Did Aesop teach us anything useful when dealing with the plight of savings?
The looming end to the tax year brings many of us to the thoughts of “savings” and what one should do with them… the £15,000 new ISA allowance seems like a tempting proposition; the freedom that now comes with pension pots on retirement opens yet further opportunities; however, an article in the Daily Mail this week demonstrates the struggles that have ensued for those that have attempted to save over the past few years.
When being read Aesop’s Fables as a child, you were encouraged to follow the example of the ant carrying his corn in the summer, in order to survive the winter. There was no encouragement to follow the example of the grasshopper who starved as a result of not preparing for the lack of food in winter…
Recently, low interest rates have leant themselves to undeniably strong mortgage rates and loan rates for borrowers; much needed following the scandal of sub-prime mortgages in 2008 and the fiscal crisis that ensured which resulted in banks offering worse deposit to loan ratios for borrowers than they had previously.
The flip side of this coin, however, is that returns for savers are equally low. Savers have shouldered the burden of the continued requirement for loans, as money costs less.
Very few of Aesop’s fans would believe that bankers ever read a fable in their life, and those that did will be laughing as there appears to be no comeuppance for the grasshopper… as he continues to borrow money at a low rate, failing to prepare for any winter as he returns to the bank for another low rate loan.
It is relatively well known that in different stages in life, people have different spending, saving and investment habits; however as a rule of thumb, those nearing retirement tend to be the biggest savers. This means that, unless opting for investment – the often perceived risker option – the intrinsic value of savings in a regular bank account have probably decreased considering the rate of inflation over the past few years, as a result of Quantitative Easing,
That said, not every financial market has fully rebounded, with property markets a prime example as different areas have experienced varying levels of success, with some regions still not fully reaching full recovery following the financial crisis.
So what is the obvious answer?
There isn’t one… simple! Every financial product sold under FCA guidelines must have a disclaimer explaining that past performance is not a reliable indicator of future performance. You can choose a fund manager with astounding performance on every historic fund he has managed; or a property area with exceptional rental yields that people love living in because of a community spirit; or the bank that your family have used through generations because of the great service… but all of these things can change.
The best thing that an ant could do… would be to learn about his corn field in the Summer, and make sure that there is no better field around, through research… not forgetting that to feast on corn all through winter would be somewhat disappointing if the only crop that they took their corn from had a poor harvest.
What about the grasshopper?
If you remember all of your Aesop’s fables – you will not fail to remember the horse and the ass – the former being the one who sprinted around gallantly before being sold to pull dung around in a cart; pride does come before a fall, and being fool-hardy with your money is never gracious, nor wise, as there is no such thing as a money tree, and no such thing as a bottom-less pit (even if you feel like an ass at the moment).
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