Are your savings gathering more dust than interest?

Funny things, human beings. And never funnier (I mean in the strange sense, not ha ha) than in our dealings with money. If you doubt that, then test which side of your brain is managing your money

We search for the cheapest jar of coffee in the supermarket, tutting at the 30p price difference per jar, then hand over £2.45 for a single cup in Starbucks.

We leave our savings to fester away gathering more dust than interest, while at the same time carrying credit card debt.

Do you know what you;re saving for?
This very specific pot is by terramundi

Behavioural economists call this illogical behaviour mental accounting – or treating money differently depending on its source or label, something I've discussed in earlier blogs about using the left brain a bit more. 

An example is our attitude to money we’ve saved and money that’s dropped into our laps (I know, but bear with me on this one)... 

Would you blow your savings on a big birthday party extravaganza? Probably not, unless that was what you’d be saving for. It would seem too… reckless? Irresponsible? 

But what if you got an unexpected tax rebate and had a big birthday coming up? Woohoo, champagne cocktails all round!

I got to thinking about all this while working on a campaign for first direct, the online bank, to do with offset mortgages. 

Apparently nearly all mortgages in Australia are offset. They originated there and it's what most people go for.

Yet a mere 6% of UK mortgages are offset mortgages. This is probably because this concept feels a bit alien to us. After all, when mental accounting, we Brits have kept our borrowing and our savings very separate. It doesn’t even occur to us that we could use one to offset the other. Mentally they are two disconnected amounts of money.

  

Of course another reason we shun offset mortgages is because we don’t even know what they are.  

Offset mortgages simply allow any savings or current account balances to be offset against the mortgage, with interest only being payable on the difference between the two.

o   e.g. if a borrower has a £100,000 mortgage and £10,000 in savings, they will only pay interest on the difference (i.e. 90,000).

Dead easy really. You use your savings to work for you, but still hang on to them. 

This makes real logical sense for anyone who has both savings and a mortgage, and now more than ever before. Savings interest rates are so abysmally low at the moment, the loss of interest on them would be more than outweighed by the reduction in mortgage interest.

For more info check out the first direct website http://www.firstdirect.com

Do you know how much you are paying for your ISA investments?

(SPONSORED POST)

We (rplan) did some research and found that 89% of people had no idea how much they were paying for their ISA investments (and that's excluding the 30% who thought it was free.) 
In reality, you are most likely paying two sets of charges: when you buy the investment (the initial charge), and then on an ongoing basis (usually calculated annually.)
Why is this important? The charges can have quite an impact on your investment. 

ISA charges can seriously affect your investment

For instance, the initial charge can be up to 5% of your investment; the ongoing charge is usually around 1.5% for funds, and less for passive funds or ETFs. Over 10 years, these charges add up.
We found that the difference between the most expensive and a cheaper option could be up to £6,300 if you invest the full ISA amount each year. That's a big difference.
This is why we created a tool to see how much you could save on your investments by switching service provider. 

The tool is available here - it is free and easy to use. 

Simply enter how much you have invested currently and your current provider, and see how much you could save.
The charges you pay go to the fund manager (you are paying them for performance) and to the service provider (you are paying them for service.) Your service provider could be a financial adviser (IFA or bank), a broker, or an online service. In the case of a financial adviser, you are paying for the quality and frequency of the advice; in the case of a broker or online service, for their tools and customer service.
The key to understanding whether you are getting good value for money is understanding how much you are paying. Armed with that knowledge, you can then decide whether you are truly spending with power; and the savings could be significant.


Blog post by rplan.co.uk

Shouldn't financial education be compulsory?

Today teenagers across the country will be getting their A level results and finding out whether they're en route for Oxbridge or Uxbridge. 

In three years time many will emerge with a degree - and a debt of up to £54,000* 
Debt used to be a dirty word but since the introduction of Uni tuition fees it's now not only OK to have debt but the government encourage it. 
Isn't it sad then that many students come out of school having had NO education in managing debt, understanding interest rates and financial management? 

