan about it, if we like. We can say it's unfair. But that's how life is, when the money's gone.
A small sign that trouble is brewing
July 8th 2011
I knew the economy was in trouble, but this takes the biscuit. Or rather, the cup of tea that should go with it.
In a bid to survive the slowdown, one in three companies have cut back on free workplace refreshments over the last year, according to new research from uSwitch.com.
And it's not just tea. Its coffee, as well. Outrageous.
Staff are said to be at boiling point. You see, it's the little things that matter in life, such as a free warm drink at work, and a spot of scrimping can have a surprisingly big impact on morale.
It also makes workers worry about what might be cut next. Such as their jobs.
Tea is also highly symbolic, so mess with it at your peril. Remember, it was the tiny matter of a tax on tea that sparked the American Revolution, and lost us the colonies.
Workers get surprisingly upset about penny pinching bosses. When I worked for a publishing company a decade or so ago, there was a big furore when our MD cancelled our order for Post-it notes, on the grounds of cutting costs.
We never quite forgave him, especially when we discovered that he still retained a stash for his personal use. That made him a hypocrite, as well as stingy. We felt very wounded about it, and very self-righteous.
I suppose we had better get used to it. No tea, no coffee, no Post-it notes, no bonuses, no pay rises, and if we're really unlucky, no job. That's austerity Britain 2011, where they even take your daily cuppa.
We're all slowly getting used to paying more towards things that we got for free before. Like student education. Like our pensions. Or books, if your local library is closing.
Worse, those things are getting more expensive, as inflation tops 5% but our pay rises don't. Essentials such as food, petrol and heating have soared in price.
It is a tough time to be starting out in life. Students going to university after 2012 can expect to graduate with average debts of £48,500, according to Moneyfacts.
Most of us understand that something has to give, given the scale of our debt crisis, but we're all on the alert for signs of unfairness. Public sector workers are aggrieved to see their pensions under attack by MPs who have voted themselves such generous payouts.
The press have been laying into Prince Charles, whose income from the taxpayer is set to rise a whopping 18% this year to £18m. And everybody is furious at bankers, who caused the crisis but have survived with their massive bonuses unscathed.
That phrase "We're all in it together" will get even more abused, as the slowdown creates both winners and losers. Like my boss with his secret hoard of Post-it notes, many at the top seem immune to the new austerity, while others struggle for the price of a cup of tea.
Now that is something to get steamed up about.
Spam, spam, spam and more spam!
May 29th 2011
My parents crashed their car last week. Luckily, nobody was seriously hurt, but several days later, a strange thing happened. They received an unsolicited text message saying: "Following your recent accident, you may be in line for a payout of more than £3,750."
My father guessed this was from an ambulance-chasing "no win no fee" personal injury lawyer, and quickly deleted the message. But one thing left him baffled. "How did they find out we'd had an accident?"
He was right to be curious. It was too much of a coincidence. Surely somebody must have told them.
But it was almost certainly was a coincidence - a deliberately manufactured coincidence.
Unscrupulous personal injury claims management companies pump out millions of unsolicited text messages in the hope that a handful will be received by people who recently had an accident. As my parents found out, sometimes they strike it lucky.
Nobody in their right mind would want to source a lawyer this way. Especially since some messages are a "phishing" scam, aimed at getting you to release personal details, so they can raid your online identity and bank account.
Mobile phone users now receive an astonishing 4 million unsolicited text messages every day, up 300% in the past four years. We also receive 103 million spam e-mails, with more than 1,000 sent every second, according to new research from uSwitch.com.
Only the United States, China and Russia are deluged with more spam, and they all have much bigger populations than we do. So we are right in the firing line.
The dramatic rise in text spam has been driven by the rise of smart phones, which store a wealth of sensitive personal data such as photos, e-mail addresses and even bank details.
Unsolicited texts are particularly annoying, given that some mobile phone contracts charge users for receiving texts, especially when abroad. Nobody likes to pay for spam, although some happily buy the pork-based variety that comes in tins.
There is very little that the police can do to stop the spam gangs, because most operate outside of the EU, and can't be touched by European law. So you're on your own, adrift in a world of spam.
You can beat the mobile spammers. Never replied to a spam message or call the number given in the text, as you could be charged a high premium rate. Be vigilant when downloading apps, some of which may have phishing applications that pluck personal data from your handset. If you own a smartphone, protect your passwords and regularly update the latest version of mobile software, which should include-to-day security measures. If you are concerned about a particular spam text, you can forward it to your network on 7726 for further investigation.
If memory serves correct, tinned spam was never particularly edible. But the modern version is becoming indigestible.
Can nobody protect us against the banks?
May 29th 2011
Sometimes I despair of our banks. In fact, I constantly despair of them, and I suspect most of you do as well.
Greed-addled banks were largely to blame for the credit crunch, and the biggest recession since the 1930s. Taxpayers squandered billions of pounds on bailing them out, while the bankers carried on trousering their bonuses as if nothing had happened.
But the banks aren't just there for the big, bad things in life, such as sinking the global economy. They're also highly adept at the small, bad things, such as selling ordinary people insurance policies they don't need and can't use.
The payment protection insurance (PPI) shambles is just the latest mis-selling scandal to emerge from the banking industry. Bank sold millions of PPI policies worth billions of pounds, claiming they would protect mortgage, loan and credit card customers if they fell ill and couldn't cover their repayments.
Many people who shelled out for this expensive and over-priced cover could never have claimed. The self-employed, for example, were ineligible for redundancy cover, while many customers were never warned that any pre-existing medical conditions would disqualify a sickness claim.
PPI falls firmly into the "mis-selling people things they don't need" category of financial services racketry, to be filed alongside personal pension, mortgage endowment, split capital investment trust and precipice bond mis-selling.
That's quite a list. If you don't recall all of those scandals, I understand, it's hard to keep up.
What is particularly ugly about the PPI scandal is that the British Bankers Association fought a desperate rearguard action through the courts, to spare its members having to pay up to £9 billion in total compensation to swindled customers.
The industry only caved in once defeat was inevitable.
As I said, I despair of the banks. What other supposedly reputable industry apparently sets out to repeatedly fleece its customers of billions, and once caught red-handed, smoothly moves on to the next piece of trickery?
Banks must now repay billions back to customers, but who ultimately foots the bill? That's right, it's you and me, as the banks recoup their losses by charging us more for their products in future.
While once again, the men at the top have got away scot-free, and are no doubt working on the next sales stunt.
If you think you were mis-sold PPI, it's time to get your money back. Don't be lured by claims management companies offering to handle your claim, they're after a cut of your compensation money. You can pursue a claim yourself free of charge, first by contacting your bank direct, and if that doesn't work, by chasing them up through the Financial Ombudsman Service.
You've already been conned out of your cash by the banks. Don't let the claims handlers take a second bite out of your money.
As I said, I despair.
Your coffee or your life?
May 27th 2011
How highly do you value your life? Pretty highly, I would imagine. More highly than, say, a cup of coffee. Or new clothes. Or even your mobile phone.
Yet four out of 10 people have neglected to protect their most valuable asset by taking out life insurance, according to new research.
Worryingly, 35% of them have children, and nearly 70% are in a relationship. So if the worst happened, their dependants would be left without any financial protection.
Many of the respondents said they couldn't afford life cover, yet they could afford to go to Starbucks, even though a daily cafe latte costing £1.80 is 10 times pricier than life insurance, which you could get from as little as 18p per day.
Yet some people prefer to insure their phone rather than their life. That's insane. If a mugger put a gun to your head and said your mobile or your life, you would quickly hand your phone over.
Buying life insurance isn't as painful as you might think, because it is one of the few things in life that has actually been getting cheaper in recent years.
As our life expectancy grows, the odds of somebody claiming on their policy are shrinking. This means insurers are paying out less money, and can pass on the savings to us in the form of cheaper premiums.
Growing competition between insurers has also helped push down the cost of cover.
The most popular type of life cover is called term assurance. It gets its name because you insure yourself for a set term, typically 25 years, and the policy pays out if you die during that time.
There is no cash-in value at any point - so if you die after the policy ends, you get nothing. When I first discovered that years ago, I thought it was a bit strange. "What? You don't get anything back for all those contributions…?"
But now I see the point. This makes cover much more affordable, for a start. And you are only meant to buy term assurance for a set period, to cover responsibilities such as raising a family, or paying off your mortgage.
If you prefer, you can buy insurance to cover your entire life. It's called whole-of-life insurance and it is a relatively niche product, often used in tax planning. It is much more expensive than term assurance, and you have to keep paying premiums right up until you die.
How much you pay for term assurance depends on your age, state of health (smokers pay more!), and how much cover you want. But it might be much cheaper than you think.
If you have kids, then you definitely need it - ideally for both parents, not just the breadwinner. Couples with joint financial responsibilities, such as a mortgage, also urgently need cover.
And if you already have life insurance, but your personal circumstances have recently changed, for example, you've had a new baby, you need to review the cover that you have. A new policy might even be cheaper than your existing one.
Life insurance is one of life's little essentials. Even more essential than your next cup of coffee.
Bad news - you’re getting poorer
May 11th 2011
If you're feeling a little bit poorer these days, there's a simple reason. You probably are poorer.
Household disposable income fell last year in real terms, the first drop in 30 years, according to the Office of National Statistics. I don't know whether to be dismayed by this news, or pleasantly surprised by the fact that incomes have been rising steadily for three decades.
The rest of the media had no such doubts - dismay won the day. Real disposable income shrank 0.8% last year, from £14,181 to £13,980 per head, as price rises outpaced earnings. So the average person is £201 poorer, although most will feel a lot worse off than that.
Any drop in real income always comes as a shock, because ever since the war, we have got used to incomes rising year after year.
Since 1948, real income has only fallen five times - in 1951 (-1.3%), 1974 (-1%), 1976 (-0.6%), 1977 (-2.2%) and 1981 (-0.2%). The good news is that each time, it bounced back strongly. In 1953, real disposable income rose 4.8%. In 1978, after the oil shock subsided, it rose 7.3%. And by 1984, it rose 3.8%.
So can we look forward to a similar rebound in a year or two? Well, maybe. But it isn't a done deal. Incomes have been growing at a below-average rate since 2004, long before the credit crunch. This means the latest slip in disposable income isn't just a blip, but the acceleration of a long-running trend.
The papers have been having lots of fun printing pictures of life back in 1981, the last time our disposable income shrank. The royal wedding, Rubik's Cube, Adam Ant and Botham's Ashes series were the big news that year.
2011 is starting to look like a repeat of 1981. England has already claimed the Ashes, we are gearing up for another royal wedding, Adam Ant is making a comeback, and new Labour leader Ed Miliband has been outed as a former Rubik's Cube obsessive.
History repeated as farce, just like Karl Marx promised.
The papers also printed a few interesting numbers alongside the pics. The average house price in 1981 was £24,200 (compared £162,435 today), a pint of beer cost a little over 50p, and the Bank of England base rate peaked at just over 15% (it is now just 0.5%).
All good fun, but a bit meaningless. What really matters is what happens to our incomes next.
Sadly, we can expect things to get worse before they get better. Accountancy firm PricewaterhouseCoopers expects your disposable income to fall by 0.4% this year in the first "double dip" drop since 1976 and 1977.
But if history does repeats itself, incomes should start rising again in a year or two, and pretty sharp-ish. Let's hope so, it would be nice to start feeling a little bit richer again.
Scream if you want to go slower
May 11th 2011
Do you ever get the feeling that life is speeding up? When it comes to money, I certainly do. It all started during the credit crunch, when the global economy nearly suffered catastrophic meltdown, and my job suddenly became a lot more interesting.
Since then we have seen a stock market crash, banking bailout, 0.5% interest rates, rampant money printing, a stock market rebound, eurozone disaster, global food riots, oil price hikes and the revolutionary wave sweeping across North Africa and the Middle East. Sometimes it seems like the world is hurtling out of control.
In the last few days, the shock news has continued to flow. Within minutes, we had new figures showing UK inflation had hit 4.4% and public borrowing hit its highest level for February since modern records began in 1993.
Straight after that double whammy, came the Budget. I won't write about it here, the TV and newspapers will have done it to death by the time you read this, but it is sure to be painful.
Yet as everything speeds up, it also seems to slow down. Despite all the shock news over the past two or three years, the real pain of recession has yet to hit us.
Some financial forecasters have spend the last five years claiming that property prices are set to fall by 40%, but despite recent wobbles, the crash still hasn't happened. That's largely thanks to rock bottom interest rates.
The pain is likely to intensify after 1 April, when those long-feared public spending cuts finally start to bite, and taxes rise. And it will get worse when the Bank of England finally gets around to raising interest rates, probably in May, with maybe another hike to follow before the end of the year.
That will take even more money out of people's pockets, and further slow the recovery. We might even get that property crash after all, at least outside London.
Right now, the economy sounds like a rolling news channel, dedicated only to bringing us bad news. But surely there must be some good news out there as well?
There is, in a way, if you dig deep enough. For all the UK's troubles, at least we haven't gone the way of Iceland, Greece, Ireland or Portugal. Outright disaster has been averted. We aren't broke yet.
The global economy continues to grow, and the weak pound is helping UK exporters. The UK isn't stretched over a major geological fault line, like Japan, which is something.
I'm afraid that's all the good news I can muster, but there must be more out there. Unfortunately, we can expect it to be outgunned by the bad news for the next two or three years at least.
Bad news is better for journalists than good news, but I'm not celebrating. I'd be much happier if my job was a little less interesting, and the UK economic outlook a lot more positive.
The Bank of Mom and Dad keeps shelling out
May 11th 2011
As a new dad, I was dismayed to see recent research showing that it costs on average £200,000 to raise a child these days. Where am I going to get that kind of money?
But new figures suggest it is even worse than that. Because the financial burden of raising a child doesn't stop when they turn 18, not by a long shot.
Between 18 and 30, parents can expect to spend another £43,000 on their grown-up kids, according to Coventry building society. The money goes on "milestone events" such as university fees, a wedding, their first car, a deposit for a house, gap year hand-out, presents, a regular allowance, rent… you name it, your kids will want it, even after they have fled the nest.
It's enough to put you off having children altogether, although in my case, with two of them, I've left it a little late. So what's wrong with kids, I mean young adults, these days? Isn't it time they started doing it for themselves?
To be fair, life is harder than it used to be, financially speaking at least. Young people today (and doesn't that phrase make me feel old) have lots of gadgets and gizmos I would have liked 25 years ago, such as iPods, mobile phones and laptops, but they also have a lot of expenses.
Like higher tuition fees, for a start. The next generation of students could be graduating with debts of £20,000 or more. It won't be easy saving a deposit for your first home, with the Student Loans Company snaffling 9% of any earnings above £21,000 a year.
You are going to be earning a pretty packet to assemble enough savings to slap down the £40,000 deposit that many lenders now demand before they will grant you a competitive mortgage.
All of this assumes you actually have a job, which is increasingly unlikely, as the number of 18 to 24 year olds without work rises to nearly one million.
And even if you do, much of your income is likely to disappear on rising living costs, not least the expense of insuring your car, which can cost young drivers thousands of pounds.
Given the rising cost of growing up, you can see why young adults are still returning to the Bank of Mom and Dad, often years after they left home.
