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If you make one change to your finances this year….

….Make it this one. Do something about your pension. Don’t switch your brain off, I promise it’s not boring. What’s boring about free money? Consider making pensions savings a priority as you give your finances a new year overhaul.

If you have a pension

Time for an audit. Have you talked it over lately with the rep from your company pension scheme or your financial adviser? How has it performed over different time periods? Ask to see performance charts. How much have you paid in charges? What are you invested in and why? Have you ever increased your contributions? Could you afford to pay in more? How much income are you on track to get in retirement? These are all important questions to ask.

An annual or even quarterly review of your portfolio is a good idea, but don’t be tempted to switch in and out of investments too frequently, it’s expensive, and anyway, you are a long-term investor. Once you’re sure you’ve got a diversified portfolio, full of quality investments which match your age and appetite for risk, leave them alone and watch them grow.

If you don’t have a pension

Get one! If you work for an employer, once you’ve passed your probationary period you can usually join the company pension scheme. Often the company will also pay a certain amount in for you – FREE MONEY! And sometimes very generous employers will even match your contributions. It’s a no-brainer. And remember, the government pays in too – FREE MONEY AGAIN!

Even if you think you can’t afford to pay in right now, you really can’t afford not to. Use this online pensions calculator and prepare to be horrified by how poverty-stricken you’ll be when you’re older unless you do something now to plan for it. Don’t be one of those poor old souls who has to choose between heating and eating. The earlier you start saving, the longer your pension pot has to earn interest and grow. So be kind to your future self. Cut back on a luxury so you can afford this essential.

By 2018, all employers in the UK will have to sign their workers up to a company pension scheme (this is called auto-enrolment), unless employees choose to opt out. If you don’t have access to a company pension scheme, you can set up your own pension direct with a financial provider, although it’s better to take advice from a qualified financial adviser before you do anything. You can find one here.

Here are some helpful guides in plain English to explain things in more detail.

https://www.citizensadvice.org.uk/debt-and-money/pensions/

https://www.moneyadviceservice.org.uk/en/categories/pensions-and-retirement

http://www.moneysavingexpert.com/savings/discount-pensions

Don’t wait til spring to spring-clean your finances – make it your new year’s resolution. Happy 2016.

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A true story of mental illness, debt and hope

Mental ill health and money problems often go hand in hand and, sadly, these issues affect many more of us than we care to admit.

According to the Royal College of Psychiatrists, one in two adults has a mental health problem, and one in four people with a mental health problem is also in debt.

This time of year can be especially hard for people because of the pressure to spend money we might not have, to spend time with our families (all of whom we are expected to like), and to generally have an experience which would not look out of place on a supermarket Christmas advert. This just isn’t an option for everyone, so it’s easy to feel lonely, isolated, and stressed about money.

But there is hope. I invited an anonymous guest blogger to share his story of how he went through a debt and mental health crisis and came out the other side. There are helpful resources at the bottom of the article if you too are affected by any of these issues.

Here is his story:

I never expected to have to write an article like this. I was earning a decent wage for a multinational firm based in central London. As a basic salary I made £34k a year and, with bonus, this could easily rise to £40k with no real cap dependent on my performance. But I overspent in the times of plenty, I got sick, and all of a sudden I had virtually nothing.

When I say I got sick, I mean that I lost track of managing the different conditions I have. They are all interlinked but, to give you the full picture, I have suffered from and continue to fight against depression, low mood, anxiety (particularly social anxiety), panic attacks and obsessive compulsive disorder. My job did not help any of these – I worked in a high-pressured recruitment sales environment servicing the City.

Why on earth did I get in to this line of work in the first place? I suppose I was sick of being a poor student, I saw friends go off and earn good money straight out of university and, as a single man, my wage allowed me to live a life seemingly with no responsibility. I found the City fascinating, too, and, in honesty, for the first 12 months or so I relished the work I did. My job was to go and find new business. It was interesting – I learnt about high-frequency trading, the ins and outs of financial instruments, and I ate and drank a lot in nice restaurants and private members’ bars.