Today the Department for Education said:

It's a national disgrace that in the 20 years since introducing student loans, we’ve educated our youth into debt when they go to university, but never about debt. We're a financially illiterate nation, with millions caught by misselling, overborrowing and being ripped off. Is it any surprise we’ve just had a debt imbued financial crisis. This must change. Companies spend billions on marketing and teaching their staff to sell – it's time we got buyers' training. The most cost effective way to start is to ensure every child in the country gets a basic understanding of personal finance & consumer rights before leaving school. This isn’t a large resource requirement. Some schools already do it, but the majority don’t and that needs to end. Unless it's compulsory, head teachers can’t prioritise for it. 97% of people support this, yet no one will take up the baton. We have one of the world’s most complex consumer economies; it's time our children were taught how to thrive and survive in it.

You can sign a petition to support compulsory financial education in schools here

The extent of the debt - and it's not just the kids who need educating:

*£54,000 calculated by the long-term savings and investment company Standard Life. Their research shows that many parents are also ignorant about the extent of student debt. More than half of parents underestimate the maximum amount of debt their child could leave university with. 

When asked to take into account the increase in tuition fees to a maximum of £9,000 per year from 2012, and any other debts accumulated from living expenses, student loans, bank loans, etc, 58 per cent of parents think the maximum debt their children could leave with is £40,000 or under, including many who think this would be a lot less. Despite this, a fifth (21 per cent) of parents have started to make regular savings to help ease the costs of their children's university education. And nearly a quarter (23 per cent) of parents are putting money aside on special occasions (e.g. birthdays or one-off windfalls). 

Julie Hutchison, Head of Technical Insight at Standard Life, said: "The findings of our research are positive as they show that parents have identified the need to save for their children's time at university. Unfortunately their expectations of what that cost could be and therefore the target amount they want to save might actually be too low."

The future's bright. The future's orange or banana... but not chocolate.

You know you’re into the festive season when you find yourself sitting down to a meal you ordered back in September. 
Often at one of those works ‘dos’ where the restaurant needed the order for your table of 68 people ahead of time.

And you find yourself wistfully wondering ‘Why?’.

Why did I think I would want steamed fish and a side salad, you wonder, as you eye up the juicy roasts, mountains of potatoes and pillow-size yorkshire puds arriving at other tables.

mmm...wish I'd ordered what they've got...

Here's the reason. We all have really good intentions for our future behaviour. But we’re less sensible when it comes to present, on-the-spot desires. That’s the Jekyll and Hyde nature of our Future Self and our Present Self (and the dilemma in the story of Ulysses and the Sirens if you want to get all mythological).

Would you choose a healthy snack or junk food for yourself next week?

In a psychology experiment carried out by Leeds University Business School in 1998 experimenters asked people what snack they would like to have in a week’s time - a banana or a chocolate bar. Most people made a banana their advance choice.


The following week the experimenters returned and offered the same people a snack to have straight away. No mention was made of their previous choice. Most people, especially women, opted for the chocolate.

People are saying ‘at the moment of consumption I can’t resist vices

But some time in the future I’ll have what’s good for me’.

We have difficulty delaying gratification because pleasure-seeking is such a strong motivator of human behaviour. We’re much better at exercising self-control when thinking about the future. But not so good at the moment of choice. 

That’s why we join gyms we don’t go to, and think we will eat healthier food in the future. It’s why half of all people surveyed last year said they would go to church, whereas in fact 90% stayed on the sofa. And why we don't care for the planet as much as we should.

So next time you want to make a sensible economic decision, try to make it ahead of time. 
Because prescriptive savings programmes, like Save More Tomorrow (devised by behaviour economist Richard Thaler and adopted by firms like AXA) are a brilliant idea. 


They capitalise on this natural human tendency by getting people to decide in advance to allocate a portion of their future salary increases towards their retirement savings. 
Consider which you would do:

a) Commit now to putting 10% of a future pay rise towards additional pension or mortgage payments?

Or

b) When you get your next pay rise will you then make those additional contributions?

Healthy diet and healthy finance decisions have a lot in common! Pass me the chocolate.

How satisfied with life are you?

A recent study showed that more women are highly satisfied with life in general than men. Modern life is complicated for everybody, but women tend to have better coping strategies than men. For example, women are more likely than men to go to their GP if life gets them down. They are also better at getting connected to people and seeking support from family and friends. Being more optimistic and less competitive, women are better able to restore themselves to a happy state.

The study also showed that, of all the things in life that women would like to improve,  a healthy level of savings, clearing debts and paying off the mortgage ranked highly. Men also placed importance on such financial improvements, indicating that both men and women want more control over their money and that today’s life aspirations focus on better financial planning and preparation for the future.  

The strong link between financial health and mental well-being revealed by the survey is really important. Our sense of well-being is closely tied to our financial stability and if this is threatened we suffer feelings of insecurity. Women rate their financial aspirations highly because being debt-free and financially stable makes them feel secure and more in control.

The research was commissioned by first direct  because, “As a bank that has customer satisfaction at its heart, we wanted to understand the level of satisfaction and happiness across the UK." Nice to know a bank cares about its customers' satisfaction.

Reasons to be loyal – and not

Women are big on loyalty. Sometimes that’s good for us. Other times it isn’t.

(image David Palmer)

Reasons to be loyal:

• when someone criticises a colleague behind their back, it’s good to stick up for them
• when your best friend’s going through a tough time, even if she forgets your birthday, stay in there
• when no-one likes your husband’s Boris-Johnson-lookalike hair style, you think he’s gorgeous

Reasons not to be loyal

• when you repeatedly get crap service from your bank
• when the credit card you pay off every month doesn’t reward you (in cash back, points, air miles or similar)
• when the introductory bonus deal on your savings has run out and been replaced by a paltry rate of interest
• when the value of your endowment policy has dwindled to a teeny fraction of what it promised to be

So whereas women are loyal to their loved ones, it doesn't always pay to be loyal with money.

And maybe that’s why more women than men lose out.

Ali Hussein’s article in the Sunday Times today - on how some insurers, energy and savings providers actually punish loyalty is quite an eye-opener!

SIX TIPS FOR TWENTY TEN

This week the media have been dipping into Sheconomics for solid advice - see us on motley fool.co.uk, in Oprah's magazine 'O', in Times on-line and Cosmopolitan to name just a few......

Check out our fail-safe tips for a sheconomical 2010 on handbag.com or read the extract below......

Want to be better with your money? Answer the questions that Karen and Simonne have devised below. If you answer ‘yes' to any of them, take note of the tips and put them on your 2010 to-do list.

1. Are you financially immature?

We think we're grown-up, running a home, holding down a job. And then a money problem comes along and our inner child is unleashed. It's a common problem with women and it can stem from being over-protected when young, or from naively believing things will just work out somehow. The first step to being financially savvy is to be in charge of your money. Make financial independence your goal this year.

Tip: Find out about what you earn and what you owe. Sign up for online banking and monitor your finances regularly. Open bills and statements as soon as they arrive and deal with them.

2. Are you secretly scared of money?

Money is an emotionally loaded topic. Lots of women have fears about money. They can remind us of the doom-laden warnings from our parents. Or can be triggered by the technical language and jargon used by the finance world. Fear stops us taking action, so resolve to be ahead of the game this year.

Tip: Break big goals down into small, manageable steps and take one action now. Own up to the gaps in your knowledge and buddy up with someone who knows. Visit a plain speaking, friendly money website regularly, such as moneymadeclear.fsa.gov.uk. Or talk to a financial coach. If you want to empower yourself - find out how compound interest works (see www.fool.co.uk).

3. Do you have a shopping habit?

Shopping has become the way many women regulate their emotions. Research for sheconomics.com found that women use shopping to cheer themselves up, relieve stress or anesthetise themselves against painful emotions. That heady buzz from spending quickly wears off though, leaving only feelings of shame and guilt. Resolve to get high on life, not high on shopping, this year.

Tip: Know why you shop when you do. Spend only when you need the goods, not the buzz. Find alternatives to shopping that boost mood, like exercise, cooking for friends, dancing or gardening. Deal with your emotions, don't take them shopping.

4. Are you afraid to ask for money?

Women are still paid less than men and are far too reluctant to ask for money. If you undervalue yourself then you will be under-paid. Watch your self-limiting beliefs. Just because you hated maths at school doesn't mean you shouldn't have money. And working your socks off doesn't necessarily mean you'll get rewarded. Payback is more likely if you're upfront and ask for it. Be bolder this year. That includes negotiating for better deals and refusing to pay for bad service.

