16th October 2018 at 11:12am
In his regular column, Jamie Jenkins discusses savings, inflation and the Bank of Mum and Dad.
My son, Arlo, is now 9 months old.
He’s crawling, standing, climbing and shouting. A lot.
His standing is something he’s very proud of. He’ll crawl a few paces and slowly wind himself up from the floor with his legs until he’s upright. He then throws his arms in the air as if he’s just successfully dismounted a pommel horse after an Olympic display.
I’ll miss it when he stops doing that and just takes everyday activity in his stride.
He’s already started to understand certain things, especially the word ‘no’. He sometimes just smiles and laughs, as if to say “Yes, daddy, I know you don’t want me to do this, but I’m just too young to care.”
It’s going to be a long process to help him understand everything he needs to know in life…
I read an article the other day in This Is Money that suggests the average child only begins to understand the value of money from around age 10.
That feels about right to me. I seem to recall having a vague concept of money before that. I do remember getting pocket money on a Friday but can’t really remember how much. Perhaps 50 pence or a pound a week. That went a long way in the 1970s.
I read from a recent Moneyfacts report that the average weekly pocket money is now around £7 – and, encouragingly, for once, it’s slightly higher for girls than boys.
Getting to grips with savings and inflation
This of course illustrates the effects of inflation, all other things being equal.
House price inflation is an obvious example. I recall that my parents paid around £3,000 for their family home, less than I did for my first car. The latter certainly wasn’t a Lamborghini.
The effect of time can have a surprising effect on how much money you need to do certain things – buying that house, or having children.
A study from the Child Poverty Action Group recently suggested that the average cost for a couple of having a child is £150,000, according to The Money Pages. The saving grace here is that you don’t need all that money upfront!
The Bank of Mum and Dad is still open
However, I read in The Telegraph that parents approaching retirement spend an average of £18,000 supporting their grown up children. It’s money that may be needed over a relatively short period of time.
The good news is there are some ways to address this.
You might have seen one of these illustrated on a Standard Life branded taxi as it passed you recently. It shows the story of Joe, aged 6, whose mum saves £50 a month into her ISA, meaning he won’t need a loan for his student debt in 2036.
It’s not rocket science – simply the potential benefit of investing small amounts over a long period of time.
Talking about savings habits
In my job, I spend a lot of time talking to regulators and policymakers about people’s savings habits.
On the one hand, we have young people starting to save into a workplace pension in their early 20s, with several decades of potential investment returns to look forward to. This should serve them well, relative to inflation.
On the other hand, we have some people in retirement putting their savings into cash (such as a bank account or Cash ISA), and risking the effects of inflation due to very low rates of interest.
Time can be of great benefit, but it can also be your financial enemy.
I wonder, if I’d had £3,000 in cash 50 years ago (a few years before I was born, to clarify!) to buy a house similar to my parents’, what that would be worth now.
I’d have been rich then, but it wouldn’t pay the deposit on a house today.
So when Arlo looks at me and laughs, one day, it will be in answer to the question, “I hope you’re saving enough for your future and investing wisely, young man?”
The views expressed here are those of the author, not Standard Life.As with any investment, the value can go down or up and may be worth less than what was paid in. This article shouldn’t be taken as financial advice and is based on our understanding in October 2018.