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Is it age or a different generation that makes older people more trusting?

Is it age or a different generation that makes older people more trusting?

Is it age or a different generation that makes older people more trusting?

I was mulling today about my grandmother who is now in her early 90s. A few years ago, before her dementia sadly progressed so far as to make this issue redundant, she would constantly call me after a salesman had come to her door, asking me if she should switch to their product.

When I asked her why, the answer was always the same, "because the salesman told me it was cheaper". I always replied, "Grandma, you know what I do for a job, I promise I have made sure you are on the very cheapest possible tariff."

Yet, for her, the simple fact someone had told her it was cheaper meant they had to be telling the truth. She spoke of coming from a trusting world – my explaining this was just a commission-based seller using it as an opening line didn’t cut any mustard.

I hear similar tales repeated by many people about their parents as they delve further into old age. 

Now, of course there is no universality here. There are many extremely savvy people out there far older than my grandmother. Yet, it certainly does seem, anecdotally at least, that there is a trend of our older generation being more trusting.

What I am interested to know is, is this an age thing or a generational thing? 

Do we tend to become more trusting as we get older or is this about the ‘war generation’? This generation lived through a time when everyone in the country had to pull together and look after each other to enable them to survive, a better mannered time – is it because of this they have a greater belief that most people are honest and trustworthy? My suspicion is that it probably is. 

That’s not to say that younger generations aren’t trusting, but in a different way. In general I am a great believer that most people are good. 

If you ask somebody to do something for you they will generally do it well, even a stranger, without stealing your stuff or letting you down.  I’ve written before of my joy at seeing the person ahead of me in an ATM queue chase after the person in front of them as they’d walked away with their card but left the cash dangling.

However, when it comes to business and the corporate world I believe we live in an adversarial consumer society. A company’s job is to make money, our job is to stop them. Companies will tweak every possible profit-making nipple and at the sales end of it, if that includes manipulating the facts and using sales techniques to create openings, then they will.

I’d love your thoughts – are the older generation usually more trusting? And if so, why do you think that is… (and to know your age too would be interesting in this).

Beware universities mis-selling courses on open days

Beware universities mis-selling courses on open days

Beware universities mis-selling courses on open days

It’s university application time. Hundreds of thousands of potential students across the country are deciding on their top pick institutions and courses. Many will have been on open days and been impressed by the facilities of the high powered institutions that could change their lives.

I’m a huge fan of university education – I think for many (though not all) it can broaden your financial, cultural, and general world outlook. Yet I want to sound a note of caution: how good a reflection of university life is the open day?

A few years ago I went with my little sister to an open day when she was choosing a course. It was a grand university and we got there for a talk on the international relations course. The man who walked in was an eminent professor who is often interviewed by world media – and within the sector, he is rather well-known.

He waxed regally about himself, the subject and the course for about 25 minutes. All looked good; I could see impressed young faces all around me (and some older ones too – many university applicants are mature students these days). 

Then it came to the question and answer session. One bright potential student put their hand up and asked: "How many contact hours do you have with undergraduates?" 

There was a pause, the professor hesitated, then said; "Actually, I don’t teach undergraduates, I only deal with research students." 

So the young questioner clarified; "In other words, we will never see you at all?"

"Correct," said the professor. 

That was it. If it hadn’t been for that bright student, no one would have realised that what they were being sold – the dream of getting (someone who considered himself to be) one of the world’s great minds on the subject – wasn’t a reality on this course. It got worse as people started to ask about practical issues such as whether or not it was possible to take a sandwich course and go to study abroad? The professor didn’t know. This continued, in fact he knew little about the practical details at all – no surprise as he didn’t have much involvement with them.

You could argue it was just ‘spin’, using one of their big names to draw people in, but there are many walks of life where we’d have called this mis-selling.  

I made a complaint to the university about this – and it agreed to look at its practices (which is why I’ve not named it). 

The appropriate halfway house would’ve been to couple him with another academic who was in charge of the course – so you had one to ‘sell’ the subject and the other to ‘sell’ the course.

These days, with the nominal cost of university at £9,000 per year per course (I say nominal because it is actually what you repay not what you’re charged that counts – see Student Loan Mythbuster), universities can’t allow themselves to behave in this old school paternalistic way.

We now have a much more consumer-driven university landscape and it’s important that universities understand that the way they portray themselves, like any other environment trying to attract business, needs to be ethical, clean, clear and above board.

Related Past Blogs:

Don’t shorten your mortgage term if you can overpay

Don't shorten your mortgage term if you can overpay

Don't shorten your mortgage term if you can overpay

This morning a nice lady approached me to ask a quick question about her mortgage. She said that thankfully, her finances were in a good state and she had a cheap variable rate mortgage, so she was considering cutting her mortgage term to be able to clear the mortgage much more quickly.

