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."

PROMOTED VIDEO
News
Jamie and Emily Pharro discovering their friend's prank
video
News
i100
News
Tim Vine has won the funniest joke award at the Edinburgh Festival 2014
peopleTim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
News
people
Life and Style
techApp to start sending headlines, TV clips and ads to your phone
Arts and Entertainment
Taylor Swift crawls through the legs of twerking dancers in her 'Shake It Off' music video
musicEarl Sweatshirt thinks so
Life and Style
tech
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Daniel Radcliffe and Zoe Kazan in What If
filmReview: Actor swaps Harry Potter for Cary Grant in What If
News
Our resilience to stress is to a large extent determined by our genes
science
Travel
travel
Sport
sportBesiktas 0 Arsenal 0: Champions League qualifying first-leg match ends in stalemate in Istanbul
News
Pornography is more accessible - and harder to avoid - than ever
news... but they still admit watching it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Techincal Accountant-Insurance-Bank-£550/day

£475 - £550 per day + competitive: Orgtel: Senior Technical Accountant-Insuran...

Sales Performance Manager, Gloucester - £290 p/day

£200 - £290 per annum + competitive: Orgtel: Sales Performance Manager, Key Ba...

Junior Database developer (SQL, T-SQL, Excel, SSRS, Crystal rep

£25000 - £30000 per annum + bonus+benefits+package: Harrington Starr: Junior D...

Java/Calypso Developer

£600 - £800 per day: Harrington Starr: Java/Calypso Developer Java, Calypso, ...

Day In a Page

Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment