They don’t teach this in school

 

 

With the exam season well underway, mine can’t be the only dinner table across the land recording conversations along the lines of

“How did it go?”

“Eugh – exams are so dumb. Who needs to learn this stuff anyway?”

Teenage lassitude or a waste of time?

I will allow for a dollop of traditional teenage lassitude when it comes to anything that looks and feels like hard work here, but I am increasingly sympathetic to this point of view. Why exactly are these young folk cramming their brains with facts and figures only to regurgitate them onto a piece of paper (what’s that???) in the space of a couple of hours to prove to a total stranger that they have… what? A good short-term memory?? And all the while knowing that these facts and figures are readily accessible in the palm of their hand on a minute-by-minute basis in the real world. I mean, really. Isn’t that what the internet is for?

How do you deal with that?

Well, I’ll leave that thought there as I am aware that my view may be coloured by just a hint of ‘when will this be over-ism’. But it is certainly not an outlying view to venture that something a little more practical could make its way onto the school curriculum and have a lifetime-lasting effect. I clearly remember as a child seeing random piles of typed letters and official-looking money statements about the place that needed to be ‘dealt with’. It worried me that I, too, would have to ‘deal with’ such things as a grown-up and that I would be expected to know what it was all about without ever having been taught.

Blame the roots of education

Indeed, calls for schools to teach more about personal finances and how to manage money are nothing new. If we think about the history of education in this country, its roots lie in the perceived need for sons of gentlemen to learn how to become clergymen, lawyers and doctors. I’m guessing back in the day that if you were privileged to enough to get an education then you were also likely to have someone to do your accounting for you.

The basics of money are not being taught

Much has changed in the world (ain’t that a fact). But still, the basics of money are not routinely taught. Getting the varying shades of politicians to agree on what the basics are might be tricky but, for me, the first step is about budgeting. We’ve all been there – a bit of pocket money and a stern warning that ‘once it’s gone, it’s gone’ in the hope that that will do the trick. And that might indeed do it when there is nothing more complicated to negotiate than a Jackie magazine and a packet of Wrigley’s in a young girls’ life.

Life’s layers of complexity…

However, life has a way of layering up complexity as you go through it. And one of the most common spanners in the works of a simple life is when you couple up and enjoin all your worldly goods with another human being for all eternity (or, at least, that’s the idea). In the olden days it was all quite straight forward. Your Dad paid your Husband-to-be a sum of money to take you off his hands and you had the happy prospect of a life of domestic skivvying to look forward to.

…it’s a lot

But hello twenty-first century! Blended families, single parents, part-time working, multiple employments, consultancy work, gig-economy, shift work, unpaid caring, gender pay and pension gaps, maternity leave, school league tables. It’s a lot. Which means there are a lot of different ways to tackle the issue of joint finances in a way that works for the individuals concerned.

Good ways to approach household money

So, it doesn’t hurt to take a look at some of the more common ways to approach household money and to scrabble around a bit to establish what good looks like. Let’s take a scenario where two working partners in one household are bringing in money each month. What might they do?

Option 1: Have their individual earnings paid into their own bank accounts and keep it separate at all times, splitting the bills that need to be paid.

Many couples work this way because it is the arrangement they had before they got together and they haven’t got around to changing it. It might work fine for some, but it does lack transparency – as no one has oversight of the whole picture and so no one can spot trouble when it comes over the horizon (Honey, I accidentally spent the gas bill money on a new car…)

Option 2: Have their earnings paid into their individual bank accounts and pop an agreed amount each into a joint account that would pay for all the essentials of daily living and possibly an element of joint savings.

This can work well if both partners are earning and if care is taken to make sure that there is not too much difference in the ‘disposable’ personal income that remains available to each (for example, if one earns more than the other, that person could put more proportionately into the joint account)

Option 3: Both have their earnings paid directly into a joint account from which an agreed ‘personal’ income is automatically transferred each month into the two individual accounts, leaving any surplus in the joint account for cash savings.

This also works well – and has the advantage of each partner having to agree to the amounts of personal spending that are allocated. And it is the option with the most transparency as both partners have access to the joint account and so can see exactly what is coming in and where it is going.

But what if you are not both earning?

So far, so good. But what happens if one of a couple is not earning – perhaps because there are children, caring duties or health difficulties? I would say of this scenario:

  • Option 1 is knocked off the table
  • Option 2 would need some tweaking as the person not earning would require a transfer from the joint account into their personal account – otherwise they would have no spending money
  • Option 3 still works – the only difference is that, in this scenario, there is only one income going into the joint account; nonetheless an amount can still be transferred out for both partners to have ‘spends’.

The Entitlement elephant

There’s an elephant in the room here. And it has Entitlement running through its trunk. I don’t want to dwell on this too much as it gets in the way of making perfectly good practical suggestions for running household budgets, but I have to give a nod to it because it is incredibly common. Despite the whole ‘coupling up and enjoining your worldly goods for now and until the end of time’ thing that goes on in a marriage or any form of life partnership, many still hold onto the idea that financial equality means sharing the costs but keeping whatever is ’theirs’. Inevitably, under these rules, the one who has the opportunities, time and energy to earn more, has more. That doesn’t seem like a partnership to me. There, I’ve said my piece. Back to budgeting.

You need to know the numbers

The first rule of budgeting – whether for yourself or a household – is to round up everything that comes in and everything that goes out. To do this, you need to know the numbers. Even if you haven’t got around to opening a joint account, building a spreadsheet that represents a ‘joint space’ and that both parties can view regularly is a good start.

Remember, it’s only the joint stuff that requires this level of transparency. Once all the essentials have been paid for out of the money that comes in – and, ideally, a level of savings (eg for emergencies) has been agreed – then you should have an appropriate amount going into your and your loved-one’s individual accounts for your own stuff. And that can be as private as you like.

Sensible apportioning of the hair budget

At this point, some couples might want to consider that, if one of them spends the working day at home behind a computer screen with their camera off while the other spends their time travelling the country and presenting important messages to other professionals or the media, a sensible apportioning of the ‘hair, make-up and shoe’ budget might need to be factored in. Nonetheless, true equality would demand that you both have enough personal spends to whisk your Perfect Partner off for a surprise weekend in Paris, have a girls’ night out in Morocco or blow the lot on crypto-currency – all safe in the knowledge that the joint and essential spending is covered.

(A quick aside, here. It sounds simple enough to round these numbers up but it can be tricky to deal with the lumpier spending of one-off insurances, season tickets etc. If you think you could do with a hand, I’ve put a simple ‘How to’ in the section at the end of the blog).

But what if there is no surplus?

So, this is all well and good in that ideal world where you know everything that comes in and everything that needs to go out and there is still a surplus. But what happens if there isn’t a surplus? In that case, you have two options:

  1. Reassess the ‘essential’ spending and see where you can cut back
  2. Earn more money.

It’s a brutal message, but one that brings home the value of doing this budgeting exercise in the first place. If you’ve been limping along, wondering why there is always more month than money, this can help you both identify where it is all going and also think about the lengths you are prepared to go to, as Team Household, to turn the situation around.

Can you really afford it?

And it’s an exercise that really comes into its own if you know there are changes on the horizon – either to the amount coming in (change of job, change in hours worked, long-term maternity or paternity leave etc), or to the amount going out (a new mortgage, private school fees, car loan, uni costs etc). If there is no way that you can make the numbers work, then you really can’t afford it and it is better to find that out before you sign young Georgina and Harriet up to the primary school with the blazers and the boaters rather than waiting until new friends have been made and expectations set.

Working to the same notions of affordability

Furthermore, where you have true transparency of your joint commitments, you are both working to the same notions of affordability – and so can avoid the age-old scenario of one of you booking a family Christmas in the Caribbean while the other is persuading the kids to only wear their shoes every other day to save on the leather.

Eugh

And that concludes my masterclass in household – or joint – budgeting. Like all good students, you will now read the extra notes at the bottom before dutifully trotting off to apply the theory to practice and get started on that spreadsheet.

“What’s that, you say?” “Eugh – budgeting is so dumb. Who needs this stuff, anyway?”

Well, the answer is – all couples do. Not just for the very prudent aim of spending within your means but also for the optimism and team spirit that can come from both of you treading the same path.

A bit more understanding

Detailed budgeting – how to do it

Before you do anything else, sit down together and pour a glass of wine, strong cup of chamomile or whatever fortitude you need, and…

  1. List the joint/home/family expenditure that is known (ie you have a number for it)
  • Monthly Direct Debits (mortgage, gas/electric/ council tax/ TV licence, streaming/ water / phones etc)
  • Average monthly spending on food and petrol
  • Talk to one another and agree any other individual monthly spending that is essential to the running of the family (eg season tickets for trains to work, work parking permits etc)
  • List any lump-sum bills – these might occur annually or termly or on some other basis (eg house/car insurance, breakdown cover, car tax, car service, school fees, children’s regular clubs and activities, uniforms). Add up the annual spend on these lump sums and divide by 12 for the monthly amount

 

  1. List any other joint/home/family spending that you would like to budget for
  • Estimate an annual budget for any lump-sum spending that you have an element of choice over (eg holidays, school trips, house maintenance, replacement car, long-term savings). Add up the annual spend on these and divide by 12 for the monthly amount
  • Emergencies: Aim for a pot of 3 to 6 months’ income in an emergency cash account. If you don’t have this, allocate a monthly amount to build this up. This is for a) unforeseen expense; b) unforeseen reduction in earnings

The total of all the monthly amounts is what you use for the calculation to see if there is surplus for individual spending:

Total monthly money in less total monthly money out = total surplus for personal spending for both of you

Dealing with the lumpier spending

The monthly Direct Debits are straightforward as these automatically come out of your account, but what about the lump-sum bills and the budgeted expenditure that come in on an irregular basis? How do you manage the monthly amount that needs to be allocated to these?

  • The easiest way is to open a current account that allows you to ‘ringfence’ savings away from the main balance. The money is still in your account but you don’t ‘see’ it when you look at how much you’ve got left to spend this month. Look for a bank with an app that gives you the option to set up individually labelled savings ‘pots’ or ‘spaces’ that will automatically take a regular amount from your main balance and keep it safe until the lumpy bill comes in. At that point, you just move the money from the pot back into the main balance and pay the bill from there.
  • Alternatively, have a running sub-total on your spreadsheet that ‘builds up’ to the month that a particular bill is due and subtract this sub-total from the balance in your account at the end of each month so that you don’t accidentally spend it.

For example: annual bills like insurances, car tax etc

  • £2,400 a year = £200 a month
  • Set up a savings pot/space into which £200 a month is automatically paid (ideally, you should start this immediately after a bill has been paid so that by the time the next bill is due you will have 12 months’ worth of saved budget). Move it back into the main balance when the bill is due and pay from there.
  • Or, subtract a running amount of £200 a month on your spreadsheet as you move from one year’s bill to the next

For example: holiday budget

  • £6,000 a year = £500 a month
  • Set up a savings pot/space for £500 a month and use as above

For example: emergency pot of 3-6 months’ income

  • Say, £150 a month until the pot is ‘full’ and then, either continue or stop until some of the pot needs to be used (in an emergency, obvs) and restart after that

For example: school fees

  • £5,000 a term = £15,000 a year = £1,250 a month.
  • Set up a savings pot/space for £1,250 a month (starting three months before the first term’s fee is due) and use as above

 

carole@talkingfinances.co.uk

www.talkingfinances.co.uk/blog/

Talking Finances is a trading name of Talking Finances Ltd. Talking Finances Ltd is an appointed representative of Beaufort Financial Planning Limited, Kingsgate, 62 High Street, Redhill, Surrey, RH1 1SH, which is authorised and regulated by the Financial Conduct Authority, FCA Registration No. 583233

This article represents the personal opinion of Carole Haswell only and does not represent any opinion of Beaufort Financial Planning Limited. Financial decisions should not be made on the basis of this article

Sandwiches

So, it’s a week until Daughter No. 2 starts her GCSEs and I bump into her old Nursery teacher (don’t know why I felt the need to say ‘old’ – it’s not as though she has a current one). We happen to be in a supermarket aisle at the time and do that annoying thing of barring other shoppers from the fruit and veg while we marvel at how the inevitable growing-up has happened and wonder where all that time has gone. It’s a conversation I’m having with a lot of friends right now and one that usually ends up turning to the subject of sandwiches.

