Inequality and taking financial control

It makes eminent sense for people to take control of their own finances, especially when a recent report from the Resolution Foundation talks about the fact that a typical pensioner income now outstrips those people of working age – David Wetz looks at the need for financial self-reliance.

Millennial or not, it boils down to the same old thing, that of financial security once retirement looms or kicks in.

Unfortunately for a lot of people, the world of retirement has been put on hold and the report describes the overtaking of working age income by those of pensioners as ‘remarkable’.

For a few years now there has been further concern raised over the inequalities between different generations, with many reports highlighting that Millennials are set to become the first generation to earn less than their predecessors.

Future pensioners from the Millennial set are unlikely to benefit in the same way that our current wave of pensioners do, as home ownership and generous defined pension benefit schemes are now in the main very much a thing of the past.

While economic analysts continue to chip away and make sense of the statistics and then write and publish reports that don’t paint a rosy picture for the youth of today, the desired outcome of these latest reports must be to help the government avoid a ‘time bomb’.

‘what would a £1 coin have made since 1983?’

A different type of framework needs to be delivered that looks at the future of the state pension, improving younger peoples pension rights, lowering the barrier to home ownership, and other tangible offers that will help the pensioners of tomorrow avoid the inequality that exists today. It’s a stark reality when Halifax report a UK average of £33,000 is now needed for a first time buyers deposit; in Greater London that is a staggering £114,900.

One thing is for certain. There will be Think Tanks out there advising the government on how to solve and address these important issues. Let’s hope that they’re addressed before the problem becomes too big to handle.

So, what to do now?

Time is always the enemy, and postponing financial planning should not be an option, however little money there is to save or invest.

And this is where the simplicity of investing over time can indeed pay dividends.

A recent article asked the question ‘what would a £1 coin have made since 1983?’; the £1 coin was introduced on 23 April 1983, a year when Baroness Thatcher was Prime Minister and seat belts became mandatory for drivers and front-seat passengers.

Since that day, the FTSE All Share, the main UK stock market index, has returned a whopping 3,000 per cent on investment, averaging a little less than 11% each year.

It went onto say; if left in a piggy bank, inflation would have corroded its value to the equivalent of 32p; that if invested in shares and tracked the rise in the FTSE all share index it would have had a value of £11.66 by end 2016 with any income reinvested to make the most of compounding over time.

£10,000 invested in the FTSE All Share in May 1983 was worth over £322,000 34 years later, and that period included the dot-com bubble and the global financial crisis.

The former example represents the nasty effects of inflation (rising cost of living) with the latter demonstrating that even a modest sum of money can be turned into a healthy return if you are willing to accept a long wait and the unknown element of risk associated with any investment.

DIY Investor and sister site Muckle offers a great spectrum of subjects that cover saving and investing, so keep an eye out for regular, relevant and interesting content that aims to help you understand and make informed decisions about the best use of your hard earned cash.