The more things change, the more they stay the same. The inflation situation in the UK is the most severe it has been since the early 1980s, with prices growing by 9.4% in the year to June. The expectation is that inflation could peak towards the end of 2022 and even break 10%.
There are parallels with the situation now and the inflationary shocks seen in the 1970s. Spikes in the price of oil were a major contributing factor in both cases, while food and drink prices also played a key role. The situation today is also unique, however, with Covid-19 producing an unprecedented set of circumstances that the world is still grappling with two years on.
It’s more important than ever, then, that people are given the tools to manage their money effectively. We spoke with Moneyfarm customers David and his son, Richard. David is a 63-year-old retired business owner and property investors, while Richard is 29 and is a secondary school teacher.
In this interview, we discuss the comparison between the inflationary environment today and that of the 1970s. We also examine changing attitudes to money and lifestyle, as well as how David has instilled a sense of financial responsibility and an interest in investing into Richard.
Moneyfarm: David, what’s your view on the current inflationary environment and how does it differ from your experience in the 1970s?
In the last 30/40 years, we as a society have become rich, relatively speaking. When I was young, life was harder. We were a lot poorer. We made our own beer, we saved! With high inflation, yes, it was harder than now – but I don’t really remember it affecting me. My wife and I went through 15% mortgage rates, which was of course challenging but that was life, that’s what we knew. I got a pay rise at work and our priority was keeping our house, so I knuckled down and worked hard for it.
I think we’re spoilt now, as a society. Also, what I think is contributing to the sense of doom and gloom around inflation these days is the increased access to television, constant internet streaming and online news.
We only had the newspaper once a day when inflation was highest for me, I wasn’t exactly bombarded daily by the reality of rising inflation. I was aware my take-home pay was less, but I focused on saving money because I didn’t want to lose our house – that was the main priority.
The most important thing for me and my wife was that we had a cash buffer in the bank, in case of any problems. We started investing in property, that was easy at the time because property was cheap and also promotions at work were pretty regular. There was definitely the incentive to earn more as you progressed up the ladder. I think it’s harder these days – buying property is pretty much impossible for young people unless they have external financial help.
The best thing I ever did for myself was take professional advice around investing my money. That’s what I want for Richard, I want him to appreciate the power of investing as a way to build his wealth.
I agree with my dad, we do have a much easier way of life these days. At the same time, all the noise around rising inflation at the moment is depressing. I’m certainly seeing that my money doesn’t go as far these days. I’m a teacher and I’ve had two years of no pay rises. The promise of a potential 3% pay rise in September obviously doesn’t come close to covering current inflation figures.
We do have money saved. My dad instilled in me a real sense of having to have a contingency or back up when it comes to finances – a cash buffer was key to him, and that’s certainly rubbed off on me. We don’t overspend, that’s something else I learnt from my dad. We wouldn’t take out a huge mortgage just to say we had bought a house.
When I finished university, I had no money and a lot of student debt. Obviously, I wasn’t in a position to start saving. But later in my 20s, once I’d become a bit more stable, my dad talked to me about investing and things snowballed from there. Once you start investing and seeing your money starting to grow, you can see the value. It’s fascinating to watch. It’s five years later and knowing that my money has been invested for that duration is comforting, even if inflation has eaten into it somewhat.
Hopefully, by investing more over time, my money will outweigh inflation – I know I need a cash buffer, but once that’s sorted, my savings will do better to be invested. They’re achieving nothing by sitting in the bank.
If you had the ecosystem of investment apps available today when you were younger, do you think you would have taken up investment more easily?
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Oh, absolutely. It’s so much easier for Richard to get on the investment ladder these days than it was for me. I started with traditional wealth managers and the minimum you could invest before they accepted you as a client was pretty high – much higher than I could afford when I was in my 20s. But with the new apps – like Moneyfarm – minimum investment is so much lower and you can start much younger.
That’s why I explored Moneyfarm – it had a good reputation and I was curious about what it offered and how it differed from traditional wealth managers, so I put some money in – as did my wife – and we watched what happened. It was so straightforward and the fees were cheaper. I suggested Richard look into it. And I feel like he enjoys it, now he’s involved, because he can see his money put to work. Inflation is forecast to peak at 11% in October and predictions are being made about an impending recession.
Do you feel that Richard’s prospects might be impacted /his life milestones may be put on hold as a result?
My girlfriend and I are mindful of a possible recession. Thanks to our money saving, if we wanted to have a child, we’re already in a position where my girlfriend could take a year off work and we’d survive on the maternity pay. We don’t plan to touch our investments, those are for the long-term.
I’d like to think that once inflation peaks at 11%, things will get better because inflation will then start to fall. I don’t worry so much about Richard because I see he has a sensible head on his shoulders. He’s financially aware and I know he has savings. Frankly, I think the more concerning thing for his generation is climate change and social media. Inflation is distracting us from the issues around global warming and energy supply. And Instagram is making everyone want to buy flashy cars and be out partying all the time!
That’s dangerous for your long-term financial prospects, there’s no comfort or stability there. That’s not to say that you shouldn’t have fun, especially when you’re in your early 20s and starting to get an income, but the older you get, the more you need to think about your future and plan for it.
David, what is the single best thing which has stood you in good stead with your finances, and what would you always advise to Richard?
Get yourself financially secure. Because it was quite tough at times when we were younger, all I wanted was security. That was what drove me to put money in the bank for a rainy day. Then you remove some of the stress of life, knowing that you have a financial buffer if you need it.
Richard, do you feel you have the knowledge and expertise to make good financial decisions as a result of your parents?
I learnt a lot about saving and investing and how to make my money work harder
for me from my parents, yes. I love a spreadsheet for a budget! I’m very lucky that I had that financial security instilled in me, and that they were there to support me generally. They didn’t have that kind of back-up themselves.
I feel like I have the confidence to invest my money with the right kind of risk profile while aiming for returns. I am aware of the risks of investing – right now, I don’t want to look at what the markets are doing! – but I also know that, in the long-term, the markets out-perform just keeping your money in the bank.
Would you be this clued-up if your dad hadn’t got involved and nudged you towards investing?
Probably not. I’ve never been stupid with money, but I may well have made different decisions. I definitely wouldn’t have got the ball rolling myself so early on. But starting with investment sparked an interest in me, and now I’m obsessed with it!
If you want to find out what investing could do for your long-term financial prospects, take a look at Moneyfarm’s range of solutions. Or, for more information, get in touch with a member of our Investment Consultancy team.