So my message to new parents (such as myself) and existing parents, is to start saving for your children's future as early as possible. They will need all the help they can get.
It won't be easy. First, you've got to shell out £200,000 just to get them to age 18. Then you might have a mortgage of your own, a car, food, holidays, and a host of other spending commitments which only seem to get larger rather than smaller.
From a financial point of view, it isn't easy to be young these days. The trouble is, it isn't much easier being older either.
Why house prices must fall
May 11th 2011
Getting on the property ladder used to be a youthful ambition, something the average buyer achieved by age 27. Now it is in danger of becoming a middle-aged pursuit.
The average first-time buyer is currently 31 years old but that will steadily rise to 44, according to new figures from Scottish Widows. Graduates in their 20s will be too busy paying off student loans and other debts, and it will take another 13 years to assemble the average deposit, by which time they could be well into middle age.
For many, it will be an impossible dream. Nearly one million under-24 year olds can't find work. What chances do they have of ever assembling a deposit?
It would help if house prices had fallen to more affordable levels, but they continue to defy the financial crisis and government cutbacks, and even, it seems, gravity itself.
Prices did fall slightly in February by 0.9%, according to latest figures from Halifax, but that merely offset January's surprise gain of 0.8%. Figures from Nationwide show prices actually rose in February, by 0.3%.
Rock bottom base rates have helped prevent a house price crash, as has a shortage of homes for sale. But sometimes I think prices have been sustained by an act of collective will among homeowners. They have become so used to inflated prices that rather than sell for less, they refuse to put their property on the market at all. The slow flow of homes to market has kept prices relatively buoyant.
How long can it last? As long as interest rates stay low, I suppose.
The UK property market is a law unto itself. In the US, house prices have fallen by 30% on average, and 50% in some areas. Yet the UK holds on. Out of 21 pre-credit crunch bubbles, only the Australian and UK housing markets have so far refused to pop. Even Australia now looks shaky, which would leave the UK as last man standing.
Perennial property market doomsters Capital Economics is still claiming house prices will slump by 20% over the next two years, due to rising unemployment and spending cuts. This will happen even if interest rates stay low. If they rise, it will happen faster.
Analysts at Capital Economics have been calling a dramatic house price crash for the last five years, and I'm still not convinced. Yet part of me hopes they are right. I don't want an all-out crash, but I would like to see a steady decline in prices. A country where young people grow up with no hope of owning their own home can't be fair or happy.
For what it's worth, here's my prediction. If interest rates stay low for the next three or four years, house prices won't crash. But they will stagnate, which means they will steadily become more affordable in real terms.
If base rates rise sharply, prices will tumble, and Capital Economics will finally be proved correct.
Either way, property prices have to come into line with incomes. If young people can't afford to buy property, then who will the older generation sell their homes to?
Never trust a journalist with a crisis
May 11th 2011
Journalists are notorious for hyping up minor news events with alarmist headlines, and I'm ashamed to report that financial journalists are no exception.
A quick run through this week's money headlines reads like a doomsday "end of days" prophecy. Today, we have the oil-price shock. Yesterday, it was the pensions crisis. Last week, it was inflationary hell, collapsing house prices, the new credit bubble, mortgage market meltdown and prospects for a double-dip recession.
That's our job, to make maximum drama out of every little crisis. If you took us too seriously, you would never dare leave the house. Or rather, the fortified bunker you built in your back garden, well-stocked with tinned food and small arms.
But you can't blame everything on alarmist journalists. The world is going through some stunning changes right now, and this is turning many of our assumptions upside down.
Populations are rising and established dictators are falling across North Africa and the Middle East. Who predicted that? Nobody knows where this will end, but status quo isn't an option.
We are also in the middle of an almighty historic shift in wealth and power from the debt-soaked West to the developing East. If this continues, we will have seen the radical reversal of a 500-year trend, in just a few years.
And then there's the small financial earthquake known as the credit crunch. The decade of low inflation and high growth that preceded the crisis turned out to have been an illusion built on sand, or rather credit default swaps and derivatives. The after-shocks continue to shake the world, and there are plenty more to come.
You can hardly blame journalists for ringing alarm bells at every opportunity, given that we live in alarming times.
So what should our readers do about it? Stay calm, for starters. If you can keep your head when all the journalists about you are losing theirs, that's a pretty good start.
Not every single crisis will land on your head, some will pass you by. Most people will keep their job, maintain their mortgage repayments, and muddle trough inflation, stagflation or deflation (whichever one we get). Some of you might even be able to fill up your petrol tank without maxing out your credit card.
Most people understand the tricks journalists play. We're like needy children, desperately trying to win your attention by making ever more outlandish claims. If children don't get enough attention, they scream until they do. Just like newspaper headline writers.
The problem with treating every new development as a screaming crisis is that it deafens people to the real disasters. That partly explains why so few journalists predicted the banking crisis, and even fewer people listened to them.
I'm sure we will miss the next crisis as well, until it is too late.
So keep calm, carry on, and whatever you do, don't believe everything you read in the papers.
Living overseas is no holiday
May 5th 2011
When the going gets tough, the tough go away, or so it seems. As the UK economy continues to struggle, more and more young Britons are convinced their future lies abroad.
Over half of all 18 to 45 year olds are considering fleeing austerity Britain, according to new research from insurer Aviva. Millions believe they may have better long-term prospects outside the UK, in countries such as Australia, America, Canada, Spain and New Zealand. France, Italy, Dubai, Switzerland and Germany are also popular dream destinations.
The tough UK job market and government cutbacks are largely at fault, but there are some good old-fashioned reasons as well. After a long winter, many of us simply want to live in a warmer climate (don't go to Canada, then). We can't put this down to the recession - even politicians and bankers can't be blamed for the British weather.
Mind you, there is a world of difference between "considering" moving, and packing up your life and heading overseas for good.
Almost everybody I know has talked of living abroad, it's a very British trait. Some claim it's because the country has gone to the dogs - you know the usual gripes, we're dirty, overcrowded, crime-riddled, celebrity-obsessed, broke and broken. The UK certainly has its problems, but it hasn't quite gone to hell in a handcart yet.
No, there are more significant reasons for our wanderlust. The first three (in no particular order) are the weather, the weather and the weather. If we had the Spanish climate, we wouldn't be pining for sunnier shores. In fact, we would probably be sat indoors, grumbling about the heat.
Brits are also a naturally restless lot. Historically speaking, we're a nation of explorers, warriors, buccaneers, empire-builders and adventurers. Working in a call centre doesn't offer the same thrill. No wonder we dream of foreign fields.
Another factor is that for many of us, we only see foreign lands on our holidays. And everywhere looks better on holiday (even your own country). But actually living abroad means dealing with the everyday reality, such as paying your electricity bill, arguing with local tax officials, and trying to find gainful employment.
Here's another reality check. Britain isn't the only country where jobs are scarce right now. The Spanish unemployment rate is double ours, and the US is struggling with a jobless recovery (and you don't get jobseeker's allowance over there).
We all grumble about life at home, but once you're away, you could quickly find yourself singing 'Take me back to dear old Blighty'. I've lived in Norway on and off, and it's a wonderful country, but when I'm there for any length of time I don't half miss the British pubs, sausages, Tesco, telly and sense of humour. Dammit, I almost miss the crime (only kidding).
The one thing many expats really miss, even the younger ones, is the NHS. We may knock it, but one in three people say the health service is one of the things they would miss the most if I moved abroad, according to Aviva. That's also one of the biggest reasons older expats ultimately return to the UK.
The grass may look greener over there, and the skies are probably bluer. But the decision to move overseas isn't as black-and-white as many of us like to think.
Extra! Extra! Politician has good idea!
May 5th 2011
A great new plan introduced by the government! Now there's a sentence journalists are generally loathe to write.
And here's another one: Good news on pensions!
I'm putting my credibility on the line by writing these two sentences. Journalists are supposed to find fault at every turn, rather than actually praising politicians, and I could regret my audacity.
But praise where it's due, because the new flat-rate £140 a week state pension strikes me as a rather excellent idea. It is simple, fair, generous, cheap to administer, and does away with a mountain of complex regulation.
It should also ensure that women who took time out of work to raise a family won't be punished by getting a smaller pension, because they didn't make enough National Insurance contributions.
If Work and Pensions Secretary Iain Duncan Smith never introduces another successful bit of welfare reform (which is quite likely, the default cynic in me says), he will still leave this as his legacy.
The £140 a week pension is radical, it might even be affordable. Who would have thought?
The new pension will sweep away SERPS, the state second pension, contracting in and out, pension credits, savers credits and other well-intentioned but bewildering state pension add-ons and extras, so a big hooray for that.
It will introduce the massive virtue of simplicity. Everybody who qualifies for a state pension will get exactly the same amount, £140 a week, or £7,280 a year.
It should also put a stop to a palpably unfair system that sees people who saved for their retirement getting punished by missing out on means-tested benefits, while those who saved nothing could claim full state support. This has been a problem for decades, but could be solved at a single stroke.
The government is laying the groundwork for the new auto-enrolment pension scheme, which automatically sign up millions of employees to a company pension scheme, called the National Employment Savings Trust (NEST).
The aim is to push millions into saving for retirement, but it won't work if the government is seen to rob them of state support at the other end. Under the new flat-rate pension, any private savings will be on top of your state entitlement. This gives people a real incentive to save even relatively small amounts.
NEST should kick in from 2012, with the £140 pension set to follow in 2015.
I'm not daft enough to claim the new flat-rate pension is perfect. We don't yet know who will qualify, for example. Those who get the state second pension, which will be abolished, may get less. Existing pensioners won't benefit from the scheme, and could be disgruntled.
So expect plenty of moans and grumbles over the months to come, but remember that no state pensions system can be perfect. This is as good as it gets, and we should be thankful for that.
And for anyone offended by my unseemly praise for politicians, I can only apologise. I won't do it again.
Fraud is fraud, whatever the excuse
April 27th 2011
Honesty is the best policy, they say. But many people believe there is an exception to this rule - insurance claims.
Nearly half of us believe insurance companies are fair game, and there's nothing wrong with exaggerating a claim to make the payout just that little more juicy.
A similar proportion believe it's "not too bad" tell a few lies when making a claim, say, on your motor or household insurance. And one in three said they would be likely, or very likely, to exaggerate a claim.
One in three insurance brokers contacted by insurer Axa said they had seen a rising number of exaggerated claims in recent years, and we're not just talking a few pounds here and there. Nearly one in 10 claimants have piled several thousands of pounds onto their claim - adding an average £2,898 to the cost.
Men are twice as likely to exaggerate a claim and women, and typically exaggerate by nearly twice as much.
Filing a false insurance claim is fraud, but most of these people wouldn't see themselves as fraudsters. When asked if they would commit other financially dishonest acts, only 3% would steal a packet of sweets from a newsagent.
Few people like to think of themselves as fraudsters, even if they commit fraud. Even Bernie Madoff didn't like the word. So we find ways of justifying it.
Common excuses for committing insurance claim fraud include claiming that "everyone does it", or that "insurance companies can afford it". This is nonsense, of course, because most people don't do it, and insurance companies only "afford it" by passing on the cost to their other customers in the shape of higher premiums.
So far from being a victimless crime, we're all victims. Fraud adds £13 a year to your home insurance premiums. Motor insurance fraud adds another £44 a year, according to the Association of British Insurers. Anyone who commits insurance fraud is diddling millions of people.
If somebody stole nearly £60 out of your wallet every year, you wouldn't be happy. But fraudsters are effectively picking your pocket in the same way.
Every time there's a big event like the World Cup, there's a rash of fraudulent claims for new TVs. Other cons include claim for a designer watch that was actually a counterfeit brought abroad, claiming to have a freezer full of lobster and fillet steak rather than fish fingers and peas, and dishonestly claiming a heap of cash was taken in a burglary.
Sadly, I suspect this attitude will be difficult to change. The impact of each individual fraud is tiny, allowing the fraudster to clear the crime with their conscience. But when tens of thousands of people do it, we all pay a heavy cost.
One more thing troubles me about this survey. That 3% of UK adults would tell a researcher that they would consider stealing a packet of sweets from a newsagent. How low is that?
How to lose thousands of pounds in 30 seconds
April 27th 2011
What's the most expensive thing you've ever bought? If you're a homeowner, the answer is pretty straightforward. Unless your budget extends to luxury yachts or Picasso originals, it will be your home.
And how long did you take over your decision? Days? Weeks? With hundreds of thousands of pounds at stake, you really should have taken your time, but I bet you didn't.
If you're like most people, you will have made up your mind within five minutes of stepping through the door. Or if you're like me, within about 30 seconds. I have spent hours wondering whether to shell out £80 on a jacket and months wondering if I can stretch to a £150 iPod, but when there is a six-figure sum at stake, I suddenly come over all impulsive.
I'm not the only one, so why are we so irrational? This is the $64,000 question - or rather, the £160,000 question, the average price of a house today, according to Halifax.
One reason is that a home is the most emotional purchase you will ever make. We are where we live. This means the heart invariably rules the head.
The sums involved are also too big for most of us to grasp, because we aren't used to thinking in hundreds of thousands of pounds. We understand the value of £200, but £200,000 seems a little unreal. If we did understand, we might be a little more careful. Act in haste, repent at leisure has real meaning when there is big money at stake.
In the past year, homebuyers have spent a whopping £780 million repairing damage discovered with 12 months of buying a new home, that's more than £1,000 each, according to a new survey from the AA.
Even worse, many sellers are actively trying to deceive us, one in four people admit to deliberately covering up a fault last time they sold a home. Tricks include masking damp patches or structural cracks by repainting, replastering or artfully hanging up pictures, throwing down a rug to cover up damage to the floor, and switching off clanky central heating. Some sellers even stoop to blocking dripping taps with chewing gum or using oil to silence a squeaky floorboard.
It is all too easy to dupe dreamy buyers, as I have discovered to my cost. When I bought my first house, I was blind to its many problems, all of which were instantly visible AFTER I had bought.
At least they were mostly minor snags, in contrast to my next home. It took a couple of months to discover the extensive rot, fungus and pest damage in the basement, and about £20,000 to put it right.
So if you're looking for a new home this spring, go into it with your eyes open (leave your heart outside). You should also consider shelling out a few hundred pounds for a full structural survey, to see what nasties lie beneath. Otherwise your biggest purchase could also prove your most expensive mistake.
Is now a healthy time to go private?
April 14th 2011
Although everybody moans about the NHS, it has actually improved over the past decade. Even my contacts in the private medical insurance industry freely admit it has got better. My parents, who use it more and more these days, are full of praise.
All those hundreds of billions New Labour pumped into the health service had to have some effect, even if much of the money was swallowed by swollen bureaucracy and doctors' pay rises.
But the process looks set to go into reverse. The British Orthopaedic Association recently warned that NHS trusts are delaying elective surgery such as hip and knee replacements. This was swiftly followed by reports that the NHS is ignoring seriously ill patients, as doctors focus on hitting waiting list targets instead.
I was a medical journalist throughout the 1990s, and NHS horror stories were rarely out of the headlines. Now it looks like the bad old days are back. That's what happens when the money runs out.
This is likely to make more people reconsider taking out private medical insurance. As the NHS improved over the last 10 years or so, and New Labour scrapped tax breaks for older people buying private healthcare, sales flatlined.