Tip: Ask for what you're worth and don't be fobbed off. Prepare your case and be proactive. If you've hit an earnings barrier, consider moving. If you're self-employed make sure your rates reflect what you're giving and the time you put in.

5. Are you a ‘live now, pay later' person?

Most women today will out-live the men in their lives. Many will also out-live their own savings. What will you do when you can no longer earn money? The earlier you start putting money away for your dotage, the less it costs you. If you haven't begun, resolve to make a gift to your future self this year.

Tip: If your company has a pension scheme, join it now. Or find out about pension options. Pay yourself first: automatically divert a set amount from your account into a savings or pension scheme every month. Confused by all the options? Just remember, doing nothing is the worst possible option.

6. Are you spending more than you earn?

Being financially savvy isn't about what you earn, it's about what you keep. Salary creep is when our spending rises with our salary, and even overtakes it. Aim to save 10% of your salary consistently. Be ready for those unexpected expenses (the boiler blowing up, car repair, job loss or even pregnancy) otherwise they'll plunge you into debt.

Tip: Track your spending for a month and plug the leaks. Shop around for the best deals on your mortgage, utilities, mobile phone etc. Deal with debt now. Seek help if you're in too deep (see cccs.co.uk for free counselling and assistance). Cut up your credit card until you can afford to pay it off in full every month. Have an emergency cushion equivalent to three months' expenses.

For more tips see sheconomics.com, or read Sheconomics­­ by Professor Karen J Pine and Simonne Gnessen, published by Headline, price £7.99.

Win a copy of Sheconomics - we've got 10 copies to give away! Stay tuned for our Sheconomics money webchat with Karen and Simonne later in January.

Article appeared on handbag.com 31.12.10

Sheconomics Tip Sheets

Happy New Year!

If one of your resolutions is to gain a few pounds (that's £££s) and put your finances on a fitness regime, we've got the perfect solution.

Our new Sheconomics Tip Sheets deal with everything from asking for money to curbing the urge to splurge. There are ten in total and they're the ideal toolkit to see you Sheconomically through the next decade.

Download the Tip Sheets from here.

Sheconomics tips for a cool yule

I wasn’t surprised to read that seven out of ten people report money as their main stressor, according to a US survey for the American Psychological Association. And the Christmas holiday is one of the most tense and taxing times for nearly half of all women.

How can you buffer yourself against seasonal stress and guarantee yourself a cool yule? Here are our Sheconomics tips:

· Invest in yourself. Put aside time for some self-pampering, long walks, old movies or a riveting novel. Don’t let other demands encroach on that precious me-time.

· Have realistic expectations. Let go of idealised notions about the festive season with you as wonder-woman in flashing reindeer ear-rings. Enlighten others about what to expect, then no-one’s disappointed.

· Focus on what matters. Know what you want from the holiday season, e.g. giving back, togetherness or reflection. Make it your holiday philosophy and don’t lose that focus.

· Stick to the budget. Set a limit on what you’ll spend on gifts and food. Scale back those sneaky extras/last-minute treats or try home-made instead.

· Rope in others. Whether it’s help with planning, shopping or cooking or the need to talk and get psychological support, don’t be afraid to ask others for hep when you’re feeling overwhelmed.

Got friends who are feeling stressed about finances? A copy of Sheconomics could be the perfect gift!

Simonne asks: How green is your money?

This week (8-14 November) is National Ethical Investment Week (NEIW). The idea is to raise awareness of green and ethical options for investing money and inspire us to invest in a way that will have a positive impact on society and the environment.

As a nation, we may have got into a good habit of recycling, buying fair trade products and preserving energy, but few of us are choosing to invest ethically. Half of people with savings and investments would like to make money and make a difference, yet only 8% of investors have an ethical investment or savings account (source YouGov).

To find out more about ethical choices take a look at YourEthicalMoney. This site provides independent information on what banks do with your money, allows you to easily compare green and ethical investments and helps you find an ethical financial adviser. There’s also a link to this site on the Resources page of our Sheconomics site.

Simonne