Saving. Lessons why you should or should not.

[Itsallaguess]

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.

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.

I think that more granular slant towards a particular demographic might well change the type of responses you're attracting though, and I'd certainly like to now respond slightly differently to my earlier posts because if you're wanting to focus on low-paid, minimum-wage youngsters, then I would tend to then agree with earlier posters who have touched on 'invest in yourself' type answers, because if there's very little financial scope or margin to even allow any saving to occur in the first place, then for me that is the much higher priority to solve...

Opportunities to do so are not likely to come easy though, and perhaps especially nowadays, but youngsters can help themselves sometimes, by looking for work where further opportunities already exist. By that, I mean that in larger companies, there are often opportunities to cross-fertilise into other, better paying areas of a business, or there are layers of better-paying management or technical roles that can perhaps open up to those that are initially willing to put hard work into lower-paying roles, and prove to the company that they have the attitude and skills to work themselves into higher-paying positions within the same company over time.

Looking for in-work opportunities like this, and especially appreciating the broader long-term goals that might be available in some companies rather than others that might have more limiting career-paths, is perhaps not something that comes naturally to many youngsters, and I think educating them on such longer-term work-based opportunities that are perhaps likely then to naturally open up saving-opportunities on the personal-finance side of things, might be a better use of discussion-time for the particular demographic that you're now highlighting, than perhaps trying to squeeze the financial pips on their current, lower-paid situations...

This is a subject that is very close to my heart, because I didn't give myself the best opportunities coming out of school, but I was lucky to enter a business where there was a wider scope than I ever initially imagined in terms of possible career paths opening up for those that were willing to work hard and look for them. Whilst education is clearly important, I will always impress on people that the lack of formal qualifications is not the be-all and end-all, and opportunities for worthwhile progression in a working environment are likely to present themselves throughout someone's working life, and it should be a life-long goal for people to look for them and continue to give themselves the best chance to act on them...

Cheers,

Itsallaguess

[scotview]

So what advice for low paid workers who probably didn't do well in school etc.

Opportunities to do so are not likely to come easy though, and perhaps especially nowadays, but youngsters can help themselves sometimes,
Cheers,
Itsallaguess

I would argue that the bulk of the population are hewers of wood and drawers of water, that's just how it is, no disrespect to anyone.

Thirty years ago, in our industrial society, there were many such jobs, a lot being highly skilled. The problem is that these jobs have wholly disappeared and nothing has come along to fill that void.

[Urbandreamer]

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.

I wonder if the cost of shoes is such an inconsequential purchase for those with small incomes?

As has been said, how to "save" depends upon your starting point. One of the posts pointed out their early expenses buying equities, I paid more (£30 min fee) when I started. This was possible because I had more surplus after consumption than some others.

Others with less need to think in different ways. Reducing costs and finding "cheap" ways to save.

I think that it's a crying shame, verging on immoral that cash savings will be eroded relatively quickly, as they were the cheap way to save.

With limited resources, investing in yourself may be the best solution. Not just improving your ability to earn, but improving your ability to consume/spend less. Learning how to cook cheaply, rather than needing to buy cooked food would be a good example. Finding out how to replace/repair trouser pockets can double their life, or half your costs.

A podcast that I was listening to had the FT fashion editor on it giving surprising advice. Surprising as it was buy good second hand classics and keep them. The black suit mentioned earlier in the thread could be a good example. She mentioned ensuring all trousers were the same length, so that less shoes were needed. A pressure cooker costs more than a simple pan, but uses a lot less energy to cook a meal, saving on gas or electric bills. Such examples abound, if you look for them.

The phrase "a penny saved is a penny earned" applies just as well to forgone spending doesn't it?

I'd recommend considering the Sam Vimes "boot theory" about finance. Since some may not have come across it as they regard shoes as below consideration. To save people effort, I googled a link.
https://moneywise.com/managing-money/bu ... unfairness

In these situations saving to buy something with a higher initial capital cost, but lasts longer or reducing ongoing expenses is the best solution.