Drinking is part and parcel of life in recruitment.

I was told that if I was not spending an absolute minimum of £500 a month on ‘entertaining’ clients then I was not doing my job properly.

Lunch out once or twice a week, drinks in the evening, all in the name of convincing people I’d never met before to give me thousands of pounds in commission.

For a man with social anxiety, this may seem like a peculiar area of business to find oneself in. I agree, and looking back now it was not a good fit. But at the time I thought I was on top of my condition. No, I was hiding my condition from everyone, even my best friends, even my closest friend with whom I shared a flat.

This life spilt over in to the weekend and, instead of relaxing and enjoying my time off, I found myself in a never-ending spiral of going out and getting leathered, recovering in time for a rest on Sunday, before heading off to work again with all the eating and drinking. It sounds great, and as I said, I loved it for the first 12 months or so. But it was deeply unhealthy for my body, and poisonous for my mind.

It seems as if it happened to a different person now.

I managed at the end of nearly three years in that job to have lost control of all spending (by the end I was not even claiming half of my expenses back) and when I left with no job to go to I was in a debt of around £10k. I had spent money on clothes, holidays, drink, drugs, football matches, dining out at top restaurants, music festivals and on and on. While I was earning £40k a year, that was no problem – I could service my credit card debt easily.

But I had no plan. I was going from week to week in such a rush of long hours and even longer nights and weekends that when I try to discern much from that period it all appears as a blur in my mind. On the surface I was happy, inside I was not. I saw what my peers were doing and thought that I too had to live that way. I never stopped to think what I was doing to my financial well-being as it never occurred to me that the money would ever run out.

I am able to recognise now what I could not before – I was putting my head in the sand because of my mental health issues, but equally my debt problem exacerbated them. I wanted everything to go away, not just my debt. Knowing that I now had that debt to face up to added to my despair. I can remember looking at my phone bill, credit card statements and loan repayment letters and wanting to scream as I had no idea what to do now I had no significant income.
Only once I had spoken up about my depression did the burden begin to lessen, and the same is true of my debt.
Admitting to a problem, whatever it is, is the start of making things better.
I knew I could not organise my thoughts clearly enough to help me see where to start, so I took a lesson from the counselling I’d just been through and I asked for help. 
Citizens Advice convinced me that this situation was fixable. I went on to Job Seekers Allowance for a three-month period and it was with this very small income (£140 every fortnight) that I was able to make my first nominal payments to creditors.

I would like to claim to be some sort of financial guru now, but I’m not. Not even close. I did have some realisations though, and they proved fundamental to regaining my happiness. I quit that job and found a new career, one in which my rewards are not determined by my pay packet. I work for a charity helping some of the most vulnerable members of our society. Occasionally, I now advise others on their financial problems!

I have had to make some serious changes to my life, but not a single one of them has been for the worse.

I found a job pulling pints in a village pub, which gave me time to think while providing me with the small income I needed to meet minimum payments. 

How did I get back on track?

