Financed lifestyles

Financed lifestyles

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orangesrule

Original Poster:

1,420 posts

147 months

Friday 19th July 2019
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I was thinking earlier in the past 20 years finance has become a lot more prevalent. In 20 to 40 years to come. What effect will that have on those who use finance to the max and society as a whole. Is this pushing money to big firms, rather than allowing people to build equity and assets. The way I see it, the 'here and now' generation are potentially going to be far worse off in the long run than previous generation's.
I do see the advantage of finance if it can be used to beat the market, i.e. invest capital elsewhere, with hopefully higher returns than the financed products, but this is not how it is used by the many.

Bit of an odd rambling, but what are people's thoughts?

Edited by orangesrule on Friday 19th July 20:51

anonymous-user

53 months

Friday 19th July 2019
quotequote all
orangesrule said:
Bit of an odd rambling, but what are people's thoughts?
Well, I was reading in the paper the other day that one of the greatest tricks that's been played on the general population in the past 25 years or so is the re-labelling of "debt" as "credit"....

And don't get me started on "tax free equity release".

brickwall

5,192 posts

209 months

Friday 19th July 2019
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orangesrule said:
The way I see it, the 'here and now' generation are potentially going to be far worse off in the long run than previous generation's.

Edited by orangesrule on Friday 19th July 20:51
For the best part of 200 years, successive generations have been richer (and had more comfortable lifestyles) than those that came before. That’s economic growth and development in action.

For the first time, that trend has stopped - the current under 40s (as a generation) will in all likelihood be poorer than their parents.

That’s because their parents have essentially benefited from one-off lump endowments, paid for by the young. Two specific examples:
- Final salary pensions. Lots of today’s pensioners will defined benefit pensions are ‘taking out’ far more than they or their companies ever put aside. That’s being paid for by those in employment now, often through tax (to cover public sector) or decreased economic returns as companies provision to their pension funds
- House prices. Someone who bought a house in 1995 and sold in 2015 will likely have made a lot of money - ultimately paid for by the (likely younger) person buying the house.

So yes, the younger generation will be worse off. It’s distinctly unclear that its due just to wanting a new iPhone.

NRS

22,078 posts

200 months

Friday 19th July 2019
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Can't imagine it's going to be pretty. I'm 31 and don't have debt (also not got a mortgage/house currently due to wanting flexibility, and local housing price evolution) but imagine I'll be paying for others who have not saved at some point in the future somehow.

orangesrule

Original Poster:

1,420 posts

147 months

Friday 19th July 2019
quotequote all
NRS said:
Can't imagine it's going to be pretty. I'm 31 and don't have debt (also not got a mortgage/house currently due to wanting flexibility, and local housing price evolution) but imagine I'll be paying for others who have not saved at some point in the future somehow.
Yeah I'm thinking the same. Im 28 working a pretty average job, but have an old school outlook. With zero debt and (currently) mortgage free. But I do feel those more money savvy will be bailing out those who arn't .

djc206

12,239 posts

124 months

Friday 19th July 2019
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I’m 33 and the highest the base rate has been during my adult life is 5.75% and that was for a very short period. The base rate has been below 1% for over a decade now, that’s mad and it also why we’re so happy to take credit, we’ve never known borrowing to really sting.

I think most of generation debt can be weaned off the consumer element and will do so naturally as borrowing becomes more expensive. Our mortgages are sadly going to be with us for quite some time.

It’s the lack of pension provision not just of my generation but others too that worries me. Too many people don’t have anywhere near enough to sustain them for 20-25 years, there’s time for my generation to fix that, for anyone older than me it’s most likely too late.

Badda

2,653 posts

81 months

Saturday 20th July 2019
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orangesrule said:
Is this pushing money to big firms, rather than allowing people to build equity and assets. The way I see it, the 'here and now' generation are potentially going to be far worse off in the long run than previous generation's.
Can you give some examples of things where finance is preventing asset/equity acquisition?

brickwall

5,192 posts

209 months

Saturday 20th July 2019
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I think many people will just be working a lot longer, but it still won’t be pretty. There’ll be lots who get to 70 and realise they don’t have a decent pension to speak of, nor enough equity to own a house outright. Then what? (Keep working, and pensioner poverty + dependence on the state for those that can’t)

orangesrule

Original Poster:

1,420 posts

147 months

Saturday 20th July 2019
quotequote all
Badda said:
Can you give some examples of things where finance is preventing asset/equity acquisition?
I'm just semising, purely down to the fact that a financed product will cost more in the long run, resulting of a lower net worth for those who do. I.e. money is being spent on items not necessarily owned and/or interest payments.

red_slr

17,122 posts

188 months

Saturday 20th July 2019
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IME the generation after mine don't have the same concept of income. They see work as something that enables them to live a lifestyle. That lifestyle is not directly proportional to their income as much of the lifestyle is funded by debt. So long as their income can service their debt then they consider they are living that lifestyle. Which they are. But they are forgetting a few things, firstly the majority rent. This is fine in the short term but failing to get on the housing ladder over the long term means it may become impossible to get into suitable owned accommodation for their stage of life.

For example, a 21 year old does not need a 3 bed house. But when they are 35 they do. But by renting they may not be able to afford to jump 2/3 rungs of the ladder and get direct access to the house. So they shrug and rent.

Secondly, you have to offset a portion of your income for your future when you cant work. So many young people I talk to say they will always work. Yeah, when you are 23 you might feel invincible but once you are 55 and your hips are knackered, eyesight is going and you struggle to get out of bed in the morning suddenly you realise working at 70 might not even be physically possible. As someone who has worked 23 years I would stop tomorrow if I could. God knows how I would feel if I had to work 50+ years.

Then imagine being 70 and still having to find the rent...



anonymous-user

53 months

Saturday 20th July 2019
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Renting is cheaper than buying and that's fine - but only if you "invest" the saving into something else instead of your own home.

ISA and/or pension savings have kept up with, or outstripped, house price growth. Both take place in similar, tax free environments.

As has been said, where things go wobbly is when all income is immediately spent.

Specifically on pensions, it's worth remembering there's a current generation of private sector workers who have paid for NOT ONLY their parents pensions - through NI contributions which are immediately spent by the government - BUT ALSO for their own pensions through contributions to funded, defined contribution pension schemes. And people shouldn't complain too much about having to work to an older age - the reason they have to do it is life expectancy has increased by about 15 years!

It all comes down to a simple adage which applies to both individuals and governments. Borrowing to invest is fine. Borrowing to spend isn't.

Shnozz

27,418 posts

270 months

Saturday 20th July 2019
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rockin said:
Renting is cheaper than buying and that's fine - but only if you "invest" the saving into something else instead of your own home.
In many cases buying is cheaper than renting at current interest rates I’d say. The difficulty for many will be finding the deposit and stamp duty if BOMAD aren’t able to fund it.

hyphen

26,262 posts

89 months

Saturday 20th July 2019
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red_slr said:
IME the generation after mine don't have the same concept of income. They see work as something that enables them to live a lifestyle. That lifestyle is not directly proportional to their income as much of the lifestyle is funded by debt. So long as their income can service their debt then they consider they are living that lifestyle. Which they are. But they are forgetting a few things, firstly the majority rent. This is fine in the short term but failing to get on the housing ladder over the long term means it may become impossible to get into suitable owned accommodation for their stage of life.

For example, a 21 year old does not need a 3 bed house. But when they are 35 they do. But by renting they may not be able to afford to jump 2/3 rungs of the ladder and get direct access to the house. So they shrug and rent.

Secondly, you have to offset a portion of your income for your future when you cant work. So many young people I talk to say they will always work. Yeah, when you are 23 you might feel invincible but once you are 55 and your hips are knackered, eyesight is going and you struggle to get out of bed in the morning suddenly you realise working at 70 might not even be physically possible. As someone who has worked 23 years I would stop tomorrow if I could. God knows how I would feel if I had to work 50+ years.

Then imagine being 70 and still having to find the rent...
You won't have to find the rent? The benefits will pay the rent.

Jakg

3,451 posts

167 months

Saturday 20th July 2019
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red_slr said:
Which they are. But they are forgetting a few things, firstly the majority rent.
Hmm. Wonder why younger people rent? Could it be a myriad of economic factors, such as incredible house price inflation?

