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."