We’ve pulled together a round-up of resources to help you get to grips with your money – whether you’re just getting started or well on your way.
We’re all familiar with the things we can do to keep fit and well – physically and mentally. And while our financial wellbeing is just as important, we still find it very difficult to talk about money matters.
Even before the pandemic hit, there were 12.8 million households in the UK with less than £1,500 in savings – including some with no savings at all.1 Add to that the fact that the proportion of the UK’s population aged 65 and older is growing faster than any other age group (it’s expected that by 2050, those older than 65 will account for one in four people)2, and it’s clear that it’s more important than ever to take greater responsibility for our financial futures. The coronavirus pandemic has added an additional consideration: touching every corner of our lives and throwing a stark light on our financial needs and priorities.
So in support of Talk Money Week, which runs from 9 to 13 November, we’ve compiled an essential reading list to help get you on track to achieving financial independence and resilience.
It’s never too late to get to grips with your finances. The first step is to identify your goals for later life. But don’t be daunted: working out how much you need to save for retirement is more straightforward than you might think. The Pensions and Lifetime Savings Association has developed a set of Retirement Living Standards that aims to help people picture what kind of lifestyle they could have in the future, and outlines how much they’ll need per year to maintain that lifestyle – minimum, moderate or comfortable.
Of course, what you need to do establish financial security when you’ve stopped working depends on how close to retirement you are. It’s a good idea to break it down by your age, as the steps you need to take in your 20s will look very different from those required once you’ve reached your 50s.
Once you’ve identified your goals, however, there can be challenges along the way (the present market volatility caused by the coronavirus crisis being a good example), so it’s wise to be aware of the basic principles of investing. Indeed, the uncertainty caused by the current situation might make you think about waiting to think about your finances until things have settled down. But volatility is always with us, and it’s more important to think now about the longer term than to allow short-term thinking to jeopardise your goals for the future.
And remember, you might have money tucked away that you’ve forgotten about. It’s estimated that there’s nearly £20 billion in savings held in lost or dormant UK pension pots,3 so if you’ve moved jobs a few times, it’s worth tracking down your lost pension funds and possibly consolidating them.
Talking to your family about money is crucial
Looking after your own finances is just the beginning. Consider those of your wider family, too – involving generations both above and below you. To help your children secure a solid financial future, it’s best to start talking to them about money early, as the sooner they get into good habits, the better their prospects will be.
There are also practical ways to help your children. One is by investing money for them – not only will you be giving them a helping hand, it’s also another good way to engage them in thinking about money management and planning for the future. Less well known is the option of starting a pension for your child – as with all pensions, starting sooner rather than later is better.
Another, more specific form of practical assistance that parents and grandparents like to offer is to help the younger members of the family get on the housing ladder – in fact, the ‘Bank of Mum and Dad’ is the UK’s eleventh biggest mortgage lender.4 That said, this – and all forms of financial investment in your children’s future – can come with risks for your own financial security, so it’s important to seek advice when you’re thinking about giving them a helping hand.
Whatever assistance you want to give, consider the fact that the girls in your family will face challenges that the boys won’t, including the gender pay gap, the costs of taking time out to have children and longer life expectancy. So parents might want to level the playing field by investing a bit more for the girls and women in their family.
Of course, some conversations about money are easier than others. For those who have elderly parents, it’s all too easy to put off discussions about what will happen to their finances when they’re no longer around, but planning their legacy is essential to avoid uncertainty and disputes later on. And against the backdrop of a global pandemic, many of us are realising the importance of protecting ourselves and our family – so it’s important to take stock of any financial risks you face and take steps to mitigate them.
Many parents find themselves in the ‘sandwich generation’, bringing up their own children while also caring for their parents. In the present pandemic this amounts to a perfect storm of financial, emotional and time pressure. So it’s especially important to keep talking to your family and find ways to navigate choppy waters.
Women need to ensure they’re saving enough
The extra hurdles that women face make it especially important for them to make sure they’re saving properly for retirement. And it’s not often acknowledged that women generally don’t see themselves as investors, even when they have a workplace or personal pension – but to harness the full power of their pensions, they’ll need to.
Women’s priorities also often differ from men’s. Two-thirds of women5 believe that it’s important that their investments make a positive social impact; pensions are a great way to make a difference.
With more women breaking the glass ceiling, women are predicted to own 60% of UK wealth by 2025.6 But even high earners can end up financially insecure if they don’t take responsibility for their own financial lives, and could be missing out on tax allowances, or not saving enough into their pension. And women have been more likely to lose jobs or see a pay cut during the coronavirus crisis7, so they should make sure they’re still paying enough into their pension.
While most people previously faced a largely binary choice at retirement, there are now a variety of decisions to make and scenarios to weigh up – all with the end goal of making your pension income last as long as you need it.
Getting your investments right is important because we are living longer, and we tend to underestimate how long we are likely to live. A study by the Institute for Fiscal Studies found that on average, people in their 50s and 60s underestimated their chances of survival to age 75 by about 20 percentage points.8
Most people remain invested in retirement, typically through drawdown arrangements. Once you move into retirement and start taking money from your pension pot, you become open to a new set of financial risks, including longevity and inflation risks, sequencing risk and pound-cost ravaging. Additionally, your risk tolerance changes, so it’s crucial that you understand the implications of this and undergo a regular financial health check.
Whichever stage of your financial life you’re at, McGrady Financial Services Ltd can help to develop a strategy that’s tailored to you. Just ask.
1The Money Charity, The Money Statistics, October 2020
2ONS, Overview of the UK population, August 2019
3Pensions Policy Institute, Lost pensions: what’s the scale and impact?, October 2018
4Legal & General, Bank of Mum and Dad, 2019
5WealthiHer Report, 2019, 2,500 surveyed
6Centre for Economics and Business Research, 2005
7University of Cambridge, Women bear brunt of coronavirus economic shutdown in UK and US, April 2020
8Institute for Fiscal Studies, Subjective expectations of survival and economic behaviour, April 2018
Source of Article: https://www.sjpinsights.co.uk/article/talk-money-week-2020