 

Spread too thinly

The sandwich generation is a term that describes those of us who still have offspring responsibilities whilst also facing the issues that come with ageing parents. Sandwiched between the two can make a person feel like anything but a delectable filling. More like a thin bit of spread that has frankly been spread too thinly.

 

Contemplating Death and Demise

The gender issues around who does the caring got a good airing (accidental rhyme, soz) in last month’s post Who cares for you so I won’t repeat myself. However, there’s a strand to the conversation that we skirt around because it involves contemplating Death and Demise but which, for many of the sandwich generation, can be a menu changer.

 

What we’re talking about here is Inheritance.

 

Estate planning – country piles?

In the world of financial planning, this easy-to-understand word is given its own euphemism. When talking to a client about leaving their worldly goods behind (that’s if there is any left once the care home and the budgie sanctuary have received their share), the term ‘estate planning’ is used. This always makes me think of country piles and acres of meadows lush with biodiversity – a topic akin to ‘how shall we dress this morning’s brace of pheasant’ discussed only by the landed gentry.

 

Preferring not to pay tax

And it is true that estate planning is something that you only need to contemplate when someone’s total wealth exceeds the not-too-modest sum of £325,000 – or £500,000 in certain circumstances where there is a house involved. On top of which, these amounts can generally be doubled when a married couple leave everything to each other when the first of them goes. (I’ve added a section ‘A bit more understanding’ at the end of this blog for those interested in the detail.) It is only when the amount left behind is higher than this, that tax is payable. But I can confirm that, by and large, people seem to prefer not to have to pay tax if it can be helped and so this is something that does get a lot of attention.

 

Planning in advance of dying

For people who know they will be leaving behind enough inheritance that tax will need to be paid out of it, talking to a financial planner well in advance of dying can be of benefit. (Yes, I’m aware how ridiculous that sounds – you just have to guess).

 

Complicated emotions

But what about the generation who actually receives the ‘estate’? For many, an inheritance can involve sums larger than anything they have known before, which, along with the unpredictable timing, make it very difficult to plan for. On top of this, an inheritance rarely comes in neat bundles of cash labelled: Save Me, Spend Me, Invest Me. And it can come with complicated emotions that interfere with your ability to make those ‘what do I do with it’ decisions yourself.

 

Keep the investments?

A client in just such a situation asked recently if it was worth going through the individual shares and funds that had been left to her to see if there was anything in there that she should hold onto – rather than sell the investments that she had inherited and make a new, balanced set of investments suited to her.  Of course, every situation is unique and everyone’s circumstances are different, but there are a couple of general points worth bearing in mind here:

 

  • There is no such thing as a dirt-cheap investment that will be universally recognised by all financial professionals as a ‘sure bet on super growth’ going forward
  • We find it hard to let go of things that someone we love has given to us – even after they have gone

 

Investing is not a science

On that first point, you only have to consider that highly-paid City analysts poring over spreadsheets and interrogating company managers rarely agree on whether the shares in a particular company should be Bought or Sold (or Held, if you are a fence-sitting type). Working out if an investment in a single company is good value at any point in time is not a science – if it were, we’d all be investing in exactly the same things and there wouldn’t be a market yo-yoing all over the place to keep us on our toes.

 

Endowment Bias

On the second point, we are taught in ‘How to be a Financial Adviser’ school to look out for something called the Endowment Bias in clients. This describes a situation where someone holds onto assets such as property, shares or collections of rare butterflies in the belief that their departed relative would want them to. Or sometimes just because there is an underlying feeling that they should.

 

Acting as a nudge

If you are someone with an extraordinarily well-planned-out set of finances in your life with all your basic, discretionary and luxury needs catered for from now until the end of time, then perhaps there is no harm in allowing the Endowment Bias to run riot in you. By all means keep the butterflies and the shares in tulipmania.dotcom for sentimental reasons if it makes you feel good. For the rest of us, an inheritance can act as a nudge to really take a good look at where we are in life and where we want to be.

 

A buffer between the emotions and the money

This can take time. Especially when you are grieving. Which is why it can be a good thing if you have to wait a while for the tax people to assess the money and property left behind to see if there is going to be a tax charge and how much it will be (a process called ‘granting probate’). These weeks and months can act as a sort of buffer between the emotional time of death and the receipt of the inheritance.

 

How do you want to feel?

And if you decide to use the services of a Financial Planner at this point, they will help you disentangle the emotional from the practical and get you to voice where you want to be, what you want to achieve and – most important – how you want to feel once the dust and the ‘estate’ have settled. Where the money goes, what investments you choose or what property you buy are merely the final pieces of the jigsaw that should be discussed only once the bigger questions have been answered.

 

Women inheriting wealth

This could be relevant to an awful lot of women in the developed world. A report on inherited wealth in the US by consulting firm McKinsey & Company in 2020* estimated that American women could control as much as $30 trillion by 2030 – up from a current estimate of $10 trillion. This jump is expected to come from inheritance – not so much from the older generation, but from household wealth passing solely to the surviving woman on the death of her male partner. It also reported the interesting statistic that I know I have quoted before, which is that 70% of women change their financial adviser on the death of their partner. Something that speaks for itself, in my view.

 

Getting comfortable with the basics

So, should we, as women, plan for this? In many ways, this comes back to the whole point of my Talking Finances With Women initiative. Planning for an inheritance is not something we like to think about because it feels like we are in some way planning for someone else’s death. But I’m not talking about planning elaborate and complicated investment strategies here. I’m talking about being prepared for the questions that come with all financial planning. And that means getting comfortable with the basics, such as:

 

  • Being clear about how much you and your family will need in the future and how much you have to put by today to get there
  • Growing in confidence around topics such as savings and pensions and the relationship between these and your future life
  • Separating out your ‘long-term’ money from your ‘here and now’ money
  • Understanding that risk brings potential growth to your long-term money, and potential loss to your short-term money

 

A head start on the emotions

‘Leaving something for the children’ or ‘providing for a surviving partner’ is an incredibly common goal in a financial plan. As someone who might benefit from an inheritance, being prepared for some of the basic financial planning questions and concepts can give you a head start on the emotions that inevitably come with it. Having a good understanding of yourself and your situation is crucial when it comes to deciding what to do with money that has been left to you.

 

Back to the sandwiches

So, if you are someone who knows you want a luxury sandwich every day for the rest of your life and that this will bring you happiness, then you should factor that in when you are thinking about your future. If, on the other hand, you are someone who prefers to make their own lunch and save the money for rainy days when a picnic would be out of the question anyway, then that, too, is an important part of your planning jigsaw. The rest is mere detail.

Time for lunch.

*Women as the next wave of growth in US wealth management July 2020

A bit more understanding

Some key rules on inheritance tax (assuming you are UK domiciled)

  • You get an inheritance tax ‘allowance’ – also known as the Nil Rate Band (NRB) – of £325,000 when you die
  • There’s an extra ‘allowance’ – also known as the Residence Nil Rate Band (RNRB) – of £175,000 if you leave your main residence to a child, step-child or direct descendant (ie grandchild or great grandchild etc), where it is worth at least £175,000 and your entire estate is less than £2m
  • Anything you leave to a spouse/civil partner is inheritance-tax-free
  • If you leave everything to your spouse/civil partner you can also pass your allowances to them for use when they die (along with their own)
  • Amounts over the allowances are generally taxed at 40%
  • When there is inheritance tax to pay, this has to be paid before any of the inheritance can be dished out to the people named in the Will

 

Some simple definitions

Estate: All the money, property, possessions etc belonging to a person when they die

Grant of probate: A legal certificate-type document that allows the people (Executors) who are sorting out a Will when someone has died to give the money or property in the estate (after any inheritance tax has been paid) to those named in the Will

UK domiciled: When the UK is your permanent home

 

Who cares for you?

There’s a TED talk that I have been shown on a couple of occasions where a man talks about how good quality relationships bring us happiness. It’s based on a Harvard study^ that started in the 1930s and – at the time of the TED talk in 2015 – had been running continuously for 75 years. The clearest message to come from this epic study is that “good relationships keep us healthier and happier” regardless of social class, status or wealth. The guy has me for the first few minutes of the talk. But then he slips in – almost like he only just thought to mention it – that up until 2005 all the subjects of the study had been male.

I’d be super happy, too

Now I’m wary of a stereotype as much as the next person, but I’m willing to bet that – for at least the first handful of decades of the study – the men being surveyed who were coupled up were getting a pretty good deal. I’d be super happy too if I had someone to do all the cleaning, shopping, washing, cooking, ironing and caring.

Imagine that

Imagine going out to work for the day and coming home to find a home-cooked meal on the table, the children bathed, clean clothes in the wardrobe, family duties fulfilled in terms of birthday cards, presents, Mothers’ Day flowers (yours as well as theirs) and someone handing you a drink and asking you pleasantly about your day. Yes, I admit, this generalisation, has been lifted straight from the archives of 1950s and 60s TV programmes and adverts – but I detect a grain of truth in there.

Cynicism aside

That said – and all cynicism aside – now that the study has been graciously extended to include “the wives” (his words), the findings are holding out. Being in a good relationship seems to increase happiness, health and longevity for everyone. There are benefits to being in a partnership that have to do with sharing – joys, tasks, burdens, worries… money. What’s wrong with those 1950s stereotypes is that it is always the woman who is the Chief Homemaker. However, if you take gender out of the equation for a moment, being part of a team where one member is earning more money than the other shouldn’t really matter because, in a team, you should in theory get to share the wealth.

Magic laundry

My Husband had a male colleague in the 1990s (I still think that’s recent) who declared that he would put his dirty underwear in the linen basket each night and magically find clean items in the drawer each morning. He had absolutely no idea how the one action led to the other. I remember being shocked by this (mostly because I couldn’t understand how a fully grown adult hadn’t mastered the basics of a washing machine). And we are rightly shocked by statistics such as the UN figures from end-2020 that showed that for every hour of unpaid work done by a man around the globe, 3.4 hours is done by a woman.

Equal rights

It is shocking because it displays an underlying bias in how we value work that has traditionally been done by women. And there is something deeply wrong in relationships where both team members work just as hard as each other but only the one that earns money outside the home gets to say what it is spent on. However, in the context of an equal and fair relationship, if one of you is using your time to earn money and one of you is using your time to clean, cook, care and launder, then you surely have equal rights to the benefits of all those activities. Just because you’re the one doing more of the nose-wiping and swing pushing, doesn’t make the children any more ‘yours’. And just because you earn more money while someone else is doing those other things, that also shouldn’t make the money any more ‘yours’.

You are likely to be a carer

But it gets a bit more complicated when we extend the caring role to beyond bringing up the children. As a woman aged 59 in the UK, you have a 50:50 chance of being a carer of some description – while men get to the ripe old age of 75 before that statistic applies to them*. On the basis that the average life expectancy in the UK for a woman is nearly 83 versus 79 for a man there must be a huge likelihood that, if you are the female part of a hetero-normative couple, you will be performing a caring role for your male partner towards the end of their life.

More women than men end up in a care home

So, if you are more likely to be caring for your partner, who is going to care for you? It’s not a nice thing to think about and I suspect most of us push it away. Uncomfortable as it may be, however, I have to tell you that more women than men end up (literally) in a care home. As if that weren’t depressing enough, average care costs for women are 2x that for men – which makes sense given that we live for longer and so don’t have the back-up of being cared for at home.

A list of numbers – great

I’m going to throw some more numbers at you here:

  • The average length of stay in a care home is around 30 months
  • The average cost per week is around £700 or £800 depending on the level of care required – that’s often over £3,000 a month and it can be a lot more in the more expensive parts of the country
  • Nearly half a million people live in care homes in the UK
  • Of these, there are 2.8 women for every man aged 65**
  • And finally, the average pension pot for a woman over 50 compared with a man’s is… about half ***

On the face of it, this looks like a rough deal for women. A man is more likely to get ‘free’ care from a female partner at home. A woman is therefore more likely to have to pay for her care. But a man is likely to have a shed load more in his pension than a woman. Great.

An inheritance could redress the balance

But if we go back to the ideal of an equal and fair relationship, this is not the whole story. If you are part of a couple who has built up some wealth in your lifetime – perhaps you own a house together, have some savings, one of you at least has a decent pension pot – then there is a chance that, as a woman, you could be the one to inherit whatever is left when your partner reaches the end of the line. And it could be this that helps to pay for your care costs. It’s not exactly six months of the year in the Seychelles sipping a negroni every evening, but it goes some way to redressing the balance if you have been the one doing more than your fair share of the caring in the past.

A budget for the last (wo)man standing

In this scenario, it doesn’t really matter who has the most in their pension pot within a partnership if you approach your finances as a couple and view all your assets as jointly held. This is massively important if at any point in your lives one of you has done more of the caring for children, elderly relatives, loved ones with enhanced needs or … eventually, your elderly partner. Giving equal weight to the time spent by one of you caring versus the money earned (and pension built up) by one of you working more outside the home, makes it totally right and fair that whoever is the last (wo)man standing gets the care home budget.

Shared resources under the marital mattress

When people divorce it can come as a shock to the bigger earner when generic-He has to share all his assets – including his pension pot. But if you are in a life partnership, then surely everything you are building together is a shared resource – both now and for the future. For those couples who stick it out for the long haul, it is not unreasonable perhaps to view some of the money that is stuffed under the marital mattress as provision for whichever one is left alone at the end of life. Quite likely, this will be Her.

Care funding might not be a priority

Planning for this is never sexy. It can be tricky talking to people who are still working – or just starting to enjoy retirement – about paying for care in their old age. A bit like talking to teenagers about mortgages and children – it’s never going to happen to them. I get that – and there’s always the worry that you might be putting money aside for something you may never need. I couldn’t suggest to anyone – least of all myself – that you should forego a family holiday to top up the care-home fund.

Who will care for you?

But some degree of planning for the surviving partner is certainly desirable. It isn’t just that you might have care home fees to pay for. Think also about any income that each partner has: eg the State pension which will stop when that person dies, or a company pension that pays a guaranteed income for life that will either stop or – best case – go down by half. Think also about how many marbles you might have left in your 80s or 90s and whether you would want someone else to help you with your finances.

These are all questions that require some thought. Maybe not immediately – but definitely if you inherit money or when you are assessing the size of your pension pot. Think about what the money is for. Think about yourself and your needs. If you’re lucky enough to get old before you die, think about who is going to care … for you.

Must go – the washing machine’s beeping and that laundry won’t hang itself out.

 

^Harvard Study of Adult Development; *CarersUK 2015; **ONS 2011 study; ***PensionBee

 

carole@talkingfinances.co.uk

www.talkingfinances.co.uk/blog/

Talking Finances is a trading name of Talking Finances Ltd. Talking Finances Ltd is an appointed representative of Beaufort Financial Planning Limited, Kingsgate, 62 High Street, Redhill, Surrey, RH1 1SH, which is authorised and regulated by the Financial Conduct Authority, FCA Registration No. 583233

This article represents the personal opinion of Carole Haswell only and does not represent any opinion of Beaufort Financial Planning Limited. Financial decisions should not be made on the basis of this article

Know your boundaries!

Today I am bound to my bed. The tail-end of a dose of COVID and the eye of Storm Eunice are the universe’s way of telling me I should hunker down and embrace the four walls of my bedroom. There’s some pleasure to be had from knowing that you can’t really do anything much and, while the novelty of such a passive existence would no doubt wear thin after a while, it can be good to have boundaries.

 

Good boundaries, excellent boundaries

For example, the wind is doing its level best to breach the boundaries of my brick-built house. I consider those good boundaries. The teenager, who has been given a day off school because of the storm, has work to do on line so as not to fall into the tempting lair of the ‘time-wasting’ monster. Again, good boundaries. I’m not allowed in the kitchen until I get a negative LFT so can’t possibly cook food for the family. Excellent boundaries.

 

Unbridled nature…

And yet. That free-wheeling wind out there is kinda thrilling. Pictures of ginormous waves disrespecting the boundaries of the seaside promenade excite us (as long as no one is hurt in the taking of the photograph, obvs). And we lap up the stories of the havoc being wreaked out there from the safety of our homes because we are somewhat in thrall to the power of unbridled nature.

 

…within the bounds of normal

But it’s wrong to think of nature as having no boundaries. There have been a number of reports this week of scientists explaining that storms like this are part of a ‘normal’ meteorological pattern and not caused by climate change. Apart from the worry about how many people can turn that statement into something that means that climate change is not a thing, I think this illustrates how we understand even extreme events within the bounds of something that we call normal.

 

Planetary boundaries

In my studies to better understand the issues around sustainable investing, I found the most helpful handle on the environment question to be the concept of planetary boundaries. This is the notion that, in order for the planet to survive, there are limits to how far we humans can push it. Nine areas affecting the planet, including climate change, ocean acidification and biodiversity loss, have been identified by a body known as the Stockholm Resilience Centre who work on quantifying exactly where the boundaries for each of these areas lie. In other words, people are calculating how much the climate can change, how much biodiversity can be lost, how acid the oceans can become before everything that we know about how the planet works unravels. They reckon that four of these nine boundaries have already been pushed to what is ominously (and grammatically challenging-ly) named the ‘Beyond zone of uncertainty’.

