I had a peculiar childhood. Instead of a mother and father and siblings, I had a mother, and a nanny and a granny. Nanny and Granny were two unmarried sisters who adopted two girls: my mother Katherine and my auntie Rosemary. Rosemary had a husband and two children.
Nanny was an intellectual: she had won prizes for getting the best results in the country for her Matriculation exams. Her intellectual passions were for history, economics and politics: passions she passed on to me. She was hopeless impractical -- a curse she passed along to me too.
She was of a certain social class that could best be described as 'distressed gentlefolk'. I have never quite been able to place her on the English social spectrum. She had attitudes that were distinctly upper class but she certainly didn't have the money and connections to match. We lived in an area, and I went to schools, that would be described as upper-working class or lower-middle-class. She disliked what she saw as the mis-placed snobbery of the middle classes as well as the 'uncouthness' of the working classes. Her friends were mostly single women of the 'blue-stocking' variety. There was a mismatch between the social class I found myself in, and her expectations.
Her money had been eaten away by inflation since the War and she had a meagre fixed private income. She was constitutionally, intellectually and emotionally unsuited to 'real work': she'd had a job once, but failure-fear overcame her and she never worked again. She was terrified of inflation reducing her to abject poverty so we lived with extreme, Great Depression-level economisation measures. Fortunately, there was no mortgage to pay: she owned the two houses and one flat we spread ourselves between.My mother drew Income Support, the UK equivalent of the DPB, which she supplemented by looking after old ladies and small children.
Those fully-owned houses contained not a single 'mod con'. Milk was kept in a bowl of cold water in the 'scullery' (as they called it). We didn't have a telephone or a car until I was 11 (1981). I have visited 'open air museums' where you can see how they lived in 'the olden days'. "Oldies" going round these museums would exclaim at the things they had in their childhood. I, too, had these same things. Rug rags. Crocheted blankets. Nanny and Granny would go to jumble sales and buy up vast quantities of well-past-their-best woolly jerseys, pick them apart, and use the wool to make new blankets. They were fabulous blankets! I preferred them to the mass-produced ones that I slept under when I stayed with friends in their centrally-heated, double-glazed modern houses.
There wasn't enough income to give me much pocket money -- I seem to remember a meagre 50p a week. I usually spent this in the jumble sales on broken clocks and radios which I would bring home to pick apart, the way Nanny and Granny picked apart their woolly jerseys. But I wanted more: model railways (that worked!). That was when I learnt my first economic lesson -- one I have never forgotten.
This was the late 1970s. My family had tried to instil in me the importance of saving. But inflation was in the double digits: as soon as I'd saved, snail-like, enough for something I wanted in Gamley's, the price had gone up ... again ... and again ... and again ... This cycle was only interrupted by Christmas and Birthday (just 4 weeks apart) when non-financially-embarrassed friends and families would usually give me money and gift vouchers.
I knew that I had to spend these quickly before they lost their value. The things you learn when you are around 9 years old make deep impressions and create your worldview. At an early age, I was convinced of the futility of saving money. Yes, save up, but then buy what you've saved up for, don't hold on to rapidly devaluing deposits in your post office savings account.
Of course, the strong dose of monetary sanity in the early '80s brought inflation under control, but the lessons had already been learnt: I was not a 'saver'.
I moved on from model railways and when I was 12, I wanted a home computer: the famous ZX 81. The pocket money situation was still dire, so, very much inspired by the new government's rhetoric about 'popular capitalism', I decided to get enterprising. In Biology, I'd been amazed at how quickly flowers grew in pots (I'd had a 'sponsored sunflower') so I bought packets of geranium seeds and plant pots and potting mix and managed to grow the things and sell them to people waiting for the bus outside our flat. I also found out which classmates did paper rounds and told them I would cover for them when they were sick. Plus, of course, my own two weekly paper rounds. (My shoulders, I swear, have never quite recovered from carrying the massive bags!)
I bought the ZX 81 and taught myself BASIC and machine code programming from books available in the library.
Those early days laid down the skills that earn my living now, and set the pattern for how I manage money.
I am still very suspicious of long-term saving, because inflation has lurked in the background even after supposedly being vanquished during the Thatcher days. It seems to be folk wisdom that the prudent thing to do is to save money, but I am seeing what the post-2008 financial repression is doing to my mother's nest egg, and it's not pretty. Inflation is going to get worse, not better, as QE money leaks out of its central bank/treasury circle and into asset bubbles and outwards. The current ridiculous property bubble in London, driven by the giga-rich with their excess liquidity, is a good example.
I am also suspicious of the advice to pay off your mortgage early. Given that a person's income generally increases above and beyond inflation year-on-year, because of increasing experience and market value, and inflation is likely to outstrip interest rates for several years now, it seems crazy to pay off the mortgage with harder money now, rather than with easier money later.
Another reason for not saving long term is that governments provide health care for retirees with no assets but if you have savings you're on your own, or your savings are taken off you to pay for your old-age care. As long as governments want to avoid seeming heartless to the elderly, this will continue.
OK, if you have got this far, you must me thinking that I am advocating throwing caution to the wind and going on a spending spree every payday. Far from it.
I wasn't conscious of this at the time (I just wanted a ZX 81) but the return on investment of the EUR50 I spent on my ZX 81 has been phenomenal: an entire career of freelance software development income. Teenage years are the right time to lay down the foundations of the skill that you will spend the rest of your life mastering. Of course, I have upgraded along the way, and learnt knew skills, but learning to program the ZX 81 taught me how to train myself rigorously from scratch. Without that investment at that time, I very much doubt that I would have the career I have today.
So my pattern of earning, spending and saving is to put money back into learning new technology early, ahead of the curve, so when it hits mainstream, I am ready. You could generalise this into a principle that it's good to spend your money on something that will create even more value, rather than squirrel it way and have the financially repressive rats nibble away at it; or worse, gobble it yourself in various ways.
I also believe that money is earned by families, not individuals, in that the family members earn their money for the benefit of the whole family. I consider any money spent on developing my children's imagination, creativity, intellect and skills to be investment, not cost. I also believe in educational philanthropy, but that's another blog post.
When you are mid-career, and your children are mid-education, I believe that while it's important to build up a cushion of savings ('for a rainy day'), long-term financial investments are inappropriate. Of course, long term, equity investments don't suffer the same problems as deposit savings, but they do have inherent risk, and the returns from personal, professional development, and children's education, are going to be much higher.
I am not a fan of 'buy-to-let' property investments as these inflate property prices and make it harder for people to buy 'buy-to-inhabit' properties. But that would require something of a culture change.
So what about a pension, I hear you ask! Well, there are three standard options: relying on the government; relying on a company pension scheme; or saving for an annuity. Each of these is likely to be unreliable.
The best option remaining is to build up a 'mum and dad' business, which you can either sell when you want to retire, and live off the capital and interest together (not an option with an annuity), or use as a cash cow, as long as you are careful about who you get to run it. The ideal time to start on this is your early fifties, when (a) age-ism starts to bite, (b) you have masses of business experience and (c) your children have either left home or are old enough to be part of the business.
Keep The Geranium Flying!
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