With the NHS struggling again, and a panicky government scrapping its plan for radical new reforms, is now the time for you to consider buying private medical insurance?
There is little doubt that private healthcare is a wonderful thing, if you can afford it. It allows you to bypass lengthy NHS waiting lists, and decide when and where you have treatment. Anybody who has claimed on a policy will do anything they can to hang onto their cover.
People love going private, the problem is that many think they can't afford the premiums. And the older you get, and more likely to claim on your policy, the more expensive it becomes.
Insurers have tried a host of innovative ways to cut costs and boost sales, with some success. Some plans will only pay for private treatment if local NHS waiting lists for your condition stretch for longer than six weeks.
The latest trend is to offer "top-up" policies that plug the gaps in the NHS. All of them have their merits, although the truth is, most people really want is comprehensive cover.
If you're thinking of taking out private medical insurance, don't just go to straight a big-name insurer. You will probably find a better deal by taking independent advice from a specialist healthcare broker. They will compare all the policies on the market, and find the right one for you. It might even be cheaper than you think.
And if you already have cover, now might be a good time to see if you are getting the best deal.
The NHS is wonderful, and we Brits rightly love it. But as we have seen in the last few days, it can't do everything.This might be a good time to consider the alternative.
The perils of pension predictions
March 30th 2011
Making predictions is very difficult, especially about the future. That famous quote, attributed to Danish physicist Niels Bohr, is particularly true when it applies to your pensions.
State pension forecasts aren't worth the paper they are written on. Don't take my word for it, Pensions Minister Steve Webb recently admitted that statements sent out by the Department for Work and Pensions are hard to understand, fail to give straight advice, and may contain incorrect figures.
The government isn't the only one struggling to predict the future. Company and personal pension forecasts are also unreliable, for reasons any Danish physicist will happily explain.
How much you get at retirement will depend on a host of personal factors such as how long you work, how much you earn, what you contribute to your pension and when you plan to retire. All these assumptions could change at any time. You should read your pension forecasts carefully, but don't necessarily believe them.
So how do you ensure you have enough in your pension at retirement? For a stab at the value of your state pension, you can contact the state pension forecasting team on 0845 3000 168 or visit www.direct.gov.uk/pensionforecast. I did it myself, and it made interesting reading, although I won't be buying a yacht.
State pension forecast should be much easier in future. In the Budget, Chancellor George Osborne confirmed the government plans to introduce a flat rate £140 state pension for all, giving us a much clearer idea of what the state will give us. Anything we can save ourselves, or through our company pension scheme, will be ours to keep. We won't lose it through means-tested benefits.
Next, gather all your annual company and personal pension statements. They should include two projections: the final value of your plan on your chosen retirement date, and how much taxable pension you could receive, shown in today's money.
These figures aren't guarantees. What you actually get will depend on how your funds perform, annuity rates when you retire, and how heavily your money is taxed at the time.
There are several things you can do to make your future a little more certain. First, start saving as early as you can, to give compound interest as long as possible to work its magic. The early years are vital because your contributions have much longer to roll up in value.
Second, invest as much as you can - you can't make a pauper's contribution and expect a princely pension pot when you retire. No investment plan on earth will make up the shortfall
Finally, you should also check that your existing pension funds are in the right place, and performance has been good. If not, you should look to switch elsewhere.
Pension forecasts may be flawed, but they are better than nothing. At least they give you some indication of how much you are likely to have at retirement. The rest is up to you.
Taking the sex out of insurance
March 25th 2011
It's quite a trick to deliver a legal ruling that produces the worst of all possible worlds, but it looks like the European Court of Justice has just managed it.
European judges have banned insurance companies from taking sex into account when assessing risk levels of their customers, and the result looks like higher premiums for women and little or no savings for men.
When you apply for insurance, your insurer wants to know how likely you are to claim on your policy, before deciding how much you will pay for cover. To gauge this, they will ask about your age, vehicle, occupation, claims history, where you live, how much cover you want, and your gender.
Young men, for example, pay a lot more for motor insurance, because they are 10 times more likely to have a serious crash, 25 times more likely to commit a driving offence, and twice as likely to make an insurance claim. Male drivers under age 22 typically pay several thousand pounds a year for cover.
This makes sense. If young men are more likely to cause a motor accident, I think they should pay more for insurance, however unfair it is on responsible male drivers.
But it doesn't matter what I think, because European judges disagree. Under EU equal treatment rules, this is seen as discrimination, and we can't have that, no matter how much actuarial evidence there is to back it up.
Women will be the losers. Young female drivers currently get much cheaper cover than young men, but when the new rules come in from 21 December 2012, their premiums will soar by up to 25%, according to some calculations.
Before men celebrate, or start preaching at women that gender equality cuts both ways, I should point out that this new unisex world will bring them only minimal savings. Motor insurance premiums for women will rise sharply, but men will only see a slight drop.
Another worry is that cheaper insurance may encourage young men to buy more high-powered cars, leading to more serious accidents on the roads (and even higher insurance costs for young drivers). It may also lead to higher levels of insurance fraud and uninsured drivers, as motorists struggle to keep their cars on the road.
And this comes at a time when car insurance premiums have already been rising sharply, up more than one-third in the past year.
As I said, the worst of all possible worlds.
Insurance companies will have to comply with the EU Gender Directive, but they may press ahead with new ways of calculating insurance. This could include pay-as-new-drive schemes, which charge for how far you drive, when you drive, and possibly even how you drive. This could benefit women, who typically drive fewer miles than men. But we're not there yet.
The drive towards sexual equality doesn't always produce fairness. It also opens up a can of worms. If insurers can't use gender when setting premiums, isn't asking how old you are ageism? Charging drivers more if they live in certain postcodes is also discriminatory, typically against the poor.
Followed to its logical conclusion, we should all be paying a flat premium for car insurance. Then it won't be just young women funding the reckless driving habits of young men, it will be all of us.
Stop – don’t claim on your insurance!
March 4th 2011
If you've paid for insurance you want to take every opportunity to make a valid claim when something goes wrong, don't you? Isn't that the point of paying all those premiums?
Well yes, but only up to a point.
It may seem crazy to pay for motor or home insurance then decide not to claim when you're fully entitled to, but sometimes that really is the sanest thing to do. Obviously, if your pride and joy is written off, you will want to claim on your car insurance. And if your home is burgled, ransacked and burned to the ground, again, it's worth letting your insurer know.
But for smaller claims, you have a tricky decision. While you may feel entitled to compensation, and desperately want to make good your losses, seeking redress could cost you dear. When setting your premiums, insurers consider a range of personal factors such as your age, occupation, where you live and level of protection required. They will also look at your claims history.
If you recently claimed on your policy, particularly if you have made several claims, your premiums could rocket at renewal, as your insurer will consider you a higher risk. Even a small claim could push up next year's premiums - and for years after that.
So it may be cheaper in the longer run to grit your teeth and pay minor claims from your own pocket.
It's a tough call to make. A five-year unprotected no-claims bonus could save you several hundred pounds a year on car insurance premiums, and you don't want to jeopardise that for a minor bump or scrape.
I've been pottering around on price comparison sites, trying to work out how much extra your insurer might charge following a motoring claim. I found that premiums for a 25-year old female driver with a three-year no-claims bonus would typically leap from around £550 to £800 if she claimed for an accident in the previous 12 months, where she was at fault.
That's a startling £250 in the first year alone, with more to come. I found a similar pattern with buildings and contents insurance. So you really should think carefully before you claim.
Next, I looked at how much extra she would pay if she shopped around for a new insurer at renewal. This time, the damage wasn't nearly so severe, typically, the average top five insurers would charge you £150 more a year. In their bid to compete for new business, insurers were willing to take a more lenient approach to previous claims.
So if you do make a claim on your policy, this very much strengthens the case for using a price comparison site to shop around for a better deal at renewal.
It also strengthens the arguments in favour of taking a large voluntary excess to cut your premiums, and treating your insurance as a backstop for really expensive claims only. But never set up an excess you can't afford to pay.
Finally, a gift your child will want to keep
February 23rd 2011
I've got a six-year old daughter, and my gosh, she's collected some tat over the years. It's not her fault of course, most of it has come from friends and family (including yours truly), especially at birthdays and Christmas.
We're having a clear out right now, piling up unloved dolls, forsaken cuddly toys, outgrown fairy princess dresses, and, um, a train set. We'll take them to a local charity shop or nursery, so they won't go to waste, but I really wish we had all put at least some of the money to better use. Like dumping it in a savings account.
A savings account is the best gift you can give. Your children may not be too impressed at the time, but this is one gift they will grow into - rather than out of. It will come in very handy later, especially if you put it into a savings account paying a halfway decent rate of interest.
If you have children, the sooner you start saving, the better. You need to start putting away early £75 a month after your baby is born to cover their university fees by the time they reach 18, according to new research from Scottish Friendly. If you wait just five years, even £100 a month won't cover it.
The cause of children's saving suffered a blow in January, when the tax-free child trust fund (CTF) was axed. That's a real shame, given that tomorrow's adults will need plenty of financial help to pay soaring tuition fees, slap down a deposit on a property, or pay their four-figure annual motor insurance premium.
If you have previously taken out a CTF for your child, you can continue saving up to £1,200 a year, and the money will be tax-free when your child takes possession on their 18th birthday. Lucky them.
If you missed the boat, watch out for the forthcoming junior Isa. That is set to be launched in the autumn, and although details are thin on the ground, it should allow family and friends to save tax-free until age 16. At that point, they may be able to transfer the money into a cash Isa.
You could start saving today, in a children's savings account. There are scores of accounts to choose from, so shop around for the best interest rate. The average children's instant access account pays just 1.18% on a balance of £100, and some pay as little as 0.05%, yet others offer returns of up to 5%.
Many parents are reluctant to invest their children's money in stocks and shares, presumably because they don't want their little darlings exposed to the vagaries of the stock market. Yet child investors have one big advantage over adults: time is on their side.
Stock markets typically outperform cash, but with heaps of short-term volatility. If you're investing for 18 years, your child's money has plenty of time to overcome any short-term setbacks.
Kids are tougher than you think. And if you start saving for them now, they may be better off than they expect.
Money in the bank isn’t what it used to be
February 23rd 2011
If you've got plenty of money in the bank, life is pretty tough right now. Now there's a sentence I never thought I'd write. Money in the bank is what we all want, isn't it?
It certainly beats NOT having money in the bank, there's no argument about that. But as inflation roars and interest rates squeak, being a saver is tougher than it should be.
The average deposit savings account pays 0.19%, yet inflation is running at 5.1% according to the retail price index. This means your savings may be falling by up to 5% a year, in real terms. So even if you have money in the bank, it isn't worth what it was.
Things are likely to get worse. Inflation is set to rise further and could remain stubbornly above target until 2014, the Bank of England admitted this week.
Savers aren't the only one suffering. If you've got a job, then you should probably be grateful. If you're under 24 and have a job, you should be amazed, since nearly 1 million youngsters can't find work.
But workers aren't on easy street either. As inflation continues to rise, wages are falling. The average employee is currently getting an annual pay hike of just 1.8% a year, according to the Office National Statistics.
With RPI at 5.1%, this means they effectively face a 3.3% a year drop in their wages. According to one calculation, that wipes a massive £782 from their annual spending power, or £65 a month. On current trends, the same thing could happen next year as well. As Bank of England governor Mervyn King said, this is the price "we are all" paying for the financial crisis.
Actually, not quite all of us, but I'll get to that in a moment.
People with money in the bank or a job aren't the only surprise sufferers of the financial crisis. People earning £40,000 a year will also find the going stickier. From 6 April, the 40% tax threshold kicks in at £42,475, that's £1,400 lower than the current financial year. This means more people will be dragged into the higher-rate tax net.
And from 2013, any family where one parent pays 40% tax will lose all their child benefit. This will cost them about £1,000 a year if they have one child, and £2,450 if they have three children. Their tax credit entitlement will shrink as well.
Savers, workers and higher earners do have something to fall back on, unlike the growing army of unemployed, but they certainly aren't having it easy. We're all feeling the squeeze.
No, hang on. Not quite all of us. Bankers still seem to be doing pretty well, judging by their bonuses. Which is a cruel irony, since it's their fault the rest of us are feeling so bad.
Why petrol prices could double
February 14th 2011
If you've recently filled up your car, you don't need me to tell you that oil prices are rapidly accelerating. A barrel of oil now costs nearly $100, and could even double to $200 a barrel, according to a startling prediction by renowned commodities investor Jim Rogers. That would make a trip to the petrol pumps even more painful, and throw the global economic recovery into reverse.
Some economists claim it was the surge in the oil price to $147 a barrel that really fuelled the financial meltdown in autumn 2008, by spreading panic among consumers and businesses. Personally, I still blame the bankers, but there's no question that sky-high oil prices will put the global economy on the skids.
We live in the oil age. There simply is no substitute. We use petroleum compounds to make plastics, lubricants, electricity, toothpaste, shampoo, soap, perfume, fertilisers, pesticides, petrochemicals, asphalt… and transport all these goods around the world.
According to one crazy calculation, it would take more than 11 years for the average human to produce as much energy as a barrel of oil. In the unlikely event that you had a slave working for you full-time for 45 years, they would produce the equivalent of just four barrels of oil.
So far, oil has been a very willing slave. But when it starts running out, it could turn into a cruel master.
Do you still think oil is expensive?
Well yes, you probably do. But compared to human labour, it is dirt cheap.
Most of the money you pay at the pump doesn't go to the oil company, but the Treasury. For every £1.30 of black gold that you pump into your tank, fuel duty eats up 59p and VAT another 20p.
You can blame the government for high oil prices, if you like. But if they didn't tax oil, they would only tax something else.
Oil has transformed mankind, but it has given us two big headaches. Half of us worry that burning oil and other fossil fuels will fatally warm the planet, wreaking destruction. The other half worry that oil will run out, fatally cooling the economy, wreaking destruction.
You can choose which one worries you most. Personally, both terrify me.
If you're more worried about how to pay for the stuff while we still have it, there are several things you can do to beat rising oil prices. First, visit free website Petrolprices.com before filling up. It allows you to compare pump prices in your local area, which can differ by as much as 5p or 6p a litre just a few miles apart, netting you a decent saving over the year.
Next time you are buy a new motor, choose one with a small and fuel-efficient engine. If the oil price really does double, you will be glad you did. It might also have a higher resale value than an old gas guzzler.
Another option is to invest in the share prices of oil companies such as BP and Shell. The oil majors inevitably benefit from rising prices, as cash floods into their coffers. But remember that company shares are dangerous, prone to sharp corrections, and you should either know what you are doing or take advice before parting with your money.
Oh, and there is only one thing you can do about rising oil prices. Walk.
Harvey Jones
Will rising food prices spark riots in Waitrose?
February 11th 2011
Revolution in Tunisia. Riots in Egypt. Rains in Australia. A costly trip to Tesco. What do they all have in common?
That's right, rising food prices.
Global food prices have just hit an all-time high, so if you're grumbling about the price of eggs, you're not alone. Wheat, milk, oil and sugar are also soaring, overtaking the previous record set in 2008, which sparked riots in countries as far afield as Bangladesh, Cameroon, Egypt, Haiti, India, Mozambique and Yemen.