  1. I leant on those closest to me – I sought advice from people I trusted, and I even stayed with a good friend free of charge for a couple of months. What I thought was a total disaster was put in to context. £10k is a lot of money to owe, but it is not crippling if you do the right things. I spoke at length with Citizens Advice who were able to reassure and then advise me.
  2. I spoke directly with my creditors – this meant a couple of different banks with whom I had a loan and two credit cards. I explained my situation, that I had had to leave work through ill-health, but that I could maintain a small payment each month. Both were far more accommodating that I had anticipated. At first I was making nominal payments of £5 a month to each.
  3. Once I was earning more than the minimum wage again, I was able to commit to more than the minimum payments to my creditors – they will ask you to go through an income and expenditure form to assess what you can afford. My advice is to be hard on yourself if you want to get anywhere fast, but be honest – if you spend £50 a month on cigarettes, make sure you mention it or you’ll have a £50 hole in your budget at the end of each month.
  4. I cut back – there is no simple way around this. I learned to live within my means again – if I can’t afford it, I don’t buy it. I do not own credit cards anymore. Charity-shop shopping is my new MO.
  5. I keep a record of what I’m spending – I thought this sort of thing was only for the over cautious and accountants. I was wrong. Having a budget and accepting it for what it is has actually been liberating rather than restrictive – I’m certainly a lot more creative when it comes to finding entertainment for myself these days.
  6. I live a simpler life – or, in even plainer English, I stopped drinking. This is not for everyone, obviously, such is the importance of alcohol in 21st century Britain, but it has been 18 months since I last had a drink and it is no coincidence that my bank balance in that period has improved enormously.
  7. Don’t stick your head in the sand – this is the most important thing. If you think you may have a problem, you probably do, and ignoring it will only see it get worse. As soon as I turned on my problems, they backed down. You need to be organised and determined and have good people to support you, but it can be done.

 

If you are worried your money situation or anything else is affecting your mental health, have a look at some of these great resources:

Mind

StepChange

The Royal College of Psychiatrists

Rethink

The Mental Health Foundation

The Money Advice Trust

MoneySavingExpert

If you’re interested in the link between money and mental health, my friend and fellow journalist Leah has recently started a blog on the subject: http://www.mentalwealth.info

And here’s a blog I wrote about spotting the signs of a debt crisis:

Six signs you’re facing a financial crisis, and what to do about it 

There’s no shame in being in debt or struggling with your health, whether physical or mental. Please don’t be afraid to ask for help.

 

Ten brilliant charity Christmas gift ideas for 2015

What do you buy for the person who has everything? Please not another pair of socks. Say no to mindless consumer spending this Christmas and give a charity gift instead. Most people recognise that they have a lot more stuff than they really need, so maybe your friends and family would rather you spent your Christmas budget on something which helps the less fortunate. Here are 10 interesting ideas for charity gifts which do some good, don’t contribute to landfill, and should raise a smile around the tree this year.

• Pile of poo, £9, Oxfam

If you can bring yourself to literally spend your money on crap, this humorous gift will certainly be a talking point on Christmas Day. Oxfam’s pile of poo is descScreen Shot 2015-12-04 at 00.17.53.pngribed as “the ideal mix of manure, organic fertiliser and training in eco-friendly farming techniques to help a family grow a lot more crops.” The result? Poor families eat a better diet and get a more stable income. You get a bit of a giggle when Aunt Mabel opens her present.

 

Hook, line and dinner fishing cooperative training: £13, Present Aid

Give the gift of fish! For £13 you can help fund Christian Aid’s Ethiopia programme, which teaches people how to set up fishing cooperatives and gives them relevant training and tools to improve the long-term prosperity of their communities.

Fisherman_on_Lake_Tanganyika

 

Liberty for lorises: £20, People’s Trust for Endangered Species (PTES)Screen Shot 2015-12-04 at 01.11.41.png

Their cute and cuddly looks have sadly made Javan slow lorises a much sought-after pet. They are being snatched from the wild, treated inhumanely in terrible conditions and sold on markets around the world. But, for £20, PTES helps educate local communities about the reality of this cruel and illegal trade to try to reduce demand for lorises. Twenty quid seems a small price to pay to improve animal welfare. This gift is a great way to give an animal lover the feel-good factor on Christmas Day.

• Warmth through the winter, £74, International Rescue Committee

Rescue Gifts come in lots of shapes and sizes, allowing you to contribute to a range of disaster relief, health and education projects. For £74 you can supply warm clothing, boots and blankets to help displaced Syrian refugees make it through a cold winter.

The Great Indian Bake Off, £25, Good Gifts

Good Gifts is the trading name of the Charities Advisory Trust. It partners with different charities to make sure your money always gopotica-1548385-1279x876es directly to the exact project you want to support. In this case, your gift funds a project to help low caste girls in India train as bakers to improve their employment prospects. This gift is perfect for fans of the Great British Bake Off.

 

Protect 100 acres of rainforest, £5,250, Good Gifts

Working with a bigger budget? Gigantic Good Gifts has a lot of great ethical gift options for institutions or wealthier individuals. You can help restore British hedgerows, train eye surgeons in developing countries, or build a library for an underfunded school.

Aerial_view_of_the_Amazon_Rainforest

Bee Saver Kit, from £15, Friends of the Earth

This present raises awareness of the importance of the UK’s bees, and should also bee-1485827-640x480brighten up someone’s garden in time for spring. For £15, Friends of the Earth offers a bee-saving kit which comes with bee-friendly wildflower seeds and a how-to guide to create a bee sanctuary in your garden. This gift also helps fund Friends of the Earth’s other environmental campaigns. Order by 7 December to guarantee delivery in time for Christmas.

More than a Christmas dinner, £5, Centrepoint

Give a homeless young person a hot Christmas dinner and a sense of community at a time when they might be feeling especially lonely. Youth homeless charity Centrepoint offers a range of gifts across the price spectrum, whether you want to give a new saucepan, a bed for the night, or a helping hand back in to education.

Two Fingers Brewing Co beer, £variable, available from Ocado, Tesco and Morrisons

Screen Shot 2015-12-04 at 00.27.55.png

If you want to give a physical gift, booze always goes down a treat. Give two fingers to prostate cancer this Christmas while enjoying an artisan ale. Ethical beer brand Two Fingers donates all its profits to Prostate Cancer UK.

 

 

Designer undies, from £10, Pants to Poverty

Ok, I know I said no socks, but you might want to consider these fancy pants. Pants to Poverty aims to use fashion to change the world. It sells ethically made underwear which gives the Indian farmers who produce its cotton a fair wage and a safer working environment free of pesticides.

Screen Shot 2015-12-04 at 00.52.50.pngAnd here are two extra ways to give – neither of these ideas are for under the Christmas tree, but they won’t cost you anything and they could really help someone this festive season….

• Give food

A lot of us end up with excess food at this time of year, but there’s no need to waste it. Unwanted, in-date food is always appreciated at food banks, especially over Christmas. The Guardian has produced a handy interactive map showing many of the UK’s food banks and listing their website and contact details. Click here for the map.

• Give blood.

Every single blood donation you make can help as many as three people. Not just emergency cases but also those poor souls undergoing long-term medical treatment, which doesn’t stop just because it’s Christmas.

Links and resources:

Buysocialchristmas.org.uk – has lots of other great ideas for gifts offered by social enterprises.

MoneySavingExpert’s charity gift guide – a good roundup of charity Christmas presents.

Want2donate.org – a site dedicated to raising awareness of and driving supporters to top UK charities and ethical businesses.

Help to Buy…and a sad story for 30-somethings

It’s difficult not to be angry with the Baby Boomers. I recently read this great piece which really summed up for me the many problems now facing the Millennial generation. They are in a cruel situation, and it’s partly fault of the generation above them. Priced out of the housing market because every affordable property has been snapped up by greedy buy-to-let landlords, in a world where wages are not keeping pace with living costs, a lot of Millennials are being forced to stay in some sort of twilight Peter Pan world of perpetual adolescence. Ironically, their Baby Boomer parents are now seeing their ‘boomerang children’ back home living with them again in their 30s (or in depressing flatshares), and the only ones who can get on the property ladder now are those who have help from the Bank of Mum and Dad. A lot of them are also in debt.

Normal, grown-up ambitions like homeownership and parenthood now seem like an impossible dream for a lot of people, which is desperately sad and unfair. Because the roots of this problem can arguably be found in the property market, the government is throwing money at it with a number of new initiatives under the umbrella ‘Help to Buy’.