 

Doughnut Economics

On this subject of planetary boundaries, a pleasing sugary-snack-related diagram has been developed by an economist called Kate Raworth, dubbed Doughnut Economics. Think of a doughnut, and think of its outside edge as being the limit of how much we can plunder the earth’s resources and interfere with its ecological balance. Now work back towards the hole in the middle and think of that inner circle of the doughnut as marking the minimum amount of looting and interfering that we humans need to do in order for us as a species to survive. In an ideal world, we could work with the planet and all it has to offer in that fleshy part of the doughnut so that Earth and Humans live together in perfect harmony. Take too much and the Planet is in danger. Take too little and the People starve and die out.

 

A pot of resource

What I love about this is that it is so bloomin’ obvious. It is the exact same message we give to clients who have a pension pot full of ‘resource’ at the start of their retirement. Here is a sum of money. It has to last you at least until you die – or maybe beyond that if your partner is relying on it. Use it wisely. Enjoy it. Don’t overspend ‘today’ because ‘tomorrow’ it will be too late. But also, do take enough to feed, clothe and house yourself – otherwise, you won’t survive.

 

Not a bottomless pit

On a personal level, the message ‘this is all you’ve got, don’t blow it’ is relatively straightforward. But it can still prove problematic. A huge sum of money in a pension pot – like a huge planet full of potential riches – might seem like a bottomless pit to someone who isn’t used to setting themselves boundaries on their spending. Without good advice, they might forego the budgeting and just dive on in there whenever the fancy takes them. Equally, someone who is constrained by internal behaviours that keep the budgeting too tight might forego necessary spending and live like a pauper, only to leave an embarrassment of riches to the next generation (who might then blow it).

 

Planet Earth: our collective pension pot

So perhaps it is no surprise that, collectively in the developed world, we struggle with this same message when it comes to the great big old pension pot that is Planet Earth. Maybe that’s because the advice hasn’t been communicated clearly or loudly enough. Maybe we didn’t believe it was a thing. Or maybe the catastrophic events of too much resource-taking were always far enough down the line for us to think it wasn’t our problem. It can be hard to stick to boundaries when the consequences of overshooting them are out of sight.

 

Boundaries don’t get the party started

I think also at play here is the fact that concepts like Boundaries – along with their goody-two-shoes classmates Moderation, Compromise, Budgeting and the like – are never going to be the ones to get a party started. More likely they will come in at the end, shuffling on their sensible shoes, toting a mop and bucket and tutting loudly. We don’t always want to be around them when flashier, headline-grabbing attractions like Pleasure, Excitement and Adventure are in town and so we pretend they don’t exist. Until, that is, we notice that the resources are dwindling and then we panic and wish we’d listened earlier.

 

The neat logic of sustainable investing

So where does sustainable investing fit in? The very definition of sustainable is ‘able to be maintained at a certain rate’. We can apply this in the investing world both to the companies, products and services that the managers of our pensions and ISAs invest our money into – and to the way we take money from our retirement pot. There’s a neat logic to wanting to invest in companies that will be around for a long time to come because you want your money to last … for a long time to come.

 

Screened out for overstepping the boundary

Investing sustainably is as much about avoiding putting your money into companies that will be ‘losers’ in a world that needs to stop spewing out carbon and chopping down rainforests as it is about backing companies that will be ‘winners’ because they offer solutions to the climate challenge, inequality and poverty that can threaten the world’s stability. Investment managers will use boundaries to help them decide who is in and who is out – companies responsible for too much carbon, plastic waste, wage inequality etc will be ‘screened out’ because they overstep the mark. Companies that tick boxes in problem-solving, longevity, inclusion and diversity will be ‘screened in’ and possibly get an investment if the price is right. It’s not always a perfect approach. But it’s a start.

 

Women and sustainable investing

I keep seeing surveys suggesting that it is women who are most likely to want to ‘do good’ with their money. These surveys are often aimed at the investment industry itself – more specifically at their marketing departments. I’ve written about this before but I reckon it is more to do with fact that fewer women than men are already investors than it is to do with our ‘womanhood’. If you are starting from scratch and someone offers you something that is billed as responsible, sustainable and having positive impact, of course you’re going to say yes to that.

 

A bandwagon of greenwashing

Investment managers around the world are currently falling over themselves to tell us how responsible they are in the way they manage our money. Cynics can call this a bandwagon of greenwashing (what a lovely combination of words) and it might turn out to be true that some managers are pushing the boundaries of what they actually offer here. But public scrutiny has got so intense, I suspect they won’t get away with it forever. The way I see it is that managing investments responsibly and sustainably will encourage our faithful old friends Boundaries, Moderation, Compromise and Budgeting to have their day in the sun.

 

Agghhh

On a more mundane note, my food delivery has been cancelled due to the storm and I can’t go to the shops due to COVID. First world problems. Guess we’re just going to have to be resourceful and use what we have. Carefully.

 

carole@talkingfinances.co.uk

www.talkingfinances.co.uk/blog/

Talking Finances is a trading name of Talking Finances Ltd. Talking Finances Ltd is an appointed representative of Beaufort Financial Planning Limited, Kingsgate, 62 High Street, Redhill, Surrey, RH1 1SH, which is authorised and regulated by the Financial Conduct Authority, FCA Registration No. 583233

This article represents the personal opinion of Carole Haswell only and does not represent any opinion of Beaufort Financial Planning Limited. Financial decisions should not be made on the basis of this article

What we do is boring

Recently I heard myself utter the words that “using a Financial Planning service would probably result in higher charges and lower returns” on a particular client’s pension investments.

Oh, I could sell coal to Newcastle, me!

Why pay more for less?

Don’t worry, I am aware that paying more and getting less won’t be at the top of anyone’s to-do list. Especially now, when we can’t move for news about eye-watering price rises in food and fuel (come to think of it, though, even I might get a decent price for some dirty coal at the moment – in Newcastle or anywhere for that matter). So, why would I say such a thing?

It can still make you better off

Truth is, despite the less-than-compelling numbers, a planning service on those terms can still make someone better off. Let’s imagine your teenage offspring, niece, nephew, friend of the family, dog, whatever came to you and said they’d been buying Bitcoin with their pocket money for the last 5 years and the value of it now was enough for them to buy that chateau in Provence that caught your eye in last week’s Sunday supplement. Great, you say. Sell the Bitcoin and I’ll grab my passport (stopping only to do a quick lateral flow on your way out of the door). “Ah. Well, no, actually,” comes the reply, “I can’t sell it at the moment. And anyway, I’m going to try to double it because, you know, why have one chateau when you could have two?”

