Personal Finance: The past is no guide

Financial certainties John Burke knew as a young man starting out aren't much use to his son

In the next few weeks, some of the students now graduating will be lucky enough to find jobs. Most graduates leave college these days with student loans to pay off, and the numbers are set to grow substantially as the next generation of students, who no longer qualify for grants, starts coming off the production lines.

The interest rate on student loans is no longer as attractive as it used to be as commercial loan rates have come down, but the ability to defer payments until the graduate starts earning a living wage is a useful perk for those who could soon be starting their working lives with debts averaging between six and nine months' earnings - before they even start thinking about buying a car or a flat, or any of those other expensive little luxuries that most students can only dream about.

New graduates more than ever need to plan their future financially. My son entered one of the professions a year ago and, although he had saved, he did not build up a track-record with a bank by using its concessions for students. Now he wants advice. However, it is hard for the new generation to base plans for the distant future on their parents' own past experience.

When my generation graduated, we were head-hunted by big firms offering a lifelong career, plus pension, instead of short contracts. There were few unit trusts, let alone tax-free or offshore savings, while life assurance outdid inflation, thanks partly to tax-relief.

All major banks in the High Street had charges, while the 730 building societies charged the same rate on a basic mortgage and paid the same rate on a simple, single savings product - a bit more than the two and a half per cent at the Post Office Savings Bank. The Halifax was the biggest, and probably the best bet for savings toward a home-loan.

Few of the 71 survivors of the building society movement will keep their present identity next century, and the same applies to some other mutual institutions. The premiums for my endowment policy ended up in foreign hands. Of the mutuals chosen to provide my pension, one has gone public and another is now the subsidiary of a company following a takeover. Even my PEP could be affected by Scottish devolution.

So the past is not a good guide. Financial planning that will stand the test of 40 years involves too many rival rewards as well as risks that may be bigger than before. The future of Social Security is already in doubt, and this could aggravate the effects of inflation on the cost of providing a pension, while the coming century is bound to see big shifts in the global economy and among the major currencies. And who can predict the next bear market?

My son has still made three safe starts. Ignoring a horde of insurance salesman, he took out a personal pension that lessens the swingeing tax charged on a single person, without committing him to fixed premiums each year. Equitable Life cannot be wholly recommended, since, instead of meeting him, it had to reverse two mistakes - setting up a unit-linked plan and utilising his annualised, not his actual salary for their calculations.

He also took out a TESSA after I suggested a mutual such as Britannia or Bradford & Bingley. On the same basis of buying while stocks last, he opened a Personal Equity Plan investing in a general unit trust, because this too can be closed without (much) loss in the short term.

When the time comes to buy a house, I would always go for variable interest- rates and avoid special offers, but it will still mean some hard thinking about other choices, especially between repaying the capital bit-by-bit or linking the loan to a pension or an endowment policy. At all events, my advice is to go with a major lender and one unlikely to transfer its business to an institution that falls on hard times.

Looking further ahead means going back to old saws such as caveat emptor and "never put all your eggs in one basket". Always be flexible with investments in time and space, however tempting a scheme, market or company may seem. Keep some savings at short notice, for example, and diversify everything, including life and pensions.

Look for first-class names in their field, but remember what happened to true-blue Barings. Examine the small print for loopholes and verify the exact obligations of the plan, the salesman, the company and the regulator. Shun anything new that is too complicated.

Also, remember that a financial salesperson is unlikely to mention the drawbacks of his product or to recommend rivals and even an independent financial adviser may have his or her eye on the commission he or she will earn from recommending one product rather than another, unless of course they charge a fixed fee regardless of whether you take their advice.

So always pick the brains of as many experts as possible, especially those in a neutral sector, and read the columns on personal finance. Indeed, it can help to know some economic history, especially in the books about the panics and scandals in the City and Wall Street all through this century.

With experience, any graduate should become his or her own best adviser on investment and taxation. And as Robert Beckman wrote: "If you aim to get rich slowly, you probably will make the most of your money."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent