What's the point of saving money if you don't put it to good use?
PUBLISHED: 15:28 08 August 2017 | UPDATED: 08:45 17 August 2017
Speaking with the marketing director of a well-known financial adviser recently, the subject of happiness and how we define it was discussed at length. You might think the sole focus of those who advise us on wealth-related matters is how to make their clients' money and investments work harder, but there is another, equally important, part to this equation, namely the why or purpose.
What’s the point of saving money if you don’t put it to good use? There’s very little merit in being the richest person buried in the cemetery.
Scientists have long maintained that perhaps our most effective use of money is in the pursuit of happiness, and while our definitions of what constitutes happiness will vary considerably, it remains one of life’s most valuable, if intangible and entirely subjective, characteristics. Furthermore, most of us recognise that contrary to the old saying, the sensible application of money can go a long way to buying us some form of happiness.
The results of research published last week in the Journal of Economic Behaviour and Organisation found that people valued happiness above jobs, education and even their families. Health was the only thing most of us would not, apparently, sacrifice for happiness. Enjoying a combination of good health and happiness is as much as the overwhelming majority of folks want in order to feel content with life, but the marketing man suggested there is a burgeoning cohort of grey hairs whose seemingly happy existence threatens to be disappointingly short-lived.
Referring to this still comparatively small group as the “50k and A-Okay bunch”, he said that over the past 18 months his company had seen “an unexpectedly high number of over-55s” draw upon their often quite modest pensions and spend what are supposed to be longer-term savings on short-term consumption. Cruises in particular have proved very popular.
Worryingly, a sizeable proportion of people who have done this believe themselves to be quite well-off, hence the “50k and A-Okay” tag, though most of them are not yet 65 and they’re already eating into funds saved for retirement.
Economists argue, rightly, that there is great merit in spending more heavily on fun and happiness-inducing products and services in the early years of retirement, not least because, as we get older, so back-packing our way to Machu Picchu or scuba diving off the Great Barrier Reef becomes more of a strain on ageing limbs.
However, the marketing man suggested that wherever possible, instead of swanning off to south America or Australia, most people would be better off adding to their existing £50,000 pension balance and retiring later. “Saving an additional £150 a month would give a 55-year-old a pension worth nearer £145,000 by the time they were 70,” he said.
Of course, if you’re 25 and still coming to terms with working life while paying for rent, travel to and from work, food and a host of other essentials, you might find it difficult to save £50, never mind £50k. It’s also likely you will not have much sympathy with someone who blows £10,000 (or 20% of their savings) on a two-week cruise around the Med. And rightly so. But you’re also at an age when it is essential to start saving regularly if you’re not to fall into the same boat (pardon the pun) currently occupied by the “50k and A-Okay” crowd.
A 25-year-old saving less than a fiver a day in a stocks and shares ISA, for instance, will produce almost £10,500 by the time she reaches 30, assuming the stock market continues to generate average annual returns similar to that which it’s produced for more than a century (Barclays calculate it’s 5% pa over the last 116 years).
Increasing savings by just £3.28 a day for the subsequent decade would see the nest egg balloon to £56,000, while bumping the monthly amount saved to £300 at age 40 and to £400 at 50 would leave today’s 25-year-old with a handsome, tax-free lump
sum of £400,000 once they reached 65.
You may ask: why do this when there are so many other calls on my current cash flow? Good question, but here’s a fact of life that few people want to recognise: it is extremely unlikely the state will be handing out pensions to today’s 25- to 35-year-olds when they reach a future retirement age of somewhere between 75-80. So do yourself a favour: start making your own nest egg/pension provision and at least have a say in your future happiness.
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• $3.5 billion
Half-year pre-tax profits at Google, down 28% following a $2.7 billion fine imposed by the EU, but still a shade over $19 million a day.
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Peter Sharkey read economics at the University of Bristol. He worked as an accountant on three continents and has been a company director and investor for more than 30 years, building and selling several different companies.