A bird in the hand…

As the responsible adult in the room, how do you respond to that? Do you high-five the sheer gung-ho-ness of it all? Or do you put your sensible – boring – head on and start talking about numbers of birds in hands and bushes? Individual investors who have been in the right thing at the right time can – understandably – begin to feel that double-digit returns are normal. That every year will bring more of the same and that they can map out their future based on what has happened in the past. And some people do. Sometimes, the timing works. Hey, I sold a flat in 2003 for nearly three times what I bought it for six years previously. I got lucky.

Saving yourself from disastrous losses

But the majority of us can’t really afford to take Lady Luck for granted when it comes to the pot of money that we have been saving for retirement. Pension investing – or indeed any investing that is for a purpose beyond the thrill of seeing the numbers go up – is as much about saving yourself from disastrous losses as it is about seeking returns.

What if markets get the collywobbles?

Sure, the bigger the pot, the better. But if in seeking that big pot you risk losing the lot (accidental rhyme alert, there) you have to question your approach. Generally, excessive wins come from concentrating your money in a small number of investments (ideally, in the ‘winners’) – in other words putting all your eggs in one basket. What happens if, on the day you put your well-earned, gold-effect carriage clock on the mantelpiece, the markets get the collywobbles about a salmonella outbreak? Those eggs will come crashing down at precisely the wrong time for you. (I guess you could always sell your clock).

Being protected from catastrophe

Spreading your investments out (known as diversification in market-speak) is the boring, but sensible, thing to do. You might always have the feeling that you could have made more money elsewhere (and people who have, will delight in telling you so), but you will have been protected from the worst catastrophe. As Financial Planners, we are aware this ‘diversification message’ is dull and not always an easy ‘sell’, but it can be the one that adds the most value in the long term.

Diversification – it’s quite a business

Although it might sound simple to ‘spread your investments’ it’s not just a case of adding some plant-based burgers and peas to your basket because they happen to catch your eye. There’s a mind-blowing industry of professional investors out there pulling together spreadsheets and algorithms, holding meetings with management and visits to factories, building committees, networks and armies of analysts that attempt to get exactly the right weight, number, shape and size of eggs, burgers and what-have-you in the correct basket to suit people of different ages, with different circumstances and different ideas about what a good retirement looks like. And even they don’t get it completely right all of the time. It’s quite a business.

How can a financial adviser help?

One of the reasons why people come to a financial adviser for help with their planning is because they have got to the point when doing the investing for themselves has got a bit scary – either because the investments have stopped being amazing, or because they are approaching the time when they need to start taking the money out. If you have already been choosing investments for yourself – either within a Self Invested Personal Pension (SIPP) or in an ISA or other investment account – a chat with an adviser can be helpful to see if you are putting yourself at unreasonable risk. And, if so, whether they can recommend a portfolio of professionally managed investments that have a tighter control on that risk. Equally, for someone who has never invested, it can help to get over the hurdle if you can talk to someone who understands the value of such a dull way of doing things – even if they guide you to a lower cost, more suitable solution than they themselves provide.

Who will protect you if you mess up?

Taking the services of an adviser who is regulated by the FCA has the added benefit of protection from the Financial Ombudsman. This kicks in if you are given unsuitable advice (eg a portfolio of hair-brained ventures that won’t turn a penny of profit for at least a decade for your 94-year-old uncle who needs some readies to pay the carers, perhaps). The Ombudsman can order the adviser to compensate for losses caused by unsuitable advice. And then there’s the Financial Services Compensation Scheme in the wings in case that same adviser goes out of business in the meantime. Of course, if you mess up your own investments – to put it bluntly – there really isn’t anywhere for you to go.

Value in the mistakes that don’t get made

And that takes us to the point about fees. Yes, if you ask for a service, it is going to cost money. Some of the money that you pay goes in levies to those financial institutions that I’ve mentioned above – ‘free at the point of use’ has to be paid for somehow. And some of it pays for the work that goes into analysing what you’ve already got and – where appropriate – researching something more suitable and then doing to paperwork to put it all in place. For some people whose investments have not been performing as well as they could be, the fees will pay for themselves in better returns. For others, the fees will add to the ‘cost’, but the value will be in the mistakes that don’t get made.

First chat for free

If you’re reading this and everything you have for retirement is tied up in a workplace pension that is being managed for you, you might wonder if there is still any value in seeking advice. In short, there might be – particularly if you are starting to think about retiring and how you might want to take your pension out. Most advisers and planners will have that first chat for free to see if it is worth you pursuing the idea of taking advice.

The ‘relationship’

And finally, a word about relationships. There was a study* done in 2019 that showed that individuals who took financial advice saw an average boost to their wealth of c.£48,000 over a decade. When I see claims like that, I tend to wonder about who the individuals are. It’s an obvious point, but if you are not comfortable with the idea of investing or seeking advice, you are not going to benefit from such a boost.

Dipping your toe in first

With my Talking Finances With Women hat on, I feel instinctively that this remains an area where advisers could do better. If you have never had financial advice – and never seen your Gran, Mum, Auntie or sisters do any such thing either – and you walk into an adviser’s office with little idea of what you are getting yourself into, immediate talk about forming a long-term relationship could just freak you out. Offering services that recognise that some people need to dip their big toe in the water before committing to a full-on, head-under plunge seems to me to be the way to go. As ever, I’d be interested to hear what you think.

Meanwhile, there’s a half a bag of firewood in the shed that I’m going to take door-to-door to see if anyone will swap it for a chateau in Provence. Wish me luck.

