Saving. Lessons why you should or should not.

[Urbandreamer]

What a low interest rate policy does is penalise many who rely on interest on their savings, or who want to buy annuities with their retirement fund. It also penalises employers, who have to boost occupational pension funds because of stupidly low interest rates. We should be matching the Fed for interest rates, not navel contemplating and taking minimal action.

And make new indexed linked savings certificates available to all.
Then perhaps savings would be savings - rather than substantial losings as at present. I can't remember when there was such a difference between inflation and interest rates.

Steady on! You are straying into the territory of Austrian Economics and bitcoin*. Next thing you will be arguing that the rate of "inflation" should be zero. That the £ in your pocket today should still be a £ (in value) ten years from now.

TBF, a true Austrian regards inflation as an increase in the money supply and not in the price of goods. However government borrowing and QE do seem to act as increases in money supply.

*A discussion of different crypto currencies belongs on a different board, but some are supposedly inflationary and others deflationary, in terms of supply. Fiat has a fine history of inflation (increase of supply) and debasement. Hence questions of "saving" by keeping it.

[NotSure]

What a low interest rate policy does is penalise many who rely on interest on their savings, or who want to buy annuities with their retirement fund. It also penalises employers, who have to boost occupational pension funds because of stupidly low interest rates. We should be matching the Fed for interest rates, not navel contemplating and taking minimal action.

And make new indexed linked savings certificates available to all.
Then perhaps savings would be savings - rather than substantial losings as at present. I can't remember when there was such a difference between inflation and interest rates.

And who do you suggest should underwrite these certificates?

[dealtn]

What a low interest rate policy does is penalise many who rely on interest on their savings, or who want to buy annuities with their retirement fund. It also penalises employers, who have to boost occupational pension funds because of stupidly low interest rates. We should be matching the Fed for interest rates, not navel contemplating and taking minimal action.

And make new indexed linked savings certificates available to all.
Then perhaps savings would be savings - rather than substantial losings as at present. I can't remember when there was such a difference between inflation and interest rates.

Issued by who? The government already issues Index LInked Gilts.

Nothing to stop a bank offering similar in theory but do you think anyone would take up saving when the market rate is a negative real yield. How would such a rate prevent "losings"? How would a negative interest rate work in practice on a bank account do you think?

[DrFfybes]

I can't remember when there was such a difference between inflation and interest rates.

September 1992.
Inflation at 3.74%. Interest rates at 15%

Paul

[NotSure]

I can't remember when there was such a difference between inflation and interest rates.

September 1992.
Inflation at 3.74%. Interest rates at 15%

Paul

Welcome to the 21st century!

Anyone offering guaranteed positive real risk-free rates at the mo would suck every penny out of everything else. And how would they do it? Ponzi?

[pje16]

After buying my first car on HP, I started saving for the next one. It meant that I could pay cash and avoid the costs of HP. Only £10/month in 1960, but about 15% of take-home pay.

Nowadays it helps pay for holidays, but I do save a bit more.

TJH

Definitely the best (as it's cheapest) way is to buy a car outright, if you can afford to do so

[Itsallaguess]

Fiat has a fine history of inflation (increase of supply) and debasement.

Whilst that might be true, of course, I've always felt that taking that argument as a reason not to save is like someone refusing to cook with boiling water because some of it evaporates during the cooking process...

Inflation should of course be a consideration in all things related to personal finance, but I'd hate to think of youngsters being put off saving by perhaps being influenced unduly by inflation-based arguments.

As a lifelong saver who has known many benefits from doing so, I think such arguments against saving often feel much more ideological than practical...

Cheers,

Itsallaguess

[NotSure]

After buying my first car on HP, I started saving for the next one. It meant that I could pay cash and avoid the costs of HP. Only £10/month in 1960, but about 15% of take-home pay.

Nowadays it helps pay for holidays, but I do save a bit more.

TJH

Definitely the best (as it's cheapest ) way is to buy a car outright, if you can afford to do so

Philosophically I am in total agreement. However, it totally depends on the inflation in car prices, how much your savings are earning, what the lease/borrowing rates are and how rapidly your income is rising (or not).

[NotSure]

Fiat has a fine history of inflation (increase of supply) and debasement.

Whilst that might be true, of course, I've always felt that taking that argument as a reason not to save is like someone refusing to cook with boiling water because some of it evaporates during the cooking process...

Inflation should of course be a consideration in all things related to personal finance, but I'd hate to think of youngsters being put off saving by perhaps being influenced unduly by inflation-based arguments.

As a lifelong saver who has known many benefits from doing so, I think such arguments against saving often feel much more ideological than practical...

Cheers,

Itsallaguess

FWVLIW I totally agree. But your post is, to me, more indicative of the horrible perils of inflation than the undoubted benefits of saving. We (especially the young) live in very difficult times.

[pje16]

After buying my first car on HP, I started saving for the next one. It meant that I could pay cash and avoid the costs of HP. Only £10/month in 1960, but about 15% of take-home pay.

Nowadays it helps pay for holidays, but I do save a bit more.

TJH

Definitely the best (as it's cheapest ) way is to buy a car outright, if you can afford to do so

Philosophically I am in total agreement. However, it totally depends on the inflation in car prices, how much your savings are earning, what the lease/borrowing rates are and how rapidly your income is rising (or not).

Your savings will NEVER earn as much as you pay to borrow, there is no doubt about that.

[Urbandreamer]

Your savings will NEVER earn as much as you pay to borrow, there is no doubt about that.

Depending upon what is meant by "savings"!

Given that this is an investment board I do feel that I should point out that historically Investment Trusts have had better returns than Unit trusts. One significant difference that might account for this is that Investment trusts can borrow. Note that index trackers may be changing things, but only time will tell (they are not that old).

Indeed, while I have serious questions about the entire student loan system, can we agree that it is possible that using some of your income or borrowing to "invest" in yourself (training) could improve your income?


I should point out that AGAIN I'm talking investment rather than saving, though the OP (as I understand them) has been clear that the thread is about "saving" as denied consumption AND investment. That is, as they say, equities, property etc is "saving". Are we to add training to the list of "saving"? It is after all both denied consumption and investment.

From the one point of view, I have been a "saver" for all my adult life. From my point of view I have seldom to never "saved". I have money in my current account and brokers accounts waiting for me to spend or invest, but I don't regard it as "savings", nor what I spend upon or invest in.

Can we return to shoes? They were not a random example or even some ideology on my part. One of the authors of the seminal book "Your Money or Your Life" apparently bought a load of them, as a means to evade inflation. Is buying shoes that you expect to need, "saving"?

So back to pje16's statement. IS buying shoes in advance saving, will it be better than putting the money aside, or should you borrow to buy shares in a shoe factory? I'm not convinced that there is a clear answer that will stand the test of time to that question.

[pje16]

Your savings will NEVER earn as much as you pay to borrow, there is no doubt about that.

Depending upon what is meant by "savings"!

Given that this is an investment board I do feel that I should point out that historically Investment Trusts have had better returns than Unit trusts. One significant difference that might account for this is that Investment trusts can borrow. Note that index trackers may be changing things, but only time will tell (they are not that old).

Indeed, while I have serious questions about the entire student loan system, can we agree that it is possible that using some of your income or borrowing to "invest" in yourself (training) could improve your income?


I should point out that AGAIN I'm talking investment rather than saving, though the OP (as I understand them) has been clear that the thread is about "saving" as denied consumption AND investment. That is, as they say, equities, property etc is "saving". Are we to add training to the list of "saving"? It is after all both denied consumption and investment.

From the one point of view, I have been a "saver" for all my adult life. From my point of view I have seldom to never "saved". I have money in my current account and brokers accounts waiting for me to spend or invest, but I don't regard it as "savings", nor what I spend upon or invest in.

Can we return to shoes? They were not a random example or even some ideology on my part. One of the authors of the seminal book "Your Money or Your Life" apparently bought a load of them, as a means to evade inflation. Is buying shoes that you expect to need, "saving"?

So back to pje16's statement. IS buying shoes in advance saving, will it be better than putting the money aside, or should you borrow to buy shares in a shoe factory? I'm not convinced that there is a clear answer that will stand the test of time to that question.

Shoes ?????
hardly a major purchase
This is waste of my time

[scotia]

I can't remember when there was such a difference between inflation and interest rates.

September 1992.
Inflation at 3.74%. Interest rates at 15%

Paul

good point - I should have said that I cannot remember when inflation was so much larger than interest rates.

[scotia]

What a low interest rate policy does is penalise many who rely on interest on their savings, or who want to buy annuities with their retirement fund. It also penalises employers, who have to boost occupational pension funds because of stupidly low interest rates. We should be matching the Fed for interest rates, not navel contemplating and taking minimal action.

And make new indexed linked savings certificates available to all.
Then perhaps savings would be savings - rather than substantial losings as at present. I can't remember when there was such a difference between inflation and interest rates.

And who do you suggest should underwrite these certificates?

Exactly as before - the UK government. I believe that Inflation Linked Savings Certificates were first issued around 1975, and there have been no new issues since 2011. I am lucky enough to continue holding Index linked Savings Certificates purchased between these dates, which I am allowed to renew when they expire - usually at 5 year intervals. Albeit the indexing is now CPI, not RPI.
The question posed was "Savings. Lessons why you should or should not". If the Government wishes us to be prudent, and to save for a rainy day, the least they can do is ensure that modest savings (e.g. a maximum of £15000 per annum as previous) remain as modest savings.

[scotia]

I can't remember when there was such a difference between inflation and interest rates.

September 1992.
Inflation at 3.74%. Interest rates at 15%

Paul

Welcome to the 21st century!

Anyone offering guaranteed positive real risk-free rates at the mo would suck every penny out of everything else. And how would they do it? Ponzi?

See my response https://www.lemonfool.co.uk/viewtopic.php?f=88&t=35961&p=530660#p530660

[scotia]

Issued by who? The government already issues Index LInked Gilts.

Gilts are not relevant to savings by the general public.
But Index Linked Savings Certificates would be.
see my response
https://www.lemonfool.co.uk/viewtopic.php?f=88&t=35961&p=530660#p530660

[Wuffle]

The govt does not want you to be prudent and will not provide you with IL gilts.
They want you to work.
That is what all of this is about, population bulges moving into retirement coincidental to extentions in life expectancy. A double whammy.
You think all modern, western economic growth just drying up is a coincedence?

W.

[DrFfybes]

I can't remember when there was such a difference between inflation and interest rates.

September 1992.
Inflation at 3.74%. Interest rates at 15%

Paul

good point - I should have said that I cannot remember when inflation was so much larger than interest rates.

Oh yes, that might have been more of a struggle ISTR my post office account paying 12.5% in the late 1970s, but inflations wasn't much lower back then.

[Gerry557]

Your savings will NEVER earn as much as you pay to borrow, there is no doubt about that.

Depending upon what is meant by "savings"!

Given that this is an investment board I do feel that I should point out that historically Investment Trusts have had better returns than Unit trusts. One significant difference that might account for this is that Investment trusts can borrow. Note that index trackers may be changing things, but only time will tell (they are not that old).

Indeed, while I have serious questions about the entire student loan system, can we agree that it is possible that using some of your income or borrowing to "invest" in yourself (training) could improve your income?


I should point out that AGAIN I'm talking investment rather than saving, though the OP (as I understand them) has been clear that the thread is about "saving" as denied consumption AND investment. That is, as they say, equities, property etc is "saving". Are we to add training to the list of "saving"? It is after all both denied consumption and investment.

From the one point of view, I have been a "saver" for all my adult life. From my point of view I have seldom to never "saved". I have money in my current account and brokers accounts waiting for me to spend or invest, but I don't regard it as "savings", nor what I spend upon or invest in.

Can we return to shoes? They were not a random example or even some ideology on my part. One of the authors of the seminal book "Your Money or Your Life" apparently bought a load of them, as a means to evade inflation. Is buying shoes that you expect to need, "saving"?

So back to pje16's statement. IS buying shoes in advance saving, will it be better than putting the money aside, or should you borrow to buy shares in a shoe factory? I'm not convinced that there is a clear answer that will stand the test of time to that question.

When I mention why save, I was meaning cash (short term) and or investments. Mid/long term.

Whilst I agree that investing in oneself though training or education is most worthwhile, I was really looking more at the financial side of things. Yes a better education might give you a better paid job. I would also say invest in your health too. So you can enjoy your finances and live longer, more pension income if you live past a 100 etc.

So what advice for low paid workers who probably didn't do well in school etc. More along the lines of "I don't have any spare money to save cos I'm on minimum wage" type arguments. Counters to why those that don't, really should and are probably the people that need it most.

[Gerry557]

I'm thinking of savings as spending less than your income over a given time period. Generally a worker, say earning £100 a week but who only spends £90 and puts the rest on one side, in some form or another for a rainy day. To build up a reservoir.

Who might still be earning £100 but spends £110 later in life as they now get £20 from their savings.

Although that might be difficult as I have been told that one family that was saving stopped as their benefit (not sure which one) reduced with the income that they got from their investments. I think they changed some to accumulation units from income units to avoid the reduction. I'm not up to speed on benefits, family credits thing maybe.