On the surface this is eminently sensible. Decreasing the term means you pay it off more quickly, which means there is less time for interest to accrue, so you pay less overall.

However, while it is sensible, my question to her was: "I presume you can’t overpay the mortgage?"

She told me she could – in fact she had a mortgage with fully flexible features that allowed her to overpay and even borrow back if she wanted to without penalties.

Overpaying has the same impact as shortening the term

This left me slightly stumped because overpaying has exactly the same impact as shortening the mortgage term, but with the great advantage that you can stop doing it if you want or need to.

Here are some example numbers to prove the point…

  • A 25 year 3% interest repayment mortgage on £200,000
    Monthly cost: £948 | Annual cost £11,380 | Total interest over 25 years: £84,530
  • Shorten that to 20 years
  • Monthly cost: £1,109 | Annual cost £13,310 | Total interest over 20 years: £66,210

As you can see, shortening the term increases the monthly cost, but cuts the total interest by £18,000 – a monumental saving.

Yet she would end up with a very similar result – both in cost and in the time it takes to clear the debt – by overpaying by £160 a month or a lump sum of £2,000 each year – the difference between the cost of each mortgage. (I say similar and not exactly the same as timing issues, and when the interest is calculated, can have a small impact).

If you can overpay your mortgage (and by that I mean choose to pay a variable amount more on top of your set repayments without penalties – rather than formally changing the amount you pay), it’s worth playing with our Mortgage Overpayment Calculator, which shows the impact of single or regular overpayments.

Overpaying is far more flexible

The real key here though is that she said her mortgage is at a variable rate. That means if interest rates rise, as many predict they will, her monthly costs will increase anyway. That could make the payments of the shortened term unaffordable – and there is no guarantee if you shorten your mortgage that your provider will allow you to increase it again (this can be much more difficult to do).

This could mean mortgage arrears because of the inability to pay over the shortened period.

Yet with overpaying, you could simply stop doing so by the same amount, giving you the freedom to control payments.

Overpaying isn’t for everyone

Before you start overpaying – assuming there are no penalties (or shortening your term as the impact is similar) there are a couple of things you need to think through. The first is contrasting the benefit of it against straight savings.

The simple rule of thumb is if your mortgage rate is higher than the after tax rate you can earn on savings, it generally pays, if not – for example, for someone on a very cheap legacy mortgage – you are likely to be better off saving rather than overpaying (best tactic is to put the cash aside ready to overpay in case/when rates rise).

I’d also suggest that before dunking the cash into your mortgage, you consider building up a cash emergency fund of six months worth of bills. This way if something happens you’ve got the cash put aside – rather than locked away in a mortgage (and the fact you’ve overpaid won’t stop them putting you in arrears). For far more on this and much more help see the Should I overpay my mortgage guide.

Thoughts below please.

PS. Having read some of the feedback, it seems after overpaying, some lenders automatically decrease your normal payments. Of course this can help some with cashflow but it doesn’t have the interest and term reduction effect that this blog is about. So when you overpay, ask them to ensure your standard repayments remain the same.

Other ‘interesting’ mortgage stuff I think you may like…

Foodbank financial triage – an update

Foodbank financial triage – an update

Foodbank financial triage – an update

In August I blogged that I was going to fund a radical pilot scheme to get financial triage into foodbanks with the Trussell Trust.

The idea is that when people are asking for food, it’s a great time to try and help them manage their money and see what help is available – so hopefully the trip to a foodbank (to which people are often referred by a health or social agency) will be a one off.

For full details on the scheme and my involvement read my I’m excited to be involved in financial triage at foodbanks blog post.

The Trussell Trust has just sent its first progress report to me, so I thought I’d share it, as I know many of you were interested.

"Six food banks have been lined up to participate in the pilot. They are:

  • Hammersmith and Fulham
  • Stroud
  • Coventry
  • Cardiff
  • Durham
  • Dundee

Plus Tower Hamlets which we will wind into the pilot as they have already implemented a programme which is still running. No money will go to them directly, however we will include their results.

We have lined up and have spoken to all initial Partners: CAP, Turn2us, CMA, Money Advice Trust, CAB.

Following all press including Martin‘s interview, the Trussell Trust received 57 enquiries from potential partners wishing to participate in the pilot. Whilst the above listed have been chosen to participate, the others are being managed until such a time it is appropriate to proceed with them.

Computers have been organised for all trial Partners (at nil cost to the project, sourced through Avios air miles promotion by being their charity partner).

David has visited Northern Ireland where he has put the wheels in motion as follows:

  • Set up and agree terms for NI ( Northern Ireland) using Advice NI.
  • Advertised for a Project Coordinator. Interviews will be held on 13th October."

So we’re about to be up and running. It’s great to see so many people engaging with this.