The point is that how you spend is more important than how you save when you start with little.

[Itsallaguess]

I would argue that the bulk of the population are hewers of wood and drawers of water, that's just how it is, no disrespect to anyone.

Whilst that might well be the case, I still strongly believe that engendering a positive attitude in terms of not allowing youngsters to think that they only get one chance when they leave school, and making sure that they fully appreciate that they've got a potential lifetime of additional opportunities ahead of them, is very important both at a personal level for those youngsters and also for the wider society that they develop under...

Cheers,

Itsallaguess

[Gerry557]

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.

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.

I think that more granular slant towards a particular demographic might well change the type of responses you're attracting though, and I'd certainly like to now respond slightly differently to my earlier posts because if you're wanting to focus on low-paid, minimum-wage youngsters, then I would tend to then agree with earlier posters who have touched on 'invest in yourself' type answers, because if there's very little financial scope or margin to even allow any saving to occur in the first place, then for me that is the much higher priority to solve...

Opportunities to do so are not likely to come easy though, and perhaps especially nowadays, but youngsters can help themselves sometimes, by looking for work where further opportunities already exist. By that, I mean that in larger companies, there are often opportunities to cross-fertilise into other, better paying areas of a business, or there are layers of better-paying management or technical roles that can perhaps open up to those that are initially willing to put hard work into lower-paying roles, and prove to the company that they have the attitude and skills to work themselves into higher-paying positions within the same company over time.

Looking for in-work opportunities like this, and especially appreciating the broader long-term goals that might be available in some companies rather than others that might have more limiting career-paths, is perhaps not something that comes naturally to many youngsters, and I think educating them on such longer-term work-based opportunities that are perhaps likely then to naturally open up saving-opportunities on the personal-finance side of things, might be a better use of discussion-time for the particular demographic that you're now highlighting, than perhaps trying to squeeze the financial pips on their current, lower-paid situations...

This is a subject that is very close to my heart, because I didn't give myself the best opportunities coming out of school, but I was lucky to enter a business where there was a wider scope than I ever initially imagined in terms of possible career paths opening up for those that were willing to work hard and look for them. Whilst education is clearly important, I will always impress on people that the lack of formal qualifications is not the be-all and end-all, and opportunities for worthwhile progression in a working environment are likely to present themselves throughout someone's working life, and it should be a life-long goal for people to look for them and continue to give themselves the best chance to act on them...

Cheers,

Itsallaguess

No I am not limiting to one particular cohort. Its just the less you earn, then its easier to justify to yourself that you can't do anything about it. Is that a victim mentality?

I have also come across people earning above average but with nothing to show for it and who would struggle if they were laid off for any reasonable amount of time. Lots of nice cars, holidays and things on buy now pay later. Great until later doesn't pay you.

I'm also looking at how individual decisions make a difference. Mainly with groups that get paid exactly the same. A corporal in the army or a policeman for instance. Even a Mcdonald worker. How do people who start off equal become what would be termed unequal.

What lessons can be made to help make the "better" decisions.

[DrFfybes]

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.

Saving income shouldn't matter is it is in an ISA or SIPP. I'm also no longer on point with tapered benefits, but when I was generally the ones who suffered were recent redundants who'd built a safety net

No I am not limiting to one particular cohort. Its just the less you earn, then its easier to justify to yourself that you can't do anything about it. Is that a victim mentality?

I have also come across people earning above average but with nothing to show for it and who would struggle if they were laid off for any reasonable amount of time. Lots of nice cars, holidays and things on buy now pay later. Great until later doesn't pay you.

I think both have a similar mentality. Both THINK they do not have enough spare cash to save, due to comparissons with peers or neighbours. I've said this elsewhere, possibly on the FIRE boards, but saings is a lifestyle, a mentality, a learnt behaviour. If you are brought up to save for later reward, then you are more likely to do it. If you are brought up to borrow to spend, then that is what you will do. Many are/were not taught either, but suddenly discovering access to money (first job, student grant/loan) also discovered their lack of self restraint.

I knew a frequent street dweller in Guildford with mental issues who obsessively hoarded. In 1994 he had about £20k in a savings account. There was a case in 2000 of a Big Issue seller in Cardif being killed by hls flatmate for his £50k or so of savings [1], a girl in Brighton on benefits, always looked really down at heel, and somewhow managed to pass her CBT and went out and bought a brand new 125cc motorbike she'd been scrimping for for years.

Whilst I never got into debt, it took me until my 30s to realise how much discretionary spending I wasn't getting any real benefit from.

Paul

[1] The story stuck in my mind, although my initial exposure to it was because it was on the same page as a story of an old colleague thwarting a robbery by throwing a grapefruit at the perpetrators head.

[dealtn]

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

So why should a government reward anyone (particularly ideologically those fortunate and wealthy enough to have savings over the truly needy) with a savings rate so high and detached from market rates? I would imagine in most other areas were a government to be as inefficient and wasteful they would face the accusation of poor spending and productivity with the finances of its citizens. Why the exception in this case? I believe it very fortunate holders are even allowed to rollover certificates at redemption.

[Alaric]

Why the exception in this case? I believe it very fortunate holders are even allowed to rollover certificates at redemption.

One argument is that the Government deliberately instructs those managing interest rates and monetary policy to debase the currency so that today's pound set aside will not purchase the same quantity of goods and services in the future.

[dealtn]

Why the exception in this case? I believe it very fortunate holders are even allowed to rollover certificates at redemption.

One argument is that the Government deliberately instructs those managing interest rates and monetary policy to debase the currency so that today's pound set aside will not purchase the same quantity of goods and services in the future.

Except they don't. They instruct them to independently manage interest rates (and other available tools) to meet a completely different remit to that which you claim. Here is the October 2021 instruction they are working to

https://www.bankofengland.co.uk/-/media/boe/files/letter/2021/october/mpc-remit-october-2021.pdf?la=en&hash=999E337FDD28B1019213FB3EFF3AA5FEBF10D0F9

[tjh290633]

Why the exception in this case? I believe it very fortunate holders are even allowed to rollover certificates at redemption.

One argument is that the Government deliberately instructs those managing interest rates and monetary policy to debase the currency so that today's pound set aside will not purchase the same quantity of goods and services in the future.

Except they don't. They instruct them to independently manage interest rates (and other available tools) to meet a completely different remit to that which you claim. Here is the October 2021 instruction they are working to

https://www.bankofengland.co.uk/-/media/boe/files/letter/2021/october/mpc-remit-october-2021.pdf?la=en&hash=999E337FDD28B1019213FB3EFF3AA5FEBF10D0F9

And that remit requires action to be taken if the rate of inflation is 1% above or below the target of 2%. We have only seen tardy and inadequate action so far. Perhaps the new Chancellor will be less forgiving.

TJH

[dealtn]

Why the exception in this case? I believe it very fortunate holders are even allowed to rollover certificates at redemption.

One argument is that the Government deliberately instructs those managing interest rates and monetary policy to debase the currency so that today's pound set aside will not purchase the same quantity of goods and services in the future.

Except they don't. They instruct them to independently manage interest rates (and other available tools) to meet a completely different remit to that which you claim. Here is the October 2021 instruction they are working to

https://www.bankofengland.co.uk/-/media/boe/files/letter/2021/october/mpc-remit-october-2021.pdf?la=en&hash=999E337FDD28B1019213FB3EFF3AA5FEBF10D0F9

And that remit requires action to be taken if the rate of inflation is 1% above or below the target of 2%. We have only seen tardy and inadequate action so far. Perhaps the new Chancellor will be less forgiving.

TJH

No it doesn't. Have you read it? It doesn't require action in those circumstances. It certainly requires justification for any response, or lack of response. The target is deliberately framed as forward looking, and takes account of factors such as shocks to the demand or supply side of the economy.

Whether the MPC is doing, or has done, well in meeting its remit is a different question.