In the Autumn Statement and Spending Review, the Chancellor pledged to double the housing budget and create 400,000 ‘affordable’ new homes. Shares in housebuilders jumped as much as 6% as this news leaked ahead of the speech, so at least someone’s benefitting from this.

Osborne also recognised (in a muted way) the role buy to let has played in the housing crisis when he announced a 3% increase in stamp duty on second homes or buy to let properties from April 2016. But it doesn’t go far enough by any stretch, and won’t deter overseas cash buyers who want to invest in our soaring property market. As more evidence of the struggle facing first time buyers, Osborne unveiled a new Help to Buy scheme for London, and said he will extend the existing Right to Buy scheme to housing association tenants.

George loves to talk about how many new houses the government is building, but actually the problem is not the lack of housing stock, it’s that buy to let has got completely out of control and is changing the normal supply and demand dynamic which would see property prices fall back when they are so out of step with wage growth. You would expect that when first time buyers don’t stand a chance of affording the property there is, activity in the market would grind to a halt, and prices would be forced to come down in order for things to get moving again. But the government’s measures are helping to ensure this doesn’t happen, by keeping prices artificially inflated and encouraging people to stretch their finances to the max and struggle on to the lowest rung of the ladder with an overpriced property. These initiatives are great news for developers but, for everyone else, it feels a bit like sticking a plaster on a severed artery.

Having said that, I still think everyone who can should take advantage of one aspect of the government’s Help to Buy initiative, the Help to Buy ISA. The scheme launches on 1 December, and a number of banks including Barclays, Lloyds Banking Group, Nationwide, NatWest, Santander, and Virgin Money have signed up to offer these ISAs. But, with less than a week to go, no-one wants to be the first to show their hand on the rates they are planning to offer. Undoubtedly, they will be rubbish rates as banks know savers will flock to these products regardless, because the incentive from the government is so good.

Help to Buy ISAs will allow you to put in £1k at launch, and then save, tax free if you are a basic rate taxpayer, up to a maximum of £200 a month. The government puts in an extra 25%. If you save the maximum allowed for five years, you should have £12k, and the government puts in a maximum of £3k, giving you a total of £15K to put towards a deposit. You can only access the government’s contribution through your solicitor once you begin the housebuying process. Also, you can’t have a Cash ISA and a Help to Buy ISA in the same tax year, you’re only allowed one, but you can transfer your money across from your Cash ISA. All the details can be found here.

Help to Buy ISAs are a positive thing because they encourage the savings habit and, of course, it’s FREE MONEY. So, although I’m sad about the housing situation in this country, I still think saving into the Help to Buy ISA is a no-brainer.

But unless Osborne clamps down harder on the rampant greed of buy to let so some of the heat comes out of the housing market, the sad truth is that many first time buyers will still not be able to afford a home, even with the government’s help.

Flip the switch! 5 reasons to ditch your bank

Have you switched banks yet? You should definitely consider it. There has never been a better time – challenger banks are coming on to the scene and the established players are falling over themselves to offer bigger and juicier incentives to get you to switch to them.

Half of UK consumers have stuck with the same bank for more than 10 years, according to a report published in April by the Competition and Markets Authority.

Maybe you’re one of them and you’re just not sure it’s worth the hassle? Let me convince you otherwise. Here are five reasons you need to flip the switch.

1 Switching is much easier than it used to be

A quick straw poll I conducted on Twitter (very unscientific, but still) revealed people are finding switching very easy – one person I spoke to told me she changes banks every six months to grab the latest incentive and has had no problems so far. When I switched a few years ago, the bank failed to transfer my direct debits across in time and it ended up being a bit of a pain. But, since 2013, a standardised switching process has been established between most major banks. It’s called the Current Account Switch Service, and it guarantees the process will be completed in seven working days. Once you’ve decided the bank you want to switch to, you just fill in a form and they take care of the rest. This includes redirecting any payments accidentally sent to your old account for the next three years. And if they mess up your direct debits or standing orders, they have to refund any charges you incur and any lost interest. BACS, the organisation in charge of the service, says more than 2 million people have switched since it came online in September 2013. For an in-depth walkthrough, see Which’s step-by-step guide here. So, other than a faster process, what’s enticing customers to jump ship?

2 Big cash bonuses

Lots of banks are offering cold, hard cash to encourage us to switch. They’re not measly sums either, we’re talking £100-£150 for transferring to some big name banks, although they usually require you to close your old account and use the switching service to claim the incentive. There are often other conditions attached such as how much you need to pay in each month, and how many active direct debits you need. Here are some of the best cash incentives available at the moment:

Cash incentives

3 Earn more interest from your current account

If you’re usually in credit and you’ve already maxed the interest you can get from your savings, you should consider an account offering a decent interest rate. A 3% interest rate might not sound great, but with UK interest rates so low for so long, it’s not bad, relatively speaking.

If you have a decent balance in your current account and you adhere to the terms and conditions, you can earn the same sort of figures you’d expect from a one-off switching bonus, but every year.

Screen Shot 2015-11-08 at 22.24.16

Santander’s 123 account and Lloyds’ Club Current Account are also popular options which pay good interest if you have a large balance in the account, but they do charge a fee so might not be suitable for everyone. Santander will charge £5 per month from January 2016, while Lloyds requires you to maintain a balance of £1,500 each month to avoid a monthly £5 fee.

4 Your bank can reflect your values

If a cash bribe or a better interest rate doesn’t matter much to you, perhaps you should think about a more ethical alternative to the high street banks. Banks naturally use money from their retail arms to invest in the stock market. They want the best return, no matter what the societal cost. Tobacco, fossil fuels and fast food chains are all fair game. If this isn’t where you want your cash invested, why not try a provider like Triodos? It has ethical investment policies that give you peace of mind that your money isn’t helping to fund morally questionable industries.

Alternatively, many credit unions now offer current accounts and they are a very ethical choice as they support the financially excluded in their communities, help people get out of the high interest debt trap, and encourage a culture of saving not borrowing. Not a giant vampire squid in sight.

5 Better service, fewer nasty charges

When things go wrong, you need your bank to be on your side. You don’t have to put up with poor customer service or punitive overdraft charges. First Direct, which frequently comes top in customer satisfaction surveys, not only offers £100 to switch to it, but it also gives you another £100 if you don’t like it and want to leave.

Some new entrants to the market such as Metro Bank are focusing heavily on customer service and old fashioned face to face, in-branch service.

Banks are also competing to offer the best overdraft facilities, meaning there are good interest-free deals and monthly caps out there to take the pain out of unplanned borrowing. And don’t think you need to pay off your overdraft before you switch banks either – you can often take it with you.

These are five great reasons to switch, but most of us still aren’t doing so. Perhaps it’s down to this long-lasting perception that it’s too much hassle, or even misplaced loyalty to a familiar brand.

But let’s hope the tide is turning. Switching encourages competition and promotes financial literacy, which makes life better for all of us.

Invisible spending: How your daily latte is stealing wealth from your future self

These days, you’re never more than a couple of blocks away from a Prét-a-Manger or a Tesco Express. And though you might think there’s little harm in popping in to grab a coffee or a sandwich, this kind of ‘invisible spending’ could be costing you nearly £1000 a year.

blt-1323122-1280x960Invisible spending refers to the small, almost unnoticed purchases we make when we’re at work or out and about. It’s shop-bought lunches and snacks, canteen coffee, post-work drinks, magazines and takeaways. These items cost us £18.23 per week on average, and even more if you’re young and carefree, according to research by Aviva. The group says this kind of frivolous spending costs the typical UK adult a whopping £948 a year. Here’s a quick breakdown of invisible spending by age bracket:

Average week’s worth of ‘invisible spending’ by age group 

Aged 18-24: £21.17
Aged 25-34: £20.94
Aged 35-44: £19.36
Aged 45-54: £18.92
Aged 55-64: £15.54

Source: Aviva

Invisible spending is invisible for a reason: too often, we don’t budget for it. It’s why we stare at our bank balance the week before pay day wondering where it’s all gone. Aviva’s research says 7 in 10 people want to stop frittering this money away and save it instead. For most of us, our first instinct would be to put it in a regular savings account. Few, however, appreciate how this money could contribute to a comfortable retirement.

If a 20-year-old were to stop spending on sweets and cigs and invest that £21 a week in a self-invested personal pension (SIPP), they could have a pension pot worth £136,000 come retirement.

ASyJu

Rodney Prezeau, consumer platform managing director for Aviva, says: “When we buy a coffee or a snack, we often don’t give it a second thought, but it’s incredible how small change can really stack up over time. Our study found that 26% of people don’t really keep track of their spending at all, and a further 22% only keep an eye on larger purchases, so many of us may be surprised if we actually look at where our money is going.

“It’s interesting that most people say they’d be willing to cut back in order to save, but most people are focused on the short term. We’d encourage them to also think about how small savings can be utilised in the long term, for example, in a pension or in an investment ISA. As our calculations show, even small amounts can make a big difference.”

Feeling inspired to save? Check out Aviva’s calculator to see how much a few cutbacks could save you in the long run.

Overall though, the message is clear: step away from the cappuccino and put down the chocolate bar, for the sake of your wealth.

Need some more money saving advice? Further reading:

You definitely need a budget

Start investing! 10 useful, jargon-free tips to help beginner investors

The next generation already has a debt mountain to climb

A new report has revealed a ‘staggering jump’ in borrowing among the UK’s young adults, and only around half of it is due to student loans.

Citizens Advice’s Unsecured and Insecured? report is based on data gathered from the 400,000 people it helped with debt problems last year.

It found unsecured debt is rising rapidly among 15-24 year olds, who now owe an average of £12,215 each, up from £5,785 in 2008-10.

The average total debts of this group grew by more than 200% between 2006 and 2012 – more than 10 times faster than the average among the wider population.

But how much of this debt is due to higher borrowing to meet tuition fees and living costs while at university? In the 15-24 age group, student debt made up 42% of the total, while for 25-29 year olds it was 38%.

A similar amount, however, is held in ‘other loans’ – from banks, payday lenders, and family members. This is a new development. There has also been a surge in logbook loans and guarantor loans, which Citizens Advice attributes to the regulatory crackdown on payday lenders.

Among this age group, personal loans were nearly five times higher than in 2006-8, while loans from friends and family rose from an average of £30 to more than £1000.

“Although the cyclical nature of debt through the course of adult life is well recognised and long established, the rate at which young people have been accumulating debt over the last few years is a cause for renewed concern,” the researchers said.

Young people are also more likely to be behind with their household bills – more than 20% were in arrears on at least one priority bill, compared to 10% of 25-29 year olds.

Rising arrears in priority debts is a new and worrying trend. Council tax arrears have increased 21% in four years, surpassing arrears on credit card debts, while rent and energy arrears are also up. Citizens Advice said it helped nearly 200,000 who were struggling to pay their council tax over the last year. Utility bills and council tax bill are classed as priority debts because there are severe consequences for non-payment – these can include suspension of utilities, eviction, fines, CCJs, even imprisonment in rare cases. People who fall behind with these bills also tend to be chased aggressively by debt collectors, including bailiffs, moreso than for other types of debt.

So what’s the reason for this rise? CA says it corresponds to Council Tax Benefit being scrapped in 2013 and replaced with localised Council Tax Support, alongside the low and irregular incomes of many of the people it deals with.