Cancelling the 55% tax on unused pension pots could be a disaster for many older people

Cancelling the tax on unused pension pots could be a disaster for many older people

Cancelling the 55% tax on unused pension pots could be a disaster for many older people

In the last Budget, Chancellor George Osborne announced he was freeing up much of the pension market so people could take their  money when they wanted – 25% of it tax free and the rest at their income tax rate.

Today, at the Conservative Conference, he has said  that if over 75s do that and die, and there’s money that hasn’t been touched in their pension pot yet, instead of their estate paying the current 55% tax when its passed on; they’ll pay it at their marginal rate (full info in the death tax news story).

This is a big pre-election giveaway to older voters, likely on the back of the scares about UKIP defectors. At a first glance, both these proposals seem wonderful, giving people more choice in the pension market and a greater ability to leave it to their dependants. (I shall ignore the wider  philosophical debate over cuts in inheritance tax – which is a tax to stop perpetuating inherited privilege and wealth – that’s a discussion for another day).   
Yet I have some real concerns over unintended consequences – so I’m quickly bashing out this blog as a stream of consciousness. I’d love to know your opinion on it.

The issue isn’t people overspending, it’s people underspending

When the pension liberalisation policy was first launched, one big headline concerned the risk that people would  simply cash in their pension, buy a Porsche and the state would have to look after them in their old age.

Of course this can happen, but I suspect only with a trivial number of people. In fact as I explained in my The Chancellor’s pension changes are wonderful and horrid blog, the real worry for me is the opposite of this.

I am concerned that someone who has a pension – be it  £20,000 or  £200,000 – when they retire at say 67 knows it must last them the rest of their life, and a natural fear means they will be very reticent to touch it.
It will be left sitting there and that worry that if they spend it now they will have no money later on  in life, means they will leave it there growing but unused, not helping them in their life in the way that a pension is designed to.

That was the one  benefit of an annuity: you cashed your money in and you got a payment each year for the rest of your life – a real genuine income. The big problem with annuities of course, was that the amount that you got wasn’t big enough.

Under the new system of pension  freedom, the only way to really decide how much you should be spending each year is to know when you will die. Now that isn’t that easy, although actuarial charts and your health and situation can you give you a rough indication of when this will be.

Of course you could get it wrong, so as a rule of thumb I would assume you are going to die 10 years later  than the prediction and spend your money accordingly. But I simply don’t believe people will do that. Take these examples…

If you look at people who saved up for retirement planning to live off their savings in the bank (as opposed to pension savings). With interest rates lower than inflation, effectively the money is shrinking. Therefore it makes logical sense to spend some of the capital to live off, as the income isn’t enough. 

Yet the psychology of it means people are, albeit understandably, simply are unwilling to spend the capital that they have; they only want to live off the interest.

This situation I suspect will be mirrored for many in not using the cash in their pension pot too quickly.

The cutting of tax could make that worse

The idea is that the money can be just as efficiently left to your inheritors as it is for you to spend it. I think this will perpetuate this psychological problem. Of course, there are some more affluent people who will see it as a great way to be able to leave money to their dependants by not touching their pension and using other funds.

Yet many on lower incomes already have guilty old ages, worried they’re "spending my child’s inheritance", even though sometimes their children are more affluent and have better lives. Pension money is meant to be there for you, not your dependants, to give you a decent standard of living in your old age.

Yesterday when I was filming for my  television roadshow, I spoke to the son of a woman who had a decent but not huge of  amount in savings who was desperate to give it away to her children to avoid  inheritance tax. She was 78 and in decent health, but what was she going to live on for the rest of her life?

So indeed my great fear with this change is more people will restrain and constrain their spending far too much on money that is supposed to support them – knowing it could go in an efficient way to their kids.

Would guidance and education alleviate the worry?

The Chancellor has said he wants people to take guidance when they take their pension so they will understand these issues. The amount of money initially put into the pot to fund this -  up to £20m for the first two years – is actually relatively small for giving guidance to all pensioners; certainly if advising them the way I would prefer, at a proper level where people will take liability for the advice that is coming across, rather than what could just be generic twaddle if not done right.  

So my great concern is not that I have a principled objection to the freedoms of the pension market, nor even  necessarily to allowing people to inherit with lower tax. What I do worry about  is that we do have a primarily financially underskilled population who are not equipped to deal with these issues.

We already know that from the fact that when  people retired in the annuity market, even though there was an open market  choice where they were able to go right across the market to get the best  annuity rate, the majority of people (60%, according to a 2012 study by the Association of British Insurers) didn’t do that. Instead they just kept with their pension provider’s annuity so losing income every year for the rest of their life.

I don’t think that enough of the current generation retiring population (especially those with smaller pension pots) are well equipped enough to deal with the freedoms. You may call me paternalistic, but I think we need more protections in place to help people manage their finances well when they retire.

I’d love your thoughts?