[tjh290633]

Why the exception in this case? I believe it very fortunate holders are even allowed to rollover certificates at redemption.

One argument is that the Government deliberately instructs those managing interest rates and monetary policy to debase the currency so that today's pound set aside will not purchase the same quantity of goods and services in the future.

Except they don't. They instruct them to independently manage interest rates (and other available tools) to meet a completely different remit to that which you claim. Here is the October 2021 instruction they are working to

https://www.bankofengland.co.uk/-/media/boe/files/letter/2021/october/mpc-remit-october-2021.pdf?la=en&hash=999E337FDD28B1019213FB3EFF3AA5FEBF10D0F9

And that remit requires action to be taken if the rate of inflation is 1% above or below the target of 2%. We have only seen tardy and inadequate action so far. Perhaps the new Chancellor will be less forgiving.

TJH

No it doesn't. Have you read it? It doesn't require action in those circumstances. It certainly requires justification for any response, or lack of response. The target is deliberately framed as forward looking, and takes account of factors such as shocks to the demand or supply side of the economy.

Whether the MPC is doing, or has done, well in meeting its remit is a different question.

I suggest that you read the paragraphs on page 4 detailing the action required. I don't recall seeing such letters published in recent months.

TJH

[vand]

In Financial Independence terms, you need look no further than the current cost of living crisis to see the the virtue of learning to live within your means creates a safety barrier and how it insulates your financial journey in life.

Exhibit A - a household that uses 90% of its income for consumption and saves and invests the remaining 10% is on course to reach retirement in about 45 years.

A 10% rise in the real cost of living means that have nothing left for saving, having to divert their savings to maintain their standard of living. Without putting anything away for a rainy day they will never be able to build up the nestegg to enable them to one day retire. A 20% rise in the real cost of living will push the household into debt or force them to cut their standard of living.

By contrast, exhibit B is a household that is very frugal and manages to live on 30% of its income while saving and investing the other 70%. A 10% rise in the cost of living changes their spending/saving ratio from 30/70 to 33/67 - barely enough make any difference to their journey to becoming financially independent. Even a 20% real rise will only change it to 36/63. They can easily absorb changes in the cost of living that would cripple households who are unable to save heavily.

You may think both examples are not realistic, but I know households who fit into both these camps- indeed camp A is probably not atypical of the average UK household. And yes, everything is easier when you have more money coming in to be able to achieve higher savings rates - I never said otherwise!

[AWOL]

Most people here are probably in the should save camp.

I'm trying to put together reasons why you should save and or arguments against the negative effects of saving. Something for older school kids or new younger workers.

I know my own reasons but just happy to hear maybe something different or left field that I might not have considered.

So why save?

Savings are useful for people who haven't built up a large redundancy entitlement and perhaps to budget for holidays and house repairs beyond that I recommend against it. I retired in my 40s thanks to doing a lot of investing and having no savings worth mentioning. So I say sure have a modest cash buffer but once you have that invest and never save. The long term real returns on cash are close to zero.

[dealtn]

One argument is that the Government deliberately instructs those managing interest rates and monetary policy to debase the currency so that today's pound set aside will not purchase the same quantity of goods and services in the future.

Except they don't. They instruct them to independently manage interest rates (and other available tools) to meet a completely different remit to that which you claim. Here is the October 2021 instruction they are working to

https://www.bankofengland.co.uk/-/media/boe/files/letter/2021/october/mpc-remit-october-2021.pdf?la=en&hash=999E337FDD28B1019213FB3EFF3AA5FEBF10D0F9

And that remit requires action to be taken if the rate of inflation is 1% above or below the target of 2%. We have only seen tardy and inadequate action so far. Perhaps the new Chancellor will be less forgiving.

TJH

No it doesn't. Have you read it? It doesn't require action in those circumstances. It certainly requires justification for any response, or lack of response. The target is deliberately framed as forward looking, and takes account of factors such as shocks to the demand or supply side of the economy.

Whether the MPC is doing, or has done, well in meeting its remit is a different question.