*Joint research from Royal London and the International Longevity Centre

 

carole@talkingfinances.co.uk

www.talkingfinances.co.uk/blog/

Talking Finances is a trading name of Talking Finances Ltd. Talking Finances Ltd is an appointed representative of Beaufort Financial Planning Limited, Kingsgate, 62 High Street, Redhill, Surrey, RH1 1SH, which is authorised and regulated by the Financial Conduct Authority, FCA Registration No. 583233

This article represents the personal opinion of Carole Haswell only and does not represent any opinion of Beaufort Financial Planning Limited. Financial decisions should not be made on the basis of this article

I wonder what’s inside

Christmas is under two weeks away as I write. And I have never been as unprepared at this stage in the game as I am now. Maybe it’s because the “children” are no longer children. Maybe it’s because the nearly-there, nearly-there, nearly-there, back-to-the-beginning-again tease of that pesky virus with mutant tendencies is making me think that no plans will ever come to pass again. Or maybe it’s because, well into my fifties, I am finding it increasingly hard to get worked up about making bread sauce.

Playing it safe with your own presents

Don’t get me wrong, I love the festive season. Just maybe not as much as I did when it merely ‘happened’ – as opposed to being the one who makes it happen now. When it comes to presents, I know many women who purchase something they like in the run-up to Christmas and hand it over to an appropriate gift-giver to wrap up and present back to them on The Morn. I get that. There is some appeal in playing it safe so as to avoid disappointment, arguments or trips back to the shops (sorry, how old-fashioned of me. I mean trips back to the local collection point).

The excitement of a surprise

As I say, I get it. Nonetheless, it so isn’t me (“What? I buy the presents for everyone else and I have to get my own as well?!”). Despite the barely-disguised jaded-ness in the above paragraphs, I do still want the excitement of a wrapped-up surprise.

Leaving it wrapped up in its simplicity…

There’s a mystery to anything that is wrapped up – and an even-handedness that appeals to those of us who like a level playing field. While a gift is wrapped in paper, it remains just that – a gift. And it won’t be called anything but a gift until it is opened. Only then will it become the thing inside, with all sorts of judgements attached: is it nice, do I like it, does it do the job well enough, was it costly or good value, did a lot of thought go into it or was it plucked carelessly with a slide of a mouse and tossed into a virtual basket with a quick clickety-click? Sometimes it is tempting to leave it wrapped up in all its simplicity and leave the prospect of complicated thoughts and emotions firmly on the outside.

…In case it becomes more complicated

Which is exactly why, I think, many people refer to their pension or their ISA by the ‘wrapper’ name and resist looking inside in case it becomes more complicated. (Yes, I really did make that link. Sorry). People will say that their pension is “doing well”, or that the ISA has been “disappointing” and what they mean is that the investments inside them have performed in a certain way – investments that can be picked and chosen and changed either by the individual themselves or a professional investment manager to give the best chance of the right sort of returns for the amount for risk that you want to take.

Wrapped in the same coloured paper

The only point of the wrapper (regardless of what the investments choices are inside) is to tell the Tax Person that the investments inside are to be taxed according to the correct rules. So investments inside a pension are taxed according to pension rules. And investments inside a Stocks & Shares ISA are taxed according to ISA rules. If I may reinvoke Christmas for a moment – everything that is wrapped up in paper from the same roll gets taxed in the same way, but what is inside can be very different: in other words, my pension is not the same as yours.

Do you know what’s inside?

With that in mind, your pension is not the same as your partner’s. Nor is your ISA.  If you were to take a good look under your household’s financial tree you might just find some wrapped-up products that have your partner’s name on them. To those of you who are in any kind of committed relationship that you intend to last into retirement and to the end of time, I ask this: do you know what’s inside?

Why does it matter?

We ran a news article on this last month based on a survey that suggested that 78% of married people have no idea what their spouse’s pension is even worth – let alone how the investments inside are arranged. (If you’ve got a spare five minutes in between door-to-door carolling and woodland wreath making, this link will take you there: How much does your partner have in their pension?). So, why does this matter?

Keeping gifts under the tree

As I’m fond of telling the young women who are polite enough to listen to what I’ve got to say on the matter, if you make the very big and grown-up decision to share your life, your sofa, taking the bins out and – potentially – children, surely you would also share the money.  In an ideal world, you are a team and, while you might each have personal aims within that team, you are also both working towards the common goal of keeping the lights burning, food on the table and gifts under the tree at Christmas (or whichever celebration is traditional for you).

Children: no small ask

Further to that, if you have made a family together, one of you will likely have forfeited some earnings and pension along the way in pursuit of the additional goal of ‘keeping the children alive’. No small ask.

No surprises, please

So, does it matter what’s inside your partner’s pension? Ho ho hell, yeah. For both of you. You both need to know what’s coming so you can plan for it. “Oh, surprise me!” might be okay at Christmas (for some of us, anyway) – but surely not at Retirement. Even a good surprise at that point might feel like a betrayal (“What? So I sent the children up the chimney until they turned 30 while all along you were sitting on a mountain of pension value?”)

Money is not a plan in itself

Money, like energy and time, is a resource. When it is in reasonable supply, it facilitates your plans. And when it is in short supply, it derails your plans. But it is not a plan in itself. So, I encourage you all, with as much Christmas spirit as you can muster, to grub around in the wrapped-up items in your lives and lay them bare. Working out the current value of everything you have that will contribute to your later lives is a great starting point.

Is what’s inside right for you?

And then, much as you would with anything else wrapped up, you need to take the wrapper off your collective pensions or ISAs and work out if what’s inside is right for you – that is, your feelings about investment risk, where you are in your lives and what your values are. You can always talk to a friendly financial adviser if the idea of doing this yourself is daunting, but the concept won’t be alien to you: if you don’t like what’s inside the wrapper, you can always change it.

And on that note, I bid you all Happy Unwrapping. Bread sauce anyone?

carole@talkingfinances.co.uk

www.talkingfinances.co.uk/blog/

Talking Finances is a trading name of Talking Finances Ltd. Talking Finances Ltd is an appointed representative of Beaufort Financial Planning Limited, Kingsgate, 62 High Street, Redhill, Surrey, RH1 1SH, which is authorised and regulated by the Financial Conduct Authority, FCA Registration No. 583233

This article represents the personal opinion of Carole Haswell only and does not represent any opinion of Beaufort Financial Planning Limited. Financial decisions should not be made on the basis of this article