This latest spike in prices is partly to blame for unrest across North Africa and the Middle East. Rising food costs hurt more in developing countries, where people spend far more of their money feeding themselves.
But they hurt over here as well, even if we're not rioting in Waitrose just yet.
Why are food prices rising? One reason is the world is eating more. As the Chinese, Indians, Brazilians and Russias become richer they start eating more meat, just like we do. It takes 7kg of grain to produce just 1kg of beef, and this puts a lot of pressure on farmland.
The more extreme global climate has also played a part, with droughts and floods in Australia, lost Russian harvests and a strong La Nina all hitting food production.
The fight against climate change hasn't helped either. One quarter of US grain crops are now fed to cars in the shape of biofuels, hitting supply and pushing up prices.
Does this mean there are too many mouths to feed and we're all going to start running out of food? Luckily, the answer is no. There is enough farmland on this planet to feed the world two or three times over. The problem is we waste too much of the stuff we grow, due to bad transport and lack of storage. In Brazil, 30% of grain never makes it to market. In India, 40% of vegetables rot.
The good news is that high prices will cure themselves. When prices are low, fewer people invest in agriculture, because there isn't as much profit to be made.
When prices rise, as they are doing now, people rush to invest in food production, buying new machinery and fertilisers, and this should ultimately boost supply and cut prices for all of us (although sadly, not this year).
A couple of bumper harvests would also help. Then we could all stop worrying about food prices for a year or two, and no doubt start worrying about something else instead.
Until then, there are ways of saving money on your weekly supermarket shop. Free website Mysupermarket.com lets you compare prices at Asda, Tesco, Sainsbury's and Ocado, to work out which is cheapest for you - it claims it can knock up to 35% off your grocery bill, saving the average shopper £1,000 a year.
Fixtureferrets.co.uk features constantly-updated food and drinks promotions while Approvedfood.com sells cut-price food and drink that has passed its "best before" date, but is still short of its "use by" date.
These sites can't reverse the global rise in food prices, but they can make them a bit more palatable.
Harvey Jones
Old is the new young
February 7th 2011
Getting old ain't what it used to be. For one thing, it happens at a much later age. You're not officially old these days until you turn 66, according to the British population.
And even if you are 66, and "officially" old, you won't feel it. People in their 60s feel up to 16 years younger than they actually are, according to research by insurer LV=.
So at 66, you really feel 50. Which definitely isn't old. Not these days.
Better still, you are happier and "financially and physically fitter than your younger counterparts", and take more exercise. And more holidays. Got more money too. To sum up, the silver generation is enjoying a golden age.
They must have done something right. As Oscar Wilde said: "Those whom the gods love grow young."
Not so the proper young. They're having a rough old time of it. They holiday and exercise less, and crucially, as far as this column is concerned, they are in far worse financial shape.
It is a challenging time to be young. Almost 1 million under-24s have no work. Youth unemployment has just topped 20% (it was only slightly higher in Tunisia at 24%, and look what happened there).
This year has seen an all-time record number of university applications, some 600,000 hopefuls, who will be desperately hoping to grab a place before tuition fees almost triple from £3,375 to around £9,000 a year. Around one in three will miss out, that's another 200,000 disappointed teenagers dumped on the job market.
And even if they are lucky enough to get a place at university, they will quickly start racking up a mountain of student debt.
Financially speaking, the odds are stacked against the young. If they have the money to buy a car, they will struggle to insure it. If they can afford to buy a home of their own, it's only because their parents gave them the deposit.
It has recently become fashionable to blame the baby boomers for the misfortunes of the young. They enjoyed the pre-credit crunch party, in the shape of rising house prices and pensions, and presented the young with the bill.
I don't really buy into this. First, there are plenty of older people who spend their lives scraping by on lowly incomes. And second, they weren't to know a financial crisis was coming. The generational blame game gets us nowhere.
But the economic crisis has turned many assumptions upside down. We used to envy the young, now many of us are glad to be out of it.
They say age is in the mind, and this research certainly confirms that. I'm 44 years old, and that makes me old (bah!), according to teenagers questioned in the survey. People in their 40s, however, say you're not told until age 67 (damn right!). Those in their 50s feel you're over the hill at 71, while those in their 60s put it at 73.
So despite the many advantages, nobody actually wants to admit to being over the hill themselves. Old age is something that happens to someone else. Which is a shame, because it sounds a lot of fun.
Harvey Jones
Brace yourself for 8% inflation
January 21st 2011
The cost of living just keeps rising and rising, and brace yourselves, because there is plenty more to come. Inflation rose to 3.7% in December, according to the consumer prices index (CPI), up from 3.3% in November. That's the biggest monthly leap on record.
But it's even worse than that. If you measure inflation by the retail price index (RPI), it actually stands at 4.8%. The RPI figure includes housing costs, which makes it a more accurate measurement for many people.
The next set of figures could make even more dismal reading. They will reflect January's VAT increase to 20%, the hike in fuel duty, and oil prices at nearly $100 a barrel. Most people expect CPI to top 4% next month, and stay there for the rest of the year.
That means RPI is likely to top 5%.
Rising inflation is bad news for pretty much everybody, but the elderly will be hurting most. They spend more of their money on essentials such as food and heating, where bills are rising fastest. According to one measurement, the over-65s experience an extra 3.3% inflation above RPI than the rest of us - costing them £700 a year. That puts their personal inflation rate at a dreadful 8%.
Savers are also hurting from soaring inflation, especially if they pay tax. A basic rate taxpayer needs to earn 4.63% gross on their savings just to keep pace with inflation, or 6.17% if they are a top-rate taxpayer.
You simply can't get that kind of return on cash. The average savings account pays a meagre 0.19%. If you had £10,000 in a savings account paying 0.19%, inflation will have cost you a crunching £331 last year. It's this double whammy of high inflation and low base rates that really does the damage to savers.
The Bank of England claims current inflation rates are just a blip, and CPI will return to its target of 2% next year. It argues, and with some justification, that it urgently needs to keep base rates at 0.5% to help the economy recover. Hiking-base rates now would put pressure on cash-strapped borrowers and businesses, and could even plunge us all back into recession.
The problem is, it has called inflation wrong for the last couple of years, regularly claiming it would be much lower. Even The Met Office would be embarrassed if it got its forecasts so consistently wrong (well, maybe).
January's figures are likely to show CPI above 4%, and it could stay there for the rest of the year. The elderly and savers will continue to struggle, as will working families, because pay rises won't keep pace.
The problem is that higher interest rates are the only medicine the Bank of England has at its disposal to treat rising inflation. So we can expect rates to increase at some point this year, and possibly more than once.
That will be good news for savers, and bad news for hard-up homeowners on variable rate mortgages. My big worry is that rising base rates will cure inflation by killing the economy.
How much have you spent this year?
January 14th 2011
I had a bit of a barney with my girlfriend yesterday over how much we have spent this year. I lost, of course, as I usually do. But it doesn't change the fact that money has been flying out of our bank account in the first 10 days of the year.
We spent more than £2,000. That works out as £200 a day, or an incredible £6,200 a month. Or if I really want to frighten myself, £71,200 a year. Quite literally, we can't keep this up.
Embarrassingly, we had actually agreed to spend less money in 2011. So much for New Year's resolutions.
When I took a closer look at what we'd spent the money on, I calmed down a little. Our mortgage payment leaves our bank account at the beginning of each month, so that was £450 of the spending.
Plus we had a mighty one-off bill, as we had to pay for an emergency plumber to unblock our frozen pipes during the pre-Christmas freeze. That added another £750.
This still means we spent £800 in the first 10 days of the year, and apart from a few (surprisingly expensive) trips to the supermarket, I'm not quite sure where it went.
I'm a natural tightwad, and I hate spending money if I can avoid it. So I was surprised to discover that we are actually pretty average spenders (once you strip out those mortgage and plumbing bills).
In the first 12 days of this year, the average household spent £780, according to voucher code site Quidco. That's almost as much as us. My, aren't you a profligate lot?
Each household has spent £295 on food, drink, clothes and entertainment, with the rest going on utility bills, maintenance, transport and other services.
The average household spends £455 a week in total, according to government figures. That is £65 a day, or £23,660 a year. It's an expensive world we live in, and thanks to rising food and fuel prices, not to mention the recent VAT hike, it isn't getting any cheaper.
There are plenty of things you can do to stop money from slipping through your fingers. You could start by drawing up a daily diary of your spending, to see where you are frittering away your money. I suggested that to my girlfriend, with unhappy results.
Or you could save hundreds of pounds by finding a better value gas and electricity supplier, car and home insurer, mobile phone tariff, credit card and mortgage.
I know plenty of people who are trying to spend less money, and I'm one of them. But as the rapid failure of my New Year resolution has shown, it isn't easy. There are just so many calls on our pockets these days.
And unless you live alone, and you will need to persuade your partner and any children to tighten their belts as well. You could start by reminding them that we're all in this together.
Unfortunately, it didn't work for me. Let's hope you have better luck!
Harvey Jones
Will you outlive your money?
January 12th 2011
Would you like to live to 100? There's a one in five chance that you will get a telegram from the Queen, according to new figures from the Department for Work and Pensions. Is that something to aim for?
I'm 44 years old, and I have to confess that putting in another 56 years seems a bit of an effort (I suspect I might feel differently when I'm a bit older). But it isn't only your body that has to go the distance, so does your money.
There may be a one in five chance that you will notch up a century, but will your pension last that long? If you retire at 65, your savings will have to last another 35 years.
Could you imagine living off your savings for more than three decades? Thought not. Which means you could spend your final years scraping by on the state pension, which is worth just £6,000 or £7,000 a year. It isn't a pretty prospect.
If my friends are anything to go by, even people on halfway decent incomes aren't saving anything like enough money for their retirement. Most dodge the question rather than do anything practical to make up the shortfall.
I've heard all the excuses for not saving in a pension. Pension companies are crooks. They eat up all your money in charges. Bankers are crooks. Stock markets will probably collapse just before I retire and lose all my money. There's no point. I can't afford it. I'll probably be run over by a bus tomorrow. I've got other things to spend my money on. I haven't got any money. I'll drink myself to death before then. I'll win the lottery. My children will provide.
Some of these may be valid, but most are excuses for inertia and laziness. You don't have to save in a pension, there are other ways of doing it, such as tax-efficient Isas (consider clearing any expensive debts first).
If saving more is one option, retiring later is another. By working on for an extra four or five years, you won't just generate next five years worth of earnings, you will also get a bigger pension when you retire.
There are two reasons for this. First, your savings and investments will have had another five years to grow in value, so your pension pot should be larger. Second, your life expectancy will be five years shorter, which means your pension company will offer you a bigger annuity because it won't have to pay the income for as long.
Most personal finance journalists have written hundreds if not thousands of articles urging people to save more for their future, apparently to little effect. I've tried persuading friends face-to-face, and that doesn't work either.
Which is a shame. It is always worth saving money, even if you don't live to be 100.
Harvey Jones
Outlook for 2011: Cloudy with outbreaks of good news
January 10th 2011
Christmas is over and I've had my fill of mince pies, cold turkey, sweet sherry and financial forecasters predicting how the world will look in 2011.
Like the winter weather, the pundits have swung from one extreme to another. Many warn of terrifying economic storms over the next 12 months, smashing house prices, uprooting jobs and plunging the UK into darkness.
Given the creaky state of the public finances and uncertain global economic recovery, you can see why.
Yet there are flashes of optimism amid the gloom. If you thought British manufacturing was dead, brace yourself for a surprise. New figures suggest it is in surprisingly rude health. In December, our manufacturing sector grew at the fastest rate since 1994, thanks to booming exports, especially to emerging markets. So that's one piece of good news.
The economy grew 2% in 2010, against government forecasts of 1.2%, and we can expect a similar rise this year. Some economists predict it will perform even better in 2012, rising 3%. That doesn't sound too bad, given the government's austerity plans.
But like the weather forecast, you shouldn't put too much faith in economic forecasts. Economists get it wrong so often they make the Met Office's seasonal forecasts look trustworthy by comparison.
Just as weatherman Michael Fish famously missed the great hurricane of 1987, all those expensively-remunerated analysts failed to predict the credit crunch of 2008.
Michael Fish's error was more forgivable. There is only one of him, after all. And it was only a throwaway remark. The financial forecasters had years to spot the storm clouds gathering over the banking industry, but failed to warn us of the impending flood until we were half drowned.
Maybe they're all just silly, or puffed up with their own importance, and the people who would have spotted the credit crunch were too busy cutting hair or driving taxis.
That seems unlikely, though. The truth is that the global economy is subject to so many variables it is impossible to predict what will happen with any certainty, no matter how many initials you've got after your name.
This doesn't stop them trying, of course, and getting handsomely paid for wrongly second-guessing the future. Like the weather forecast, it's best to treat their predictions as light entertainment, rather than a reliable guide as to whether it will rain or shine tomorrow.
2011 could be a dramatic year. We might see riots in the UK, a eurozone collapse, the bursting of the China bubble, or US sovereign debt running riot. There is plenty of stormy weather ahead. Only one thing is certain: nobody knows how it's going to end.
So ignore all those gloomy forecasts and do your best to enjoy 2011, whatever the economic weather sends.
Harvey Jones
Have you made the most of low interest rates?
December 29th 2010
You never know what you've got until it's gone. That's how millions of homeowners are likely to feel about low interest rates, because they are almost certain to start rising in 2011 (savers might have a different view).
Homeowners have had a good run, with base rates kept at an historical low of 0.5% for 21 consecutive months. But at some point in the year ahead, their luck will come to an end.
Rates are set to rise sixfold in the next two years, according to a new survey by the Confederation of British Industry. We can expect the first 0.25% rise in the base rate by June, and a further 0.25% rise every three months after that. By the end of 2012, base rates will have hit 2.75%.
If this is correct, it would be a blow to the seven million homeowners on floating-rate mortgages such as a trackers, discounted variable rates or standard variable rates. It will increase their repayments by £200 a month on average, or a hefty £2,400 a year. With many household budgets already stretched, some will snap.
Inflation is the trigger for rising rates. The CBI claims it will hit 3.8% early next year (up from 3.3% today), and will remain above the Bank's target of 2% for the next two years. Rates will have to rise to stop it spiralling out of control.
By historical standards, a base rate 2.75% is still incredibly low. But it could leave many variable rate borrowers paying mortgage rates of 6% or 7% - and in some cases more.
The Bank of England has just warned that homeowners are heavily exposed to a rate hike, because more than two-thirds have variable rate mortgages. If base rates rise, so will their mortgage rates.
Many took out a variable-rate mortgage because they are much cheaper than fixed-rates. This gamble could still pay off, because some analysts still insist rates will stay low for the next four or five years.
Maybe they will, maybe they won't. Second-guessing these things is impossible. The only certainty is that rates must go up (they can hardly go down), we just don't know when.
An incredible 3 million homeowners could struggle to pay their mortgage if rates do rise in line with CBI predictions. So if you are saving a couple of hundred pounds on your monthly mortgage repayments, don't squander your good fortune.
Consider using this windfall to pay down your mortgage, to put you in a better position when rates start rising. If you have more expensive debt, such as a credit card or store card, tackle that first. Or you might prefer to save in a tax-efficient Isa instead.
