Experience has taught me that the root cause of financial disagreements within families is often simply silence

Financial Responsibility

A recent report by the Pensions and Lifetime Savings Association (PLSA) stated that four out of five people were not saving enough for retirement. That equates to 30 million people of working age. The situation is further exacerbated by increasing household debt, particularly in the areas of car finance and unsecured finance such as credit cards.

Old Age State Pension was first paid on 1st January 1909 to those over the age of 70. In 2017 State Pension payments cost the Exchequer over £111bn which accounted for 42% of the welfare bill. With an ageing population and an economy which is not growing fast enough it doesn’t require an actuary to tell you that the state alone is no longer going to be able to look after us in old age. Enter ‘auto-enrolment’ stage left.

Workplace pensions, often referred to as auto-enrolment, are a good thing. They ‘force’ people to save for their retirement. The current minimum contribution is 5% of qualifying earnings of which 2% must be paid by the employer. In April 2019 these figures will rise to 8% and 3% respectively. In a recent survey, most people stated they believed these to be the ‘recommended’ contributions rather than the minimum. In fact, for younger generations to save enough to live on it is estimated that most would need to save between 12-15% of their income per annum…and they would need to start at the age of 22!

Various ‘reasons’ are given for not saving enough: not enough left over after outgoings; living for today mentality; low interest rates mean it is not worth saving. Regardless of interest rates, saving allows us to have at least some funds to fall back on if we need them, and any interest paid is money one wouldn’t have otherwise had. Whilst it is undeniably true that low pay and rising housing and fuel costs do impact on disposable income, it is also true that people in some of the poorest countries such as China and India still manage to save. Behavioural psychologist, Dr Peter Collett, believes that one of the reasons behind this anomaly is simply the cultural ‘definition’ of savings. In the individualistic and materialistic West, we see savings as what’s left over after essentials have been paid for. In more collective Eastern cultures, money for essentials is viewed as what is left over after saving.

The key to change is for each one of us to take personal responsibility for our financial planning. This applies as much to the relatively wealthy ‘golden generation’ as to cash-strapped younger generations in their 20’s and 30’s. ‘Family Office’ is a term that is widely used – and abused – by the financial planning community. In its simplest terms, one aspect of the ‘Family Office’ could be seen as an organised and structured version of ‘Bank of Mum & Dad’. It looks at passing monies down through the generations, either in the form of gifts or loans, in an organised way rather than as an ad-hoc, last minute, chaotic lender of last resort.

The relationship between parents, children and money can be a fraught relationship with many avoiding a discussion about family finances as a result. However, with some of the younger generation resorting to credit cards with interest rates of 18% and more to manage their finances there is a strong financial, as well as moral, argument for getting involved and helping out.

  1. Pension Age – October 2018 – P90
  2. Pension Age – October 2018 – P89