Magical thinking is, sometimes, necessary. Whether it be a visit from the in-laws, a looming deadline for a mammoth piece of work, or eating that last slice of cheesecake – wallowing in a baseless belief that everything will somehow turn out ok is often all that stands between us and the bottom of a vodka bottle.
When it comes to money, though, magical thinking is a massive mistake. This is not least when it comes to long term planning for our future, where small actions today can lead either to big gains, or cold beans tomorrow.
Despite this, though, there is a lot of it going on, and especially among members of the much maligned millennial generation (which your writer is a member of), who are apparently waiting on windfalls to help them make big financial moves.
According to a recent study by wealth manager Killik & Co. nearly two thirds (59 per cent) of under 35 year old’s that are expecting an inheritance are waiting on money from their grandparents to get on the property ladder, while nearly a quarter (22 per cent) are delaying having children until they receive it.
While we sit there waiting for a windfall, granny is planning the Mediterranean cruise of a lifetime
Despite this, though, only 7.6 per cent of over 65’s plan to pass on the majority of their estate during their lifetime, while only 3 per cent believe inheritance is an important factor in their children or grandchildren starting their own families.
In short, while we sit there waiting for a windfall, granny is planning the Mediterranean cruise of a lifetime.
When it comes to pension planning, things are arguably even scarier. Research from Willis Owen shows that 25 per cent of UK adults claim to not have a pension, with a horrifying 38 per cent stating they have no intention of ever starting one.
Again underlining the long-reach of magical millennial money thinking, 15 per cent say they will wait until they are 40 to start saving for their retirement, while 7 per cent are apparently going to wait until they are 50.
A staggering 65 per cent of respondents claim that, instead of savings, they will rely on the state to keep them fed and warm in their old age (good luck), with perhaps a slightly more realistic 17 per cent saying they don’t think they will ever be able to stop working.
Now, it is no secret that millennials are skint. We were, sadly, born in the wrong place, at the wrong time (we millennials in the West, anyway).
For a while, times were good. As children we grew up in the booming nineties – the economy, property prices, ‘education, education, education’, were all on the up. As soon as we turned 18, we got credit card and store card applications thrust in our faces that we took up with gusto. Wages were only rising, so why stop spending? Our parents just got richer and so would we.
There has been a generational wealth transfer going on for some time – just not in the direction you think
And then of course 2008 happened – and everything changed. Down came the global economy with a crash and, really, it hasn’t recovered. Merely kept on life support by regular money printing at central banks that has made the rich richer and the poor poorer, in real terms wages haven’t moved in a decade. Meanwhile, house prices have carried on soaring.
For we millennials, that means tough times. Most of us have been locked out of the property market, consigned to rip-off rents that consume more than 60 per cent of our wages, while the rest of our money is being hoovered up by various industries constantly vying for our cash; whether it be gadgetry, entertainment, fashion, beauty, wellness, or all of the above.
We children of the eighties and nineties are doubly unlucky. Not only are we structurally poorer, but the exact same companies that are making our parents and grandparents investment portfolios richer are stripping our bank accounts.
Indeed, there has been a generational wealth transfer going on for some time – just not in the direction you think.
I want to be clear: LIFE-IS-HARD for young people in the UK. In London – where all the jobs are thanks to a horribly lopsided economy seeing the North go to the dogs – nothing less than £25,000 a year will see you keep your head above water as a single person in a four bedroom house share (knowledge won through bitter experience).
However, it is not as hard as we think it is (again, knowledge won through bitter experience). While times are tough, and we got screwed, we have grown up with ideas about our basic needs that we need to radically rethink if we are ever going to stop waiting for Nan to die to start our lives.
We have grown up with ideas about our basic needs that we need to radically rethink
Ashley Agwuncha, founder of Money Medics, is a shining example. Hell bent on owning a property, Ashley poured every spare penny she had into a savings account from as early as she could. During university she worked part time and scrimped on everything from going out to grooming to food, and once she graduated, she set out a career and salary plan for herself that would ensure she achieved her dream.
Now, aged 25, she has her property and an impressive salary to match, while she also invests more than a quarter of her salary every month for her retirement. She does not come from money – not at all. She has achieved this all through sheer grit and determination.
Now, Ashley is arguably part of generation Z – dubbed ‘generation sensible’ – rather than a millennial. And her story perhaps outlines the difference between the two.
Spend less, save more
As outlined above, it is not necessarily our fault we are so skint. We have been devastated by a financial crisis not of our making and while older generations berate us for spending too much on avocados, they are growing rich off of the consumerism that was bred into us from birth, and which is keeping us poor.
However, if we want to turn this ship around we need to stop spending, and start saving. As penny pinchers like Ashley will discover, the power of compounding means that the difference between starting to save into a pension at 30 rather than 40 is in the hundreds of thousands.
Should a Brit on the average salary of £25,844 per year (according to the ONS) save 8 per cent of their salary (the recommended amount) into a pension from the age of 30 to 68, for example, they will retire with around £235,000 saved.
Start pension saving at 30 and you’ll have £235,000. Wait until 40, and you’ll have £126,000
Should they wait ten years until age 40 (as a lot of us are planning to do, apparently) to start saving, they will retire with £126,000. And then if they wait until 50? They will have just under £61,000.
Being Good With Money takes many forms. The first steps must always be, however, clearing debt, getting some emergency cash in a savings account and starting a pension. If you are lucky (or determined) enough then you can get on the property ladder and then the fun begins: you can start investing to make the world a better place, while making yourself even more financially secure.
The Good news is that all along the way you can do this in a Good way – from who you choose to bank with, to switching your pension fund, to who you choose to insure your home and car with. And if you need any help with that, you know where to come.