The decision is yours, but please, don't fritter your savings. If rates rise as quickly as some expect, you might need that financial cushion.
2011 may not be such a happy year for mortgage borrowers, but at least savers might feel a bit more prosperous.
Harvey Jones
Investing in emerging markets
December 23rd 2010
Here's one investment rule that is always worth following: never follow the herd. If investors are charging into the same sector or country, think twice before joining the stampede.
It famously happened during the dot.com boom. Excited by the technical possibilities of the internet, investors piled into small technology companies that had never sold a single nut or widget, massively inflating their share values. The more their shares rose, the more investors piled in, creating a virtuous circle that turned vicious overnight in March 2000, when technology crashed and investors lost billions.
Well, the herd is on the move off again, and this time it is heading into emerging markets such as Brazil, Russia, India and most of all China. To be fair, they have been roaming these fertile plains for some years, and fed very happily on some juicy investment returns. But at some point, they will graze this pasture dry.
China can't keep growing at double digits forever. It is struggling with rising inflation and property prices - the average apartment in Beijing costs 22 times earnings! India is also looking expensive. So are we looking at the next bubble?
The honest answer is that nobody knows. Stock markets are completely unpredictable, no matter how clever you are.
But a worrying sign is that the experts agree that emerging markets will continue to do the business next year. I've just been interviewing a bunch of investment fund managers, and every single one said that vibrant emerging markets will continue to outperform the debt-riddled developed world in 2011.
These countries have younger populations, fewer debts, lower social benefits, a strong work ethic and plenty of new infrastructure to build. By contrast, most Western countries are lumbered with public debt, spending deficits and ageing populations. That's what fund managers say.
It's a pretty convincing analysis, so you can see why it draws the herd.
The problem is, time to invest in these countries was five or 10 years ago, before the world switched on to what was happening. The big money has already been made.
Stock markets in these countries may continue to rise, but anybody who invests expecting another five or 10 years of uninterrupted growth is kidding themselves. At some point, there will be a correction. Nobody knows when, or what will cause it. It could be that Chinese asset bubble, rampant inflation, political upheaval... your guess is as good as mine.
It could even be our fault. Western money is pouring into emerging markets, and this could eventually cause them to overheat. As so often before, the herd is its own undoing.
If you're excited by the thought of investing in emerging markets, you must be aware of the risks. Never invest money you might need in the next five to 10 years, to allow you to overcome any volatility.
You should also consider seeking financial advice - but even then be careful. Even the most independent of financial advisers can't resist the call of the herd.
Harvey Jones
Housing market finally faces its Waterloo
December 17th 2010
Napoleon scornfully dismissed the British as a nation of shopkeepers. Today, he would no doubt deride us as a nation of homeowners and house price obsessives.
And admit it, he would be right.
New house price figures are released on an almost daily basis, and all of them are blazed across the press. Why? Because journalists like me know that readers lap them up. And the bigger the headlines, the more companies feel the need to publish their own stats, because it gets them some coveted publicity as well.
At some point, we'll have had our fill of constant speculation over whether house prices are falling, rising, or staying roughly the same. But that day hasn't come yet. So go on, let's look at the latest house price data. You know you want to.
Latest figures from Rightmove show asking prices fell by a hefty 3% in November. It predicts another 5% drop next year, when there will be just 600,000 property sales, down from around 1.7 million before the credit crunch.
You want more figures? House prices fell 0.7% in the three months to November, according to Halifax. And the Royal Institution of Chartered Surveyors' barometer of property market sentiment is plunging faster than temperatures in frozen Britain. New buyer enquiries have now fallen for six months in a row.
The Department of Communities house price index… actually, that's enough indices, you can have too much of a good thing, even if you are British.
Journalists typically describe rising house prices as good news and falling prices as bad news, but their readers don't always agree. Plenty of people believe house prices are too high (frankly, they are), and this is unfairly squeezing the young and low earners off the property ladder (it is).
The problem is, falling house prices are nothing to celebrate either. First, it's a sign that the wider economy is in trouble. And second, it's a kick in the teeth for people who took out a high loan-to-value (LTV) mortgage to purchase an asset that is unexpectedly plunging in value. Negative equity is no fun.
So what do I think will happen to house prices next year? Okay, you didn't ask, but I'll tell you anyway. Personally, I think values will continue to slip in 2011, maybe by around 5% across the year. Banks are still reluctant to offer mortgages, and those public spending cuts are only just kicking in.
If inflation really takes off (it's revving its engines on the runway as we speak), then base rates may also rocket. If that happens, the housing market could finally face its Waterloo.
Whatever happens, one thing is certain. There will be plenty of figures to document it.
Harvey Jones
Your rights when shopping online
December 14th 2010
Christmas shopping is hell. That's a statement most men would agree with. But I've just finished most of mine, and I can say it's nowhere near as hellish as it used to be.
In fact it took me around one hour to order presents for my parents and two sisters, plus their husbands and five children, and I didn't even have to leave the house. All thanks to that interwebby thing we all find so useful these days.
No doubt as the big day approaches I will be forced out of the house to buy some food and drink, a box of crackers and some batteries for the kids' toys, but shopping online has spared me hours of traipsing, and you've got to love the net for that fact alone.
Most of us now feel relaxed about buying even quite large items over the internet, especially from reputable sites, but it's still worth knowing your rights when shopping online. The good news is that you get exactly the same legal protection as if you had bought the items on the high street, plus you also benefit from a seven-day cooling off period, during which you can return any purchases you're not happy with.
Amazingly, many websites regularly refuse to refund unwanted items, according to a new report from the Office of Fair Trading. If that happens to you, stand your ground. The law is on your side. Provided you have told the company within seven days of the goods arriving, you can claim a full refund, including delivery charges. These rights apply to websites throughout the EU, although not beyond.
Website Consumerdirect.gov.uk sets out your legal rights when buying goods online or through other methods of home shopping. You are entitled to:
- Clear information about the goods or services before you buy.
- Written confirmation of your purchase.
- A "cooling off" period during which you can cancel your order without reason and receive a full refund - exceptions include perishable goods or personalised items such as engraved jewellery.
- A full refund if the goods or services don't arrive by the agreed date, or within 30 days.
For added protection, you should use a credit card rather than a debit card when shopping online. Under Section 75 of the Consumer Credit Act 1974, if you spend between £100 and £30,000 on your credit card, your issuer is equally liable for any problems or defects. So if you are struggling to get redress from the retailer, contact them instead.
If you still do your Christmas shopping on the high street, check the retailer's returns policy. Most of us assume we are legally entitled to a full refund for unwanted goods within 28 days of purchase, but this isn't the case. You aren't entitled to a refund if you simply don't like what you have bought, although most shops are much more generous in practice. If the item is faulty, it's a different matter. Then the law is right behind you.
The internet has made life much easier for Christmas shoppers. Knowing your rights will make it easier still.
Harvey Jones
Have yourself a very PR Christmas
December 10th 2010
Christmas is coming and I'm in danger of being buried under an avalanche of press releases warning me of dangers lurking beneath the tinsel and the trimmings. Most of these releases are highlighting the financial pitfalls of the festive season, and in the spirit of seasonal health and safety, I thought I should share some of them with you.
So here we go.
Take care when you're doing your Christmas shopping because Britons waste an incredible £473 million pounds buying unwanted presents every year, according to research from Gocompare.com. I've certainly had my share.
Here's a list of the top 10 Christmas gifts NOT to buy. Toiletries are number one, so put down that prettily-packed bath gel and scented soap ensemble, nobody wants it.
And step away from the cheap aftershave or perfume, handkerchiefs, rubbish gadgets, socks, underwear, neckties and even books, CDs and DVDs, unless you are sure of the recipient's tastes. You won't be surprised to hear that most people would rather have the money than a bottle of Brut 33 or a Mariah Carey CD.
There's an even bigger yuletide threat out there - online fraudsters. "Canny criminals are looking to cash-in on the December online shopping spree", warns the UK's Fraud Prevention Service. Well, that's cheerful.
This press release also comes with a list, naming the top five products most likely to feature in an online shopping fraud. Smart phones are number one, followed by digital cameras, designer goods, laptops and video game systems. So make sure you only buy from reputable websites, or your Christmas could be ruined.
Here's an even more alarmist press release: Beware the 12 Risks of Christmas, from insurer NFU Mutual. I haven't got space to run through all 12 yuletide risks to your home, but here are the top five (sing along now, you know the tune): "Five stolen things, four outdoor lights, three open fires, two candle flames and a fire on your Christmas tree." The final three are all fire risks, while the outdoor lights come in handy to deter potential intruders.
Kids love Christmas, and that's hardly surprising, since they will receive an astonishing £168 worth of presents from their parents, according to insurer LV=. Forget our economic woes, more than half of parents plan to spend at least as much on their kids as last year.
Families are making savings elsewhere instead. In the spirit of austerity Britain, seven out of 10 people are making Christmas cutbacks, according to Moneysupermarket.com. Top of the list (another list!) are parties and nights out, followed by Christmas presents for friends and colleagues, new festive outfits and expensive wrapping paper.
At least we're staying faithful to Turkey, mince pies and Christmas pudding, according to the research. Quite right too. I know there is a recession on, but it is Christmas, after all.
Harvey Jones
Don't crack up this Christmas
December 6th 2010
Yikes - it's cold. My girlfriend is Norwegian and even she is freezing right now. I don't know what's happened to global warming but I know what's happening to my heating bill, it's going through the roof.
With British Gas and other utility suppliers hiking bills by around 7% this year, taking the average household bill to nearly £1,250, it's going to be an expensive winter.
One way to cut your heating bills is to visit a price comparison site and find a cheaper energy tariff - it could save you hundreds of pounds a year. There are plenty of sites to choose from - Reader's Digest has its own at www.rdcompare.com.
This winter could be even more costly if you suffer a burst pipe caused by freezing water. Last year's cold weather saw a large rise in of claims for water-soaked homes, according to insurer Aviva, mostly due to frozen pipes or tanks bursting in the loft. The problems start when the ice melts, at which point water starts leaking out of those cracked pipes.
You only have to imagine the damage water gushing through your property would cause. It would really put a dampener on Christmas.
After several mild winters, many people stopped worrying about frost, snow and ice, but last year was a rude reminder that it can still be a problem, and now the weather is at it again.
Burst pipes can cause even more trouble in traditional properties that don't have modern heating systems properly insulated pipes. And if your home is left empty while you visit family or friends over Christmas, you might not discover that burst or leaking pipe for several days, during which time it could wreak havoc.
Damage caused by freezing water escaping from tanks, pipes or heating system is covered as standard under most buildings and contents household insurance policies, Aviva says, so that's something. But it could still take months of disruption while your house is dried out and repaired.
Prevention is better than cure, so here are some things you can do.
Lag your pipes. Check the pipes and tanks in your loft or elsewhere are properly lagged, and wrap up water tanks, systems and boilers in insulating jackets. Don't forget to insulate outside taps in your garden or garage, or cut off the water supply.
Find your stop cock. Make sure you know where your main stop cock is, because it will cut off the flow of water to your property in an emergency. Clue: it is usually under the kitchen sink.
Leave your heating on low. If you're going away for a few days, leave the heating on at a constant low-level. This should stop the water in your pipes from freezing. It may add a little extra to your heating bill, but it will be cheaper than a burst pipe.
Tell your insurer. If you're planning a long trip this winter, say, a month in the sun, tell your insurer before you go away. Many policies won't cover your home if left empty for more than 30 days, although insurers do vary. You might have to buy extra cover.
It looks we're heading for another cold winter. So don't forget your hat, scarf and gloves - and a nice cosy jacket for your boiler and pipes.
Harvey Jones
There’s still time to beat the VAT hike
December 2nd 2010
My last blog wrote about the rising price of just about everything while neglecting to mention one of the biggest culprits of all - January's hike in the rate of VAT.
From 4 January, VAT hops from 17.5% to 20%. This will add £425 a year to the average family's outgoings by pushing up the cost of everyday items such as petrol, tobacco, alcohol, home electronics, clothes and footwear.
Short of fleeing the country, you can't do much to escape this tax hike. But if you're planning to buy a big-ticket item such as a car, or install a new bathroom, kitchen or conservatory in your home, you could save hundreds of pounds by acting now.
[caption id="attachment_117" align="aligncenter" width="418" caption="The cost of household goods will rise"]
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The VAT hike will add £382 to the cost of a Ford Focus, for example, increasing it from £17,945 to £18,327. That gives you a pretty good financial incentive to upgrade this year rather than next.
A brand new car might not be ready for delivery until next year, but that's not a problem, as long as you pay before 4 January. The danger is that this will reduce your bargaining clout if there is a delay with the delivery or problems when you received your car.
Provided you pay in 2010, you can still save VAT on items that you won't use until next year, for example, your summer holiday. So start scanning those holiday brochures now!
Builders, as ever, are a bigger problem. I wouldn't recommend paying for building work in advance. Even conscientious tradesmen can lose their motivation if the money is already in their pocket (or spent!), so you can imagine what the cowboys might do.
You could still use the VAT rise as a bargaining tool, perhaps by persuading them to absorb the higher rate themselves, provided you commit to the job now. Many builders and tradesmen will be keen to secure work for next year, given how shaky the economy is right now.
You should also try negotiating on any other professional services you use, such as an accountant, solicitor or estate agent. They might be happy to send in next year's bill early. The British are rubbish hagglers, but this is an opportunity to brush up your skills.
You might still escape the higher VAT rate next year, as many retailers are likely to offer "Beat the VAT rise" prices throughout January, particularly in the sales. So if you're buying pricey items such as a flatscreen TV or a new dishwasher, you might get a better deal by waiting until then.
If you need to borrow money to buy that big-ticket item now, make sure you don't overpay for your finance. If not, the money you save on VAT could be squandered on hefty interest repayments. There are some competitive personal loans around right now, if you have a clean credit record.
For smaller purchases, consider taking out a credit card that offers 0% interest on purchases for an introductory period of a year or so.
And that's it, there's not much else you can do to escape this latest tax rise. Once the last of January's VAT hike offers are withdrawn, we all have to pay it.
Harvey Jones
What's the real cost of living?
November 30th 2010
Have you ever wondered why the official headline inflation rate is just 3.1% when everything you need to buy seem to be rising at a much faster rate than that?
You're not alone.
You may already know one of the reasons. There are actually two measurements of the UK rate of inflation, and the official rate is notably lower than the real one as you and I experience it.
The UK consumer prices index (CPI) measured inflation at 3.1% in September, but the retail prices index (RPI) puts it at a more believable 4.6%.
CPI was introduced as an internationally comparable measure of inflation, to allow EU countries to see how they were getting on compared with their neighbours. New Labour started using it as the official inflation rate from December 2003.
But it is RPI, which includes housing costs such as council tax and mortgage, that reflects most people's experience of inflation. It is typically higher, which explains why workers prefer to use RPI in pay negotiations - and governments prefer CPI.
Chancellor George Osborne recently switched inflation-linking for welfare payments from RPI to CPI, which should save the government billions over the years, at a great cost to claimants.
If it seems like your living costs are rising even faster than 4.6%, your suspicions may be correct. Many people face a much higher inflation rate than even RPI suggests. They tend to be older people, as well.