I suggest that you read the paragraphs on page 4 detailing the action required. I don't recall seeing such letters published in recent months.

TJH

I suggest you read the actual remit, especially that headed Price Stability on page 3 which precedes yours which actually describes what the remit is.

With respect to your point regarding letters your lack of recall doesn't disprove their existence. These are required (if necessary) quarterly. The last years are published and easily accessible.

https://www.gov.uk/government/publications/open-letters-between-hm-treasury-and-bank-of-england-september-2021

https://www.gov.uk/government/publications/open-letters-between-hm-treasury-and-bank-of-england-december-2021

https://www.gov.uk/government/publications/open-letters-between-hm-treasury-and-bank-of-england-march-2022

https://www.gov.uk/government/publications/open-letters-between-hm-treasury-and-bank-of-england-june-2022

[Wuffle]

The retired person is the non productive asset.
Why should this be encouraged?
All contributors here can see it easily in companies that they assess for investment, but are blind to it when it is them!
And as an aside, the more you have amassed through talent, the less sense it makes for society to allow you to stop.

W.

[AWOL]

The retired person is the non productive asset.
Why should this be encouraged?
All contributors here can see it easily in companies that they assess for investment, but are blind to it when it is them!
And as an aside, the more you have amassed through talent, the less sense it makes for society to allow you to stop.

W.

Just because the retired person isn't receiving a salary, doesn't mean they are not productive. Many people retire so they can work on charities, community groups, or to deliver care to loved ones. Many people are sick or disabled which may reduce their ability to be productive but they have invested in preparation for this time. Many people work longer and harder when employed because they wish to accrue more assets when young and effectively buy time in retirement. Other people find the alure of work irresistible even in retirement. I know someone who has written a best selling book in retirement and thus brought joy to many and a little money and satisfaction to themselves.

Some people I know who are still working find that their bosses want to surround themselves with young, enthusiastic, yes people who don't have the experience to know which risk are and are not worth taking. I think they ought to consider leaving an environment where they are viewed as "set in their ways" and "always full of negativity"

I don't think the profred definition of a retired person is a fair or reasonable one and it smells of harsh judgement although that may not be the intent. I certainly don't think enforced labour is desirable.

[Alaric]

Except they don't. They instruct them to independently manage interest rates (and other available tools) to meet a completely different remit to that which you claim. Here is the October 2021 instruction they are working to]

From which I quote

hereby re-confirm the inflation target as 2 per cent as measured by the 12-month increase in the Consumer Prices Index (CPI

What does that mean anything other than debasing the currency by 2% a year? If you don't buy goods or services today at the cost of £ 1, they will cost £ 1.02 in a year's time.

[gnawsome]

...By contrast, exhibit B is a household that is very frugal and manages to live on 30% of its income while saving and investing the other 70%. A 10% rise in the cost of living changes their spending/saving ratio from 30/70 to 33/67 - barely enough make any difference to their journey to becoming financially independent. Even a 20% real rise will only change it to 36/63. They can easily absorb changes in the cost of living that would cripple households who are unable to save heavily...

In the meanwhile the 10 or 20% rise will devalue the all the previous years of savings such that each new year loss outweighs the new years of savings such that their journey to financial independence is a masterclass in backwards marching
Do I get that right?

[dealtn]

Except they don't. They instruct them to independently manage interest rates (and other available tools) to meet a completely different remit to that which you claim. Here is the October 2021 instruction they are working to]

From which I quote

hereby re-confirm the inflation target as 2 per cent as measured by the 12-month increase in the Consumer Prices Index (CPI

What does that mean anything other than debasing the currency by 2% a year? If you don't buy goods or services today at the cost of £ 1, they will cost £ 1.02 in a year's time.

You need to consider the risk free rate of return (r) for that currency. If goods increase by 2% such that deferred consumption (in a year) now costs £1.02 your original £ now has a risk adjusted value of £(1+r). Depending on r, and more specifically if r>inflation, a 2% inflation target will produce the opposite of your debasement.