Nah, must be 'cause their getting iPhones on credit obviously. rolleyes

Dr Jekyll

23,820 posts

260 months

Saturday 20th July 2019
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Consumer credit is nothing new. In my grandparents days it was very common for corner shops to run a 'slate'. Gramophones and radios were often bought on HP or leased and this applied to TVs into the 70s.

https://en.wikipedia.org/wiki/Radio_Rentals

I think there is an unjustified notion that if Ford sells a car to Acme taxi firm and Joe Bloggs pays Acme to take him to the station every day this is fine and both Ford and Acme are making legitimate profits. But if Ford sells it to Acme Leasing and Joe pays Acme so he can drive himself to the station in their car, somehow this is fundamentally different and the profits made by Ford and Acme therefore aren't real and the economy is doomed.

anonymous-user

53 months

Saturday 20th July 2019
quotequote all
Dr Jekyll said:
But if Ford sells it to Acme Leasing and Joe pays Acme so he can drive himself to the station in their car, somehow this is fundamentally different and the profits made by Ford and Acme therefore aren't real and the economy is doomed.
If Joe lives far enough away from the station that he needs a car to get there then he needs transportation to "invest" in getting to work. Whether he pays a taxi or buys a modest car to drive to the station makes no difference, but the cheaper he does it the better his "return on investment" of going to work.

Similarly it makes no difference whether he gets a chauffeur driven Bentley to the station every day or drives there in a brand new Lamborghini. But he may find his disposable income has gone to zero and he can no longer save for his future.

The second situation is very different from the first and that's the concern some people have about a "spend what you earn" lifestyle being high risk in the longer term.

djc206

12,239 posts

124 months

Saturday 20th July 2019
quotequote all
red_slr said:
IME the generation after mine don't have the same concept of income. They see work as something that enables them to live a lifestyle. That lifestyle is not directly proportional to their income as much of the lifestyle is funded by debt. So long as their income can service their debt then they consider they are living that lifestyle. Which they are. But they are forgetting a few things, firstly the majority rent. This is fine in the short term but failing to get on the housing ladder over the long term means it may become impossible to get into suitable owned accommodation for their stage of life.

For example, a 21 year old does not need a 3 bed house. But when they are 35 they do. But by renting they may not be able to afford to jump 2/3 rungs of the ladder and get direct access to the house. So they shrug and rent.

Secondly, you have to offset a portion of your income for your future when you cant work. So many young people I talk to say they will always work. Yeah, when you are 23 you might feel invincible but once you are 55 and your hips are knackered, eyesight is going and you struggle to get out of bed in the morning suddenly you realise working at 70 might not even be physically possible. As someone who has worked 23 years I would stop tomorrow if I could. God knows how I would feel if I had to work 50+ years.

Then imagine being 70 and still having to find the rent...
In answer to your last point the state will provide I guess. It houses plenty of low earners and pensioners already. They reckon the housing benefit bill for retirees will nearly treble by 2060!

With regards to pensions it’s why I think the governments action to force workplace pensions down people’s throats is long overdue. I’m lucky, a combination of my dad encouraging his kids to start paying into pensions ASAP and a job that offers a cracking pension have given me a leg up vs a lot of my peers.

The average pot of a 45-54 year old is £71k according to an article in the independen. It’s not just millennials who can’t plan their finances sensibly.

GT03ROB

13,207 posts

220 months

Saturday 20th July 2019
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djc206 said:
The average pot of a 45-54 year old is £71k according to an article in the independen. It’s not just millennials who can’t plan their finances sensibly.
Whilst better than nothing, it's virtually useless.

Shnozz

27,418 posts

270 months

Saturday 20th July 2019
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djc206 said:
The average pot of a 45-54 year old is £71k according to an article in the independen. It’s not just millennials who can’t plan their finances sensibly.
This is part of the problem.

With annuity rates as they are (and unlikely to change as interest rates now have to be kept low to avoid the debt-hungry to stay upright), how do you encourage those already stretched (through their own want it now needs or otherwise) to save towards a pension? The concept of them saving £100k is alien to most who have a negative net worth.

And then to tell them their £100k buys them £3k a year in retirement is hardly the dreams of Caribbean cruises or blasting around Europe on roadtrips.

You can try and explain the virtues of compound interest etc etc but when you are trying to pile away £500k or so to see a proper pension pot to have fun in retirement its going to be met with laughter from those incapable of saving a £1 of their monthly wage.

Shnozz

27,418 posts

270 months

Saturday 20th July 2019
quotequote all
GT03ROB said:
djc206 said:
The average pot of a 45-54 year old is £71k according to an article in the independen. It’s not just millennials who can’t plan their finances sensibly.
Whilst better than nothing, it's virtually useless.
Indeed - thats my point succinctly. And yet saving £71k for most people would seem an impossibility. To then see that a meaningful contribution is 2/3 times more before it will realistically change anything of your retirement and you can see why many would simply think its not worth bothering at all.