Different goods and services rise at different speeds. If you spend more of your money on laptops and flatscreen TVs, you're in luck, because the cost of home electronics has plunged in recent years.
But the essentials in life are getting more expensive, notably food, council tax and utility bills, and older people spend a far larger proportion of their income on these basics than, say, flash iPads and fancy mobile phones.
The older you are, the worse it gets, according to new figures from Age UK.
The average person aged between 60 and 64 currently faces a real RPI of 2.6% above the official measurement at 6.2%. The difference costs them on average £500 a year.
Between age 65 and 69, real RPI is 3.3% above the official measure at 6.9%, costing an extra £710 a year. And it keeps rising, until after age 75, real RPI is 4.1% over the official figure at a mighty 7.7%.
This is making life harder for many older people, especially since rock bottom base rates have hammered the returns on their savings.
The price rises keep coming. Train fares will rise by 6% next year, while gas and electricity bills will surge more than 7% this winter. So forget government figures. In the real world, life is getting a lot more expensive.
Harvey Jones
Dislike Mondays? So does your car
November 26th 2010
You can guess which time of the week your car is most likely to suffer a breakdown. That's right, it's Monday morning, according to the RAC. It makes sense, I suppose. I don't like Mondays, you don't like Mondays, so we can hardly grumble if our cars don't like Mondays either.
Cars don't like cold, dark winter mornings either. They are 50% more likely to break down at home in December and January than during the summer months, the RAC says.
Just as we suffer coughs and sniffles during the winter season, our vehicles also fall victim to ailments such as battery failures, flooded engines, and taking a knock on an icy road. With weather forecasters predicting the third cold winter on the trot, you should start revving up now for the winter season.
Begin by checking your tyres. Check your tread depth, 3mm is advisable in winter conditions, and make sure they are pumped up to the right pressure. You also monitor your oil, water and brake fluid levels, and add some anti-freeze to your windscreen wash
The days are getting darker, so check all your lights are working correctly, and keep them clean if they get splattered with mud and muck. Check your front and rear wiper blades for wear and tear - they could be working overtime.
You should also run over your breakdown policy, to see if it gives you "at home" protection in case your car doesn't start one morning. Luckily, most of them do. Your motor breakdown policy should give you the same protection in winter as it does in summer, unless really severe weather conditions make it impossible for the call-out men to reach your car.
Your car may be reluctant to start on cold and frosty mornings, but car thieves have a bit more get up and go. Every year, more than 60,000 motorists fall victim to a chilling crime called "frosting". Opportunistic thieves roam the streets looking for vehicles left unattended while the driver warms up the engine and nips back inside to finish getting ready, leaving the keys in the ignition.
If you get frosted, you won't get a penny from your insurer. Leaving keys in an unattended vehicle is specifically excluded from motor insurance policies, because you have failed in your duty of care to your car. The thought is enough to give you the shivers. So if your car does need defrosting, stay close or it could melt away altogether. You can keep warm by scraping the ice off the windows (buy a scraper now, or in an emergency, use a CD cover).
After a series of mild winters, we all stopped worrying about severe black ice and snow storms. We know better now, so get prepared. It is worth keeping a torch, blanket, bottle of water and a few chocolate bars in your car in case you get stranded. And make sure your mobile is fully charged before you set off.
A cold winter Monday is the worst possible time for your car to break down, as well as the most likely. So gear up for winter now, or risk facing that Monday morning feeling.
Harvey Jones
A high price to pay for that country home
November 24th 2010
Millions of City folk dream of owning a second home in the countryside, which is bad news if you grow up there, because soaring rural house prices have squeezed young locals out of the market.
Rural house prices rose by £200 a week during the decade to 2010, according to new figures from Halifax. The average house price more than doubled in that time, from £107,250 in 2000 to a hefty £209,972 today. That would be fine, if salaries in rural areas had also doubled, but of course they haven't.
House prices actually rose faster in the country than in the towns, which is ironic, given it is largely urban dwellers who have been driving up prices. First-time buyers are increasingly rare in rural areas, where they account for just one in four buyers, compared to nearly half of all buyers in urban areas, Halifax says.
I saw the problem at first hand when I lived in coastal Suffolk a couple of years ago. We became friends with a young couple who grew up in unglamorous Leiston, the working town that services Sizewell B power station. Leiston is wedged between the posh and popular seaside resorts of Aldeburgh and Southwold, but demand from second-homeowners had also pushed up local prices.
Our friends, who worked in local shops and restaurants, had zero chance of raising the £150,000 they needed to buy a modest terraced house in the town they grew up in. They wanted to spend their lives in the area, but were being forced out by people who just wanted to spend the odd weekend there. Local wages simply can't compete with London salaries.
Shortly after, a family friend cheerfully told me she was planning to buy a second home near me in Suffolk. She was amazed to discover she could buy a house for "just" £150,000, using the spare equity from her home in Fulham.
You guessed it, she was buying in Leiston. One person's cheap weekend escape is another's unaffordable family home.
Currently, the average rural house costs 6.4 times average gross annual earnings. It was actually worse before the credit crunch, when the average home cost a massive 8.2 times average earnings, so things have improved lately. But it hasn't been enough to help my friends, because local jobs are even harder to find these days.
It's not all the fault of those second-homers. You can't actually blame somebody for wanting a rural getaway, it's a dream shared by millions. There is also a distinct shortage of social housing in the countryside, according to Halifax.
But it is sad to see young people squeezed out of the nicest corners of our green and pleasant land, simply because they have the misfortune to actually live and work there.
Perhaps they will be able to return one day, when they retire. But only if they get a well-paid town or city job first.
Harvey Jones
The real cost of retiring in the sun
November 19th 2010
I'm writing this on a cold, wet, dark and windy November morning, and boy, do I wish I was in Spain. Or maybe France, Italy, Australia or Florida, or any of those warm and sunny places where Britons like to retire.
Millions of Britons are planning to spend our retirements abroad, but turning dream into reality isn't easy. Unless you plan carefully, your foreign affair could end in heartbreak.
If you're thinking of fleeing austerity Britain for a retirement in the sun, the first thing to do is check what will happen to your pension. You can still get your state pension if you live overseas, and if you retire in the EU, you will also receive annual UK pension increases.
But you won't if you move to a number of popular English-speaking retirement destinations, including Australia, Canada, New Zealand and South Africa. The UK hasn't signed a reciprocal social security agreement with these countries, and shows little sign of doing so. That means your state pension will stay flat for as long as you live there.
After 10 or 15 years living overseas, inflation could have half the value of your state pension, in real terms. That could put the kibosh on your plans, unless you have ample workplace and personal pensions as well.
Even if you do get the annual pension uprating, this will rise in line with UK prices, rather than prices where you are living. If local inflation is higher, you could suffer (although if it's lower, you'll reap the benefit).
Your UK pension will be paid in pounds, and you will have to convert it to your local currency. That leaves you at the mercy of currency fluctuations, as British pensioners in Spain discovered during the credit crunch, when the pound fell by up to a third against the euro. Many were forced to return home, because Spain was no longer cheap.
You will also have to pay bank charges every time you send money abroad, although you may be able to reduce these by using a specialist currency transfer service.
The cost of property in many countries has fallen over the last couple of years, which should make buying cheaper, except that the value of the pound has fallen by a similar amount. Plus it might be harder to raise enough funds from selling your own property, given the parlous state of the UK housing market.
There have also been plenty of horror stories about Brits buying abroad, notably in the Valencia area of Spain, only to discover they didn't have the correct planning permission. Some even saw their dream homes bulldozed. Before buying, you must take advice from a local English-speaking lawyer. Don't rely on a lawyer recommended by your seller, estate agent or developer, find one who is completely independent.
Upping sticks is also an emotional decision. You may be desperate to leave the wintry British weather behind, but do you really want to have to fly to see your family, especially if you have grandchildren?
Sunbathing is boring after a time, and you can only swill so much sangria. The weather may be sunnier overseas, but the grass isn't always greener.
Harvey Jones
Be prepared for rainy days
November 16th 2010
Sometimes my job gets to me. I have just spent the last three days researching an article headlined "Five disasters that could sink the global economy", and I'm feeling a bit gloomy right now.
If you'd just spent several days indoors writing about the inflation menace, government bankruptcy, austerity Britain, the global bond bubble and impending US/China trade war, you might be feeling a bit down in the dumps as well. By the time I finished my research, I was ready to stock up on tinned food and bottled water, and scouring eBay for a cut-price bunker to bury in my back garden, where I could sit out the forthcoming end of the world.
It was time I got out of the house.
So that's what I did, and discovered the world was continuing as normal. People were spending their money down the shops, families were treating themselves to pizza, and the buses were still running.
My first thought was to cry "What do you think you're doing? Don't you people know there's a global government bond bubble? Rush home now and buy a bunker on eBay!"
Then I calmed down. All those apparently carefree people were right. Life goes on. The only people who have time to worry about this kind of stuff are financial journalists and economists, and a lot of good it does us. We have no more idea what will happen next than anybody else.
Will the global trade war happen? Probably not, the US and China have too much to lose. What about hyperinflation? Well maybe… but then again, maybe not. Will the UK ever clear its debts? Erm, that's a tricky one…
The experts may not know what happens next, but that doesn't mean you shouldn't prepare for it. In my book, the best thing you can do to protect yourself from whatever the global economy throws at us next is to set a little cash aside. IFAs say everybody should save the equivalent of three to six months salary in an instant access savings account in case of emergencies, and you can't really argue with that.
Unfortunately, too many people still fail to do this. Almost one in three of us have savings of less than £250, according to new research from HSBC, which means if we lost our job on a Monday, we couldn't make it through until the end of the week.
True, many people on low incomes don't have enough money to save, and are grateful simply to make ends meet. But plenty of people who can save, don't save. I can think of several friends who have pitiful amount of savings, despite earning reasonable salaries for years. They know they should save, but never quite get round to it.
If you don't have any savings you are dangerously exposed to events, whether that's a global currency stand-off between the US and China, or something more mundane, such as falling ill or losing your job.
A few pounds in the bank won't help you survive the end of the world, but for most other eventualities, it should come in handy.
Harvey Jones
Shame only adds to the pain of debt
November 12th 2010
The British are famous for being a reserved lot, but that has changed in recent years. Many of us are now happy to share our most personal secrets with the world, particularly if a reality TV camera is pointing our way.
British reserve is also slipping when it comes to money, according to a new report from price comparison site uSwitch.com. Nearly four out of 10 Brits are happy to tell their family and friends how much they earn, while almost a quarter will discuss their bonuses and even their debts.
Talking about money was once taboo on these shores, but not any longer. This is especially true when it comes to house prices, with half of us willing to reveal the current value of our home to family and friends, and one in three the size of our mortgage.
This marks a big change over a single generation. My father never revealed his salary to anybody, least of all his children. Although thinking about it, neither do I.
Years ago, I let on to a friend how much I was earning. It was a pretty modest amount, but it was a notch up from what he was earning at the time, and I felt him bristle with resentment. I've never made that mistake again.
I don't want to know what my friends earn either. People are still competitive about salaries, it's a touchy subject, and a wide gap between close friends can spark resentment.
We compare themselves against our peers, and feel more resentful if somebody in the same family, street or line of work earns more than we do. I can't bring myself to feel jealous about Wayne Rooney's £200,000 a week salary, for example, because it seems unreal to me. It is one of those freaks that only football can throw up.
I don't even feel jealous about a relative who earns a six-figure salary working for a major international accountancy firm (well, only slightly jealous). I couldn't face his long hours, constant travelling and stressful schedule, so I can hardly expect his level of rewards. I like to think I'm happier in my humble way.
If people are less worried about revealing what they earn, they are even more relaxed about revealing their debts. One in three say there's no shame in being in debt, and many say even bankruptcy is nothing to be ashamed of.
So does this make us "shameless Britain", as the report claims? Or more liable to get into debt? I'm not so sure. Shame is a debilitating emotion. I've had several close friends with serious debt problems, and they had enough on their plate fretting over unpaid bills or fighting off the bailiffs, without adding shame to the list.
Did they talk about it? One friend opened her heart to everybody she met, she just had to get it off her chest. The other merely dropped the odd unhappy hint. Neither was actively ashamed about being in debt, but they certainly weren't shameless.
Harvey Jones
Are you guilty of home design crimes?
November 9th 2010
The British are supposed to be a nation of property lovers, but we have committed some serious home design crimes in recent years. And now a new survey has brought them to light.
The worst furniture fad over the last 30 years is the built-in bar, beloved of TV's Del Boy. Installing a mini pub in your living room shows a criminal lack of taste, according to one in four people questioned by the Post Office.
Mock fireplaces, animal print rugs, net curtains, MDF built-in cupboards, futons, reproduction "antique" furniture and teak sideboards were also named and shamed in the survey. Do you plead guilty to any of those? I did own a futon once, and my parents still have a teak sideboard (it's quite nice, actually), so I can hardly proclaim my innocence.
I also considered installing a bar, but my girlfriend wisely put a stop to that.
The research also revealed the worst interior design fads of the last 30 years. Artex walls were number one, followed by avocado bathroom suites and woodchip walls. Other criminal activities include removing original features, laying fake laminate wood flooring, exposing brickwork on interior walls, and having anything to do with lino.
All this is subject to the vagaries of fashion, of course. I read the other day that lino is back. It's the new stripped wood flooring, or something. Well, not in my house.
If you're planning to sell your house, see if you can remedy any of these fashion felonies. With house prices falling, and buyers in short supply, you need to do everything you can to shift your home.
This brings me to the biggest homefront crime of all. When house hunting myself, I've always been amazed by how little effort people put into selling their home. I've inspected houses with dirty plates stacked up in the living room, junk piled on the stairs and suspicious smells coming from the kitchen, and it has always put me off. The vendors knew I was coming, yet couldn't be bothered having a quick tidy up.
Amazingly, the Post Office research showed that half of all homeowners wouldn't clean their home to make it more attractive or remove clutter to make it appear bigger.
I can't work out whether this is rank laziness, or refreshing honesty. Perhaps it's the latter. Rather than trying to kid would-be buyers that they are getting a show home, owners are telling it like it is.
The message is: "Here's my house, warts and all. Take it or leave it."
You could get away with this attitude during the property boom, but not now. If you're serious about selling your house, the least you can do is clean out the clutter and get the duster out. It's in your own interests.
You might also want to do something about that built-in bar.
Harvey Jones
Things can only get better for savers
November 5th 2010
The last few years have been dismal for savers, with interest rates plummeting and inflation staying stubbornly high. But now there is a slim chance that better times lie ahead.
Savers don't need me to tell them how bad things have been lately. With inflation currently at 3.1%, according to the consumer price index (and a whopping 4.7% according to the retail price index), and most accounts paying 1% or less, savers have seen the value of their money fall in real terms. And that is before you bring tax into the equation.
To maintain the buying power of their savings, a basic rate taxpayer needs to find a savings account paying 3.88% a year, while a 40% taxpayer needs 5.17%. That kind of return isn't easy to find, although it helps if you use your tax-free cash Isa allowance.
You can get this kind of return by tying your money up in a fixed-rate bond for several years, but understandably, most people are reluctant to do this. They want their capital available if they need it. Another danger of tying your money up is that if interest rates do rise, what looks like a good fixed-rate return now could soon seem pretty feeble.
Until recently, the chances of an interest rate hike seemed pretty small. Some analysts were still betting rates would stay low for another three or four years, until 2014 and beyond, but suddenly the odds have shortened.
So what has changed? One tiny little figure that means so much to the UK economy. Most analysts expected the economy to grow by a creaky 0.4% from July to September, but instead it grew a sprightly 0.8%. GDP has grown 2.8% over the last 12 months, making a double-dip recession much less likely.
This is good news for savers, because it ups the chance that the Bank of England will raise base rates in the near future. If the economy is zipping along at a faster clip, the Bank needs to hike rates to stop inflation from skidding out of control. If base rates rise, savings rates follow. And if savers are really lucky, inflation may also fall.
Some people have claimed that base rates could even rise this year, although I suspect that is a little premature. Either way, savers can finally see some light at the end of the tunnel. And about time too.
This won't be such good news for anybody with a variable rate mortgage (me included!), who will see their monthly payments increase. Still, we've had our fun. What goes around, comes around.
Things can only get better for savers. After all, they could hardly have got worse.
Harvey Jones
Another house price crash? Never in a million pounds
November 2nd 2010
One area of the housing market is still booming - but it won't mean much to most of us. The number of properties selling for more than £1 million has doubled over the past year, according to new research from Halifax.
There were nearly 3,000 million-pound property sales in Great Britain in the first six months of this year. That's more than double the number in the same period last year.
At the other end of the market, prices are looking shakier by the day. They fell by a record 3.6% in September, the biggest monthly fall since Halifax started collecting figures over a quarter of a century ago.
September also saw the lowest amount of mortgage lending for a decade at just £12 billion, due to a shortage of finance and dwindling confidence among buyers, according to the Council of Mortgage Lenders. With government spending cuts and public sector job losses yet to hit home, things are likely to get worse before they get better.
I have mixed feelings about falling house prices. In many respects, I welcome them. They are still ridiculously high, squeezing first-time buyers off the property ladder, possibly for good. That isn't healthy.
Yet the last thing the UK economy needs is a house price crash. Confidence is already shaky, and that will only make matters worse. But a double dip does look increasingly likely.
What happens to your property will partly depend on where you live. If you live in Kensington and your home is worth, say, £1 million, you've clearly got nothing to worry about. But if you live in a town where jobs are already scarce, or the public sector is the major employer, then brace yourself for further trouble.
Even if house prices do fall, this may not help first-time buyers. With lenders demanding big deposits for their best deals, of anything between 25% and 40%, they will still struggle to get a mortgage.
The average first-time buyer property costs £155,000, so a deposit of between £38,750 and £62,000 is required. You can get a mortgage with a deposit of just 5% or 10%, but you will pay for the privilege.
No wonder eight out of 10 first-time buyers can only buy with financial help from the Bank of Mum and Dad. The average first-time buyer is now 37 years old and this could rise to age 43, according to the National Housing Federation. This will eventually drain the housing market of new blood, hitting prices all along the chain.
Although it will take a long time before the ripples reach those £1 million-plus houses.
If we're lucky, things will balance out. House prices will fall slightly or stagnate for next five years, giving time for wages to rise and close the affordability gap.
That might be the best scenario of all: small house price dip, nobody hurt.
Harvey Jones
Are you looking forward to working until age 70?
October 28th 2010
I hope you like your job, because it looks like you will be doing it for a fair bit longer in future. Chancellor George Osborne has now confirmed that the state pension age will rise to age 66 by 2020, both for men and women. That is six years earlier than Labour planned.
That will be a bigger shock for women than for men. At the start of 2010, their state pension age was still 60, but it is now rising steadily, and will fall into line with men at 65 in November 2018.
By 2020, women will be expected to work six years longer than just a decade before. Any women who has retired recently should thank their lucky stars (unless they really, really liked their job).
In France, they riot over things like this. In the UK, we knuckle down and get on with it. Some put it down to the spirit of the Blitz, claiming we Brits like a bit of austerity because it makes us feel nostalgic for the war. Sounds a bit fanciful to me.
I don't have a problem with the idea of working an extra year. That's the price you pay for living longer, as most of us will. But then, I do my job sitting down. If I spent my day collecting the bins or digging ditches, I would feel very differently.
Once again, the poor will be hit harder, because they typically have shorter life expectancies. The wealthy can still expect a long retirement, even after the state pension age is raised to 68, which is what is going to happen next.
Labour had planned to raise the state pension age to 67 by 2036 and 68 by 2046. The coalition is likely to accelerate this change, although we haven't had the details yet.
I'm likely to get caught out by any further increases. My original projected retirement age was 2031. Now it is 2032. It seems there is a good chance it will get pushed back to 2033. Where will it end?
We know why the government is making us work longer: to save money. Raising the state pension age will save around £30 billion between 2015 and 2025, according to the Department for Work and Pensions. George Osborne claims the savings will go into providing a more generous basic state pension. We'll see about that.
My biggest worry is that even these changes won't be enough. Life expectancy is rising at double the rate of state pension age increases, so we may have to retire even later in future. Even with my sedentary job, I don't fancy working until 70.
My parents both retired at 60, and spent the next decade travelling around the world. That's baby boomers for you. They are both pretty healthy, but by age 70 they were running out of steam (and both had plastic hips).
As we live longer, most of us should still spend years in retirement. The trouble is, we may be too exhausted to enjoy it.
Harvey Jones
The spookiest week of the year
October 26th 2010
I don't want to scare you, but the end of this month looks a bit spooky, with three chilling events all striking in the same week.
The horror begins on Sunday 31 October: Halloween. The same day, the clocks go back and the nights draw in. And the following Friday, it's bonfire night.
Doesn't sound so scary? Your insurance company disagrees.
Even if you don't believe in goblins and ghoulies, Halloween can be a bit of a horrorshow. As the streets fill with young pranksters, your car is at serious risk. Insurance claims for damage to cars rises 50% on Halloween compared to a normal day, according to insurer Aviva. Even more frightening, there's a massive 150% rise in malicious damage claims to the home.
It's all down to that frightful US import, trick or treat. It's meant to be a bit of macabre fun for kids, dressing up as witches and vampires and spooking the neighbours into handing over sweets, but some youths take it too far.
Eggs, flour, pumpkins, milk bottles and stones are just some of the objects thrown at people's homes, while other perils include wheelie bin fires, damaged fences, and vandalised vehicles.
It happened to me once. My girlfriend, freshly arrived from innocent Norway, gave healthy oranges to some trick or treating teenage boys. Next day, I had to scrape the sticky segments off our front windows. I was just glad they didn't throw the whole fruit.
When the clocks go back, thieves get more forward. Burglaries increase by 5% once British summertime ends, while the extra hours of darkness cause a sudden 15% increase in car accidents.
If that wasn't enough, remember remember 5 November. This is the single worst day of the year both for burglaries, up 28% on a normal day, and car theft, up 25%. Thieves know that partying homeowners will leave their homes empty or cars unattended, and exploding fireworks mask the sound of smashing windows.
You won't be surprised to discover that claims for fire are 45% higher than on an average day.
As I said, I don't want to scare you. The chances of falling victim to these dark night nasties is pretty low, but it is worth being prepared. Parking your car in the garage could spare it from a nasty trick, and you should tuck away any garden ornaments, potted plants or bicycles. Don't feel obliged to answer your door to trick or treaters, but if you do, have some sweets handy.
If you're having a firework party in your garden, make sure your front doors and windows are shut and locked, or if you're heading out for the night, leave the radio and the odd light on.
That way, you should survive the week without anything too haunting happening.
Harvey Jones
The West is down but not out
October 19th 2010
Maybe you haven't noticed it, but we are slap bang in the middle of an historic shift in global economic power. You didn't realise? That's the funny thing about world-changing events, you never notice them until they're over.
This power shift is from West to East, from the US and Europe to emerging market giants Brazil, Russia, India and China (collectively known as the BRIC countries). The BRICs are getting rapidly richer, while we are racking up the debts. Where will it end?
The figures are amazing, especially when you look at China. Its population is 1.35 billion, more than 20 times that of the UK, with a workforce of an astonishing 812 million people.
It is the world's second-largest economy and the biggest exporter on the planet. It is also the world's largest creditor nation, the US alone owes it a mind-boggling $847 billion.
By 2025, China will have overtaken the US to be the global economic superpower, according to some estimates. And by 2034, India will have knocked the US into third place. It will prove quite a comedown.
A decade ago, US citizens were the wealthiest in the world. Now they rank number six, and falling. By some measurements, US unemployment is as high as 17%. In relation to its size, the country owes almost as much as the UK. That's how bad things are.
So what does this mean?
First, we had better get used to the idea that the West is no longer the best, the BRICs are younger and hungrier than us, and catching up fast. But you also have to put their recent success into perspective.
Despite China's recent success, average income is just $6,778 a year, 97th in the world. India ranks even lower in 127th place, with income per head of $3,015 a year. That compares to $45,934 in the US and $34,388 in the UK.
As the BRICs grow richer, they are likely to encounter many of the problems we have. China's population is ageing rapidly, due to its one-child policy, just as it is in the West, and Japan. Russia's population is actually shrinking, due to high alcohol and tobacco abuse, and low birth rates.
The BRIC countries can't continue to grow at the same hectic pace year after year. Plenty of things could go wrong. Their economies could overheat. Political corruption, growing inequality of wealth, rampant inflation, poor infrastructure and plain bad luck could derail their revival.
And who knows, maybe once the West has got the credit boom out of its system, it could stage a comeback. That may seem far-fetched, but things change fast. A decade ago, nobody had even heard of the BRICs.
Harvey Jones
Tough mortgage rules starve out borrowers
October 13th 2010
With base rates stuck at a record low of 0.5% for 18 months, now should be a bonanza time for mortgage holders. Sadly, it hasn't worked out that way in practice.
Some people have done well out of it, such as my friend Joanne, who took out a two-year tracker at 0.25% below base just before the Bank of England started slashing rates, and found herself paying an interest rate of just 0.24%.
A handful of lenders have rock bottom standard variable rates, notably C&G, Lloyds and Nationwide, which charge just 2.5%. And if you're lucky enough to have 40% spare equity in your property, you can still find discounted variable rate mortgages starting at a little over 2%.
But for every mortgage winner, there have been plenty of losers. I feel sorry for those who took out, say, a five-year fixed rate charging 6% or 7% just before interest rates plummeted.
My heart also goes out to borrowers stuck on standard variable rates of up to 6%, because they don't have enough spare equity to remortgage to a better rate with a different lender.
Low base rates have produced one clear winner, however: the banks. Before the crunch, they typically enjoyed margins of 1% or 2% over base on their mortgages, now they're earning 4% or 5%. This is helping them repair their tattered balance sheets, and fund their generous bonuses, with homeowners and savers footing the bill.
Two years on from the credit crunch, finding a mortgage should be getting easier, but if anything, the reverse is happening.
As the economic squeeze continues, banks are worried that many borrowers will be unable to service their mortgages. So they're tightening criteria for mortgage applicants, and making their credit scoring tougher. This means more people will be turned down for a mortgage or remortgage, or have to stump up a larger deposit.
In yet another attempt to shut the stable door after the horse has bolted and stampeded over the economy, the Financial Services Authority (FSA) is demanding banks get even stricter with borrowers, especially those with interest-only mortgages.
This means that up to half of all applicants who took out a mortgage in the four years before 2009 would be rejected today, according to the Council of Mortgage Lenders. That's 4 million people squeezed out of the property market.
You can imagine what that will do for house prices, which are already under pressure. It will also trap many existing homeowners in their over-priced deals, because tight lending criteria will prevent them from remortgaging to a better rate elsewhere.
It also spells more bad news for first-time buyers, who simply can't muster the massive deposits that lenders now demand, unless they have help from their parents.
Some people call this a mortgage famine, but it is more than that. There is also a lack of appetite among borrowers. Put them together, and it spells lean times for the property market.
Which may be a good thing, if it brings prices down to more sensible levels. But why does the property market always have to be either feast or famine?
?Harvey Jones
Welfare reform isn’t child’s play
October 8th 2010
Never let anybody tell you that sorting out our muddled benefits system is an easy job. My father, who worked for the old Department of Health and Social Security (DHSS), spent half his working life helping governments reform the system, and politicians and civil servants are still at it today, desperately trying to produce a workable system.
Now it's the new coalition Government's turn. Chancellor George Osborne has started by announcing that from 2013, child benefit will be scrapped for any family where one parent earns more than £44,000. The idea is that top-rate taxpayers don't need state benefits, which should be targeted at the needy. It should save the country around £1bn a year.
As ever, the devil is in the details. If you have, say, three children and earn £43,500, and get a £1,000 pay rise that takes you over the child benefit threshold, you will lose £2,450 in child benefit.
Ouch. I wonder whether people will find a way of fiddling their salary and benefits packages, so they remain just below this threshold. Tax specialists are already spotting loopholes, such as sacrificing salary and taking pension benefits instead.
There are also anomalies. Say you earn £45,000 but your spouse or partner doesn't bring in any income. You won't get any child benefit, but the couple next door who are both earning £43,000 each, or £86,000 in total, can still claim their full entitlement.
Ouch again.
The most extreme case I've heard is of a couple who married after their previous partners both died. Each of them contributed four children to the new family unit. The woman stays home to look after the kids, the man earns £49,000. Scrapping child benefit will cost this blameless couple thousands every year.
Unsurprisingly, the government has already hinted that the new system will be revised. You could call this incompetence, but you try devising a system that doesn't create a new and arbitrary set of winners and losers.
Former Prime Minister Gordon Brown's flagship tax credits system couldn't do it. This used means testing to target benefits at the very poorest, but proved horribly expensive and complicated, and open to fraud. Worse, it only succeeded in creating a new poverty trap, by discouraging people from working.
I have a friend who works as a chef in a large power plant. He was married with two children, and should have been delighted when he was promoted to head chef. But for every £1 in new salary, he lost 70p worth of tax credits. He ended up just £20 a week better off, before tax, and worked a lot, lot harder.
Others preferred to shun work than sacrifice their tax credits. Now the coalition government is trying to ensure no family earns more by claiming benefits than going out to work. It plans to introduce a payments cap and slim down 51 existing benefits into a new, single universal benefit. We haven't seen all the details, but expect more devilry.
Mr Osborne claims this will be the biggest welfare shake-up since the 1940s, but I'm sure he isn't the first government minister to claim that, and he won't be the last.
In fact, we can probably schedule in the next major welfare overhaul for round about 2015. And then 2020, 2025… my father is better off out of it.
Harvey Jones
Can we still afford the Premiership?
October 5th 2010
Football has always been a game of two halves, but now the principal is spreading to season tickets. A growing number of cash-strapped fans are finding they can no longer afford to buy a season ticket for themselves, and are going halves with friends instead.
One in 12 football season ticket holders now shares their ticket to save money, according to new research from Virgin Money. That includes one in eight Manchester United fans, the highest number in the Premier League, and a large number of Arsenal, Liverpool and Tottenham fans.
Although some clubs have frozen their season-ticket prices, fans are finding that given the economic downturn, they simply can't afford to buy a ticket for the entire season.
A couple of years ago, the idea that Manchester United couldn't sell its season ticket allocation would have been greeted with boos and derision, but so far it is 4,000 short of its 54,000 target. Part of this may be a backlash against the way the club has been run behind the scenes, but with season tickets costing between £513 and £931, money has played a big part.
With the most expensive season tickets costing more than £1,370 (Arsenal), there is plenty of money to be saved by going halves, or giving up altogether and watching it on the box. Once you throw in the cost of petrol, pies and a pint, going to a football match becomes an expensive day out, especially if you take the kids. It's a lot to pay to see a dreary goalless draw in the rain.
If clubs can afford to pay their top stars anything between £50,000 and £100,000 a week, they can hardly complain if fans earning half that sum in a year refuse to subsidise such ridiculous wages. Football fans' loyalty knows no bounds, but has it finally reached its limit?
Wall-to-wall satellite coverage, the gulf between the top teams and the rest of the Premiership, the obscene salaries and behaviour, and England's woeful World Cup showing may have finally sated fans' appetites. It is revealing that newly-promoted Blackpool has the smallest number of fans sharing their season tickets. This is the club's first-ever season in the Premiership, so everything is a novelty. It must help that Blackpool's season tickets are among the cheapest in the division, ranging from £382 and £440.
As the nation faces a period of austerity, could this extend to the Premiership as well? Less hype, cheaper tickets, fewer foreign owners, more home-grown players and maybe a halfway decent World Cup showing?
Like you, I doubt it. Only one thing in football matters: results. Among the top clubs, guess which fans are least likely to season-ticket share? That's right, champions Chelsea. Everybody loves a winner, even in a recession.
Harvey Jones
1970s nostalgia doesn’t extend to inflation
October 1st 2010
High inflation sounds like a throwback to the 1970s, but it remains a very real threat today. Despite the downturn, inflation has stayed stubbornly high, and that is dreadful news for two groups in particular - pensioners and savers.
Many pensioners live on fixed incomes, and inflation whittles away at their spending power. Even worse, they actually pay a higher rate of inflation and the rest of us.
Inflation is currently 3.1%, as measured by the Consumer Price Index (CPI), but pensioners currently pay nearly 4%, according to research from Alliance Trust. That's because they spend a greater proportion of their disposable income on food and utility bills, which have risen in price faster than say, iPods and Xboxes.
If that sounds unfair, it is.
There are two measures of inflation, and the other one, the retail price index (RPI), is even higher at 4.7%. This inflation measure includes housing costs, and for many people, is the most accurate reflection of the cost of living.
Compare these rates to the lousy return on your savings. The average instant access savings account pays a hopeless 0.77%, according to Moneyfacts.co.uk. To stop your savings pot eroding away, a basic rate taxpayer needs to find an account paying 3.88%, while a higher-rate taxpayer needs a mighty 5.17%.
Only 91 out of 1,020 savings accounts allow a basic rate taxpayer to keep pace with inflation, and a further 51 cash Isa accounts. Because the interest you earn from a cash Isa is paid free of tax, you only have to earn 3.1% to keep pace with CPI.
So it really does pay to use your Isa allowance. Every UK adult can invest up to £5,100 a year in a cash Isa, and a further £5,100 in a stocks and shares Isa. Alternatively, you can invest your full £10,200 annual limit in stocks and shares.
The Bank of England still expects inflation to fall, but in the short-term it will rise even higher after VAT goes up from 17.5% to 20% in January (especially if stores sneakily raise prices even further).
Some economists are also worried about the impact of rising food prices, particularly following crop failures in Russia. They claim food inflation could soon hit a hefty 7%, which would be pretty hard to swallow.
Bank of England governor Mervyn King is charged with keeping inflation below 2%, and has written letter after letter to the Chancellor explaining why he keeps missing that target. This is a bit of a charade. The usual method of reining in inflation is to hike base rates, but both the Bank and government desperately want to avoid that, because it could imperil the recovery.
They think a little bit of inflation is a small price to pay for keeping the UK financially afloat, and maybe they're right. If you have a mortgage, you'll probably agree.
But if you're a pensioner or a saver, the double whammy of high inflation and low savings rates is causing a lot of hardship. Inflation hasn't hit 1970s levels yet, but for many people, it may feel like it.
Harvey Jones
Interest rates won't stay low forever...
September 24th 2010
... but many homeowners are acting as if they will
The Bank of England has now held interest rates at a record low of 0.5% for an astonishing 18 months, which is great news for mortgage holders and yet more bad news for savers.
Nobody can agree when rates will start rising again. Many analysts claim base rates could stay below 2% for the next four or five years, infuriating savers and delighting borrowers in equal measure. Others have suggested they could fly as high as 8% by 2012, which would probably send home repossession rates through the roof, and house prices through the floor.
Whichever way they move, it's bad news for somebody.
Older people living off their savings would rightly welcome a sudden interest rate surge, and with annuity rates recently hitting all-time lows, you can hardly begrudge them some good news. But it would be a real blow for many hard-up homeowners.
One in four Britons fear Bank of England base rate rises, according to new research from Moneysupermarket.com. And rightly so, when you look at what it would do to their finances.
Servicing the average £150,000 home loan could cost an extra £563 a month if base rates return to pre-crunch levels. That would blow many homeowners' budgets out of the water.
Just look at the figures. Somebody borrowing £150,000 mortgage on a variable rate mortgage charging 2.5% currently pays £312.50 a month. If base rate returned to 5%, the level it was in October 2008, their mortgage interest rate would probably rise to 7%, and their total monthly repayment to £875. That's an extra £562.50 a month, or £6,750 a year.
Could you afford such a leap in monthly mortgage costs? Personally, I wouldn't fancy it.
By putting hundreds of pounds into many homeowners' pockets every month, low base rates have helped save the economy, which is why politicians and central bankers are so desperate to keep interest rates down for as long as they can.
My worry is that homeowners have got used to low base rates, and are acting as if they will stay low forever. This is a dangerous assumption to make, because when rates do start rising, they could rise much faster than you expect.
So if you've got a variable rate mortgage, think twice before blowing your windfall. Instead, do your best to save at least some of the extra money for the day when rates finally do rise (unless, of course, your budget is totally stretched). Or you might prefer to use the money to pay down your mortgage, to make your debt much more manageable. If you're considering this option, check for early repayment charges first.
I haven't got a crystal ball, so I've no idea when interest rates will start rising. But you should prepare for the day when rates finally return to more normal levels, because at some point, that is going to happen.
Harvey Jones
Taking time out from the recession
September 22nd 2010
Time was when people would move seamlessly from education to the workplace and retirement. "Birth, School, Work, Death," in the cynical lyrics of one pop song from my youth. In the 1950s, that smooth path might have been interrupted by National Service, and during the 1980s, by bouts of unemployment, but on the whole, that's what people did.
Then came the rise of the gap year for students, and sabbaticals for those already in work. Suddenly, people had the chance to take time out from the routine of birth, school, work etc., without fretting about losing their place on the career ladder.
And they pounced on the chance, especially the young, who thought it was a brilliant opportunity to find themselves by trekking up the Andes or sunning themselves on a Thai beach for a year.
The number of Britons taking a gap year, sabbatical or other lifestyle break has risen 14-fold since the 1970s, according to new research from Santander. Some 4 million people have taken a break in the past decade.
The recession appeared to have changed all that. It made the gap year look like an indulgence, and an expensive one at that, while workers were too worried to take a sabbatical, in case they had no job to come home to afterwards.
Students who once saw the gap year as an exciting rite of passage began to worry it would be held against them by university admissions tutors, who increasingly do mind the gap, and prioritise students who want to crack on with their studies instead. With as many as 200,000 prospective university students expected to miss out on a place this autumn, taking a gap year looks a bit risky.
Those who still plan to take a break increasingly treat it as another notch on their CV, and spend their trip conserving wildlife or digging latrines in some developing land, hoping that getting their hands dirty will help them clean up in the jobs market.
Yet the lifestyle break has survived, according to Santander. Some 4 million Britons, at 8% of us, are defying the downturn by planning to take time out. But there is a key difference.
Previously, taking a break was a luxury, now it is often a necessity. Many of us are jetting off after failing to secure a university place, or struggling to find work in today's fiercely competitive job market. When the going gets tough, the tough go travelling.
Breaks are also getting shorter. Forget taking a year off, many people now escape for three months or less. They have to face reality sometime, and they don't want to make life even harder by returning home with big travel debts.
The annoying fact is that you can't escape the current downturn, no matter how far you fly from the UK. Wherever you go, there it is. But I'm glad to see the recession hasn't completely dampened our sense of adventure.
Harvey Jones
Burglars are targeting your briefs
September 17th 2010
I've read some daft press releases in my time, but this latest one is completely pants. It's from insurer More Than, and it's warning about the latest threat facing households -underwear theft.
Yes, you read that right. Professional thieves are casting a criminal eye over our undies, and stealing whatever takes their fancy.
This wicked new crime even has a name: 'knicker-nicking'. You might also call it 'smalls-snatching' or 'pants-pilfering', but whatever term you prefer, it's coming to a washing line near you.
In more honourable times, burglars would turn their noses up at stealing second-hand smalls, but not now. And it's our own fault, as we spend more money on our underwear in a bid to be less Bridget Jones and more Eva Herzigova.
'Experts' are blaming the new trend on the popularity of premium luxury ranges, fronted by celebrities such as Elle Macpherson, Kylie Minogue, Kelly Brook and David Beckham. Incredibly, some people now think nothing of paying up to £85 for a single pair of pants (and I thought there was a recession on).
To the trained criminal, hanging a pair of posh pants up to dry is like leaving freshly-washed banknotes on the line, so down they come. But it's worse than that. More than one in three housebreakers target their victim's bedroom drawers first in the hunt for valuables. Forget the safe behind your picture frame, the burglars are after your briefs!
Talk about a booty call.
I didn't know there was a market in knock-off knickers, but I'm no expert on Britain's changing criminal underworld. Who actually buys them? Does this tempt you: 'A set of silky Agent Provocateurs - one careful owner'?
Not me.
However strange this crime trend may seem, we need to protect our intimates. More Than wisely warns against leaving expensive pants out of sight on the washing line for long periods.
You should also avoid leaving any packaging for expensive goods in the rubbish, where it can be easily seen. Plus there are the usual anti-burglary tips, such as cancelling any milk deliveries and arranging for your post to be picked up when you're away, and not leaving curtains or windows open overnight.
You should also resist the temptation to use social media such as Facebook to alert your friends (and criminals) if you're off on a fortnight's holiday.
Finally, the insurer suggests installing anti-theft devices such as burglar alarms, which is fair enough, and also... CCTV. Installing CCTV to protect your underwear drawer? Now that really is pants.
Harvey Jones
The housing experts who cried wolf
September 13th 2010
We all know the story of the boy who cried wolf, but it has just occurred to me that it now applies to the housing market. Ever since the credit crunch, commentators have been predicting a property crash of up to 30% to 40%, much as the boy in the story kept shouting that an imaginary wolf was about to devour his sheep.
When the wolf finally did attack his flock, nobody came to his rescue. Now the experts are shouting louder than ever that property is set to be savaged, but are people still listening?
Despite an early dip, the great British house price crash has stubbornly refused to happen. Record low interest rates, government stimulus, quantitative easing and political pressure on the banks to ease up on repossessions have kept the market afloat. Prices even rose in 2009, despite the economic chaos.
But just as you thought our property flock was safe, the big bad wolf is back. Mortgage lending plummeted from £518 million in June to just £86 million in July as lenders impose ever tighter credit conditions, according to Bank of England figures. That's a heck of a drop. House prices fell by 0.9% in August, according to Nationwide.
First-time buyers are giving up as lenders demand deposits of 25% or 40%, according to property website Rightmove.co.uk. An incredible eight out of 10 buyers under 30 now rely on funding from the bank of Mum and Dad. Without fresh blood entering the housing market, it is likely to remain anaemic.
Analysts are lining up to warn us that prices are set to fall by anything between 5% and 25%. But can we believe the forecasters anymore? Given their rotten predictions over the past two years, the answer has to be no.
My first-time buyer friends Rachael and Chris have certainly stopped listening. After years of waiting for prices to fall to more reasonable levels, they finally lost patience and have just exchanged contracts on a two-bedroom flat in south-east London. They are a married couple in their mid-30s, no kids and both working, and still had to seek parental help with their deposit. For their sake, I hope prices hold up.
There are plenty of reasons why house prices should fall, of course, including government cutbacks and tax hikes, growing unemployment, mortgage rationing, stricter lending, the rising number of sellers, fears of a double dip recession, and the fact that interest rates can't stay this slow forever. When you put that lot together, a crash seems inevitable.
But there are also plenty of factors propping up prices. Britain is a crowded island, the natives are obsessed with owning property, we aren't building enough new houses, and base rates are at their lowest for 317 years. Homeowners are reluctant to drop their asking prices, while repossessions have been minimal, stemming the flow of distressed sales.
Given the huge amount of variables, anybody who claims they know exactly what's going to happen next is only trying to pull the wool over our eyes. So next time you hear someone cry "House prices are crashing!" remember the boy who cried wolf.
Harvey Jones
How many bank accounts do you need?
August 18th 2010
Is life too complicated these days? Actually, that's a daft question, coming from someone who has two bank accounts, two debit cards, three credit cards, three online share dealing accounts and four savings accounts, including my cash ISA. Yes, life is definitely too complicated these days, especially when it comes to managing your finances.
True, I'm a financial journalist, so I pay more attention than most people to these things, but I sometimes feel crushed under the weight of my various financial products. Especially when you throw in my mortgage, my household, motor, travel, life and critical illness insurance, and three or four pension schemes (I've lost count). I don't know how the rest of you cope.
I've tried to make life easier by managing most of my financial products online, but this has further burdened me with a confusing jumble of passwords and user names. Plus I have the worry about all this information falling into the wrong hands.
It's beginning to get out of hand.
I regularly write articles telling people to shop around for the best rates on their savings, mortgage, insurance (not to mention their digital TV, landline, broadband and utility supplier as well), but now I have to admit you can take things too far. You could spend your life hunting through online search engines for the latest top deal in a bid to save a few more pounds, maybe it's better to stick to one or two providers you trust instead.
So I've decided to have a cull. Last month, I let a credit card expire. It's not much, but it's a start. I reckon I can also shed at least one savings account, and, um, that's about it. Perhaps I'm addicted to collecting financial services products.
As anybody who has tried to tidy their house quickly discovers, you often end up creating even more mess. It's the same with money. I know that I could simplify my pensions by bundling them into something called a self-invested personal pension (Sipp), but that also demands time, attention, and the opening of more online accounts.
Technology was supposed to make all of this easier, but I'm not convinced it has. I spend far more time pampering my computers, software packages, internet servers and personal data than they spend helping me. Technology is supposed to let you take charge of your life, but it usually ends up controlling you.
This is a particularly sore point right now. My laptop crashed last month, and I've spent the past month trying to salvage the data (so far without success), choose a new machine, download and upgrade my old software, and decipher my new operating system. I don't want to be a computer geek, but it seems like I have no choice.
So don't feel too guilty if you can't be bothered switching your credit card, insurance, mortgage, and savings every single year. Even I have to admit that there really is more to life than saving money.
Harvey Jones