I wrote a blog post recently on what financial services firms will have to do to best serve Millennials, noting that right now many of these future business leaders are struggling with debt. Citizens Advice says under-35s make up 29% of the population but hold 48% of the debt. If we can’t give these people the right support to get control of their finances, this is going to potentially have a massive impact on the UK economy in the coming years. Our future entrepreneurs could fail to reach their potential because they’re shackled by debt.

These figures also show that it is more important than ever to have proper financial education in schools, before the age of 18 when people can legally borrow. Young people need to have a solid grasp of budgeting, understand the implications of borrowing, and know to avoid dangerous and expensive sources of credit before they end up stuck in a trap from which it can be very difficult to escape.

Gillian Guy, chief executive of Citizens Advice, said: “A new generation of young people are starting out with stifling levels of debt. Our research shows that student loans account for less than half of the debt rise amongst young people, so it is crucial we understand why so many are turning to other forms of unsecured borrowing.

“Many young people already face challenges getting on the career and housing ladders – doing this while saddled with huge unsecured debts make it an uphill struggle. As well as looking for a longer term solutions, it’s important people can get independent advice, guidance and support about how they can manage their finances.”

If you are struggling with debt or are behind on priority bills, don’t suffer in silence. Help is available:

StepChange

Christians Against Poverty

PayPlan

National Debtline

Citizens Advice Bureau

Debt Advice Foundation 

Moneysavingexpert.com

Samaritans

Where do the experts invest? Five fund researchers reveal what’s in their portfolios

secrets-revealed-1200196I recently gave you a sneak peek into the investment portfolios of a handful of financial journalists, and I thought it would be interesting to follow up by asking professional fund researchers to anonymously reveal their own personal investments. These guys spend all day researching funds and grilling investment managers (and managing money themselves in some cases), and they are not afraid to ask the tough questions, so we could probably learn a lot by looking at who they trust to run their own money. As usual, please don’t take any of this as an endorsement, you should make your own investment decisions based on what’s right for you.

1 Did you think absolute return funds had died a death? Think again.

Absolute return funds aim to give you ‘absolute’ return, rather than a ‘relative’ return. What this means is that they will always try to make you some money, regardless of whether markets are moving upwards or downwards. So you may get only a small positive return when markets are rising, but they should stop you from losing money when markets are falling. Unfortunately, a lot of AR funds have failed to achieve their objective in recent years, and this has turned the tide of investor opinion against them. However, this fund researcher likes to bang the drum for absolute return funds, so he felt it was only right to put his money where his mouth is.

In his portfolio, he holds Old Mutual Global Equity Absolute Return, managed by Ian Heslop; UBS Dynamic Alpha; and Insight Diversified Target Return.

“I am a believer in absolute return strategies and I have spent a lot of time researching the sector in my day job. I am also deferring to smarter guys than me as to where to be, tactically, through a market cycle,” he says.

I spend a lot of time looking at performance through periods of stress – can they run without breaking an egg?

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“These managers have a few scars and have learned from them. The funds take some groundwork to understand, but they are worth the effort in my book.”

Aside from absolute return funds, this researcher also holds a lesser known fund, Sabre Global Value & Income, managed by Ross Hollyman.

This researcher also has a fairly concentrated ISA, split equally between three funds: the Scottish Mortgage investment trust, Woodford Equity Income, and Chelverton UK Equity Income. He likes Scottish Mortgage because it offers exposure to high growth, international companies including businesses in specific growth sectors such as healthcare and tech. By contrast, the Chelverton fund gives exposure to small and mid-sized companies and produces a decent income yield. Neil Woodford’s fund invests in large-cap companies with some small businesses at the margin, and also gives diversification from overseas businesses, as the manager normally goes up to his maximum allowed weighting in non-UK stocks.

“I am not looking for an income yet,” he says, “but the income yield puts a floor under the funds – both Woodford and Chelverton can yield more than 4%, so even if things don’t go well, you still have that.”

This researcher is also a fund manager, and also invests in his own fund via his SIPP.

3 This multi-asset fund manager explains that the way he invests for himself is different from the way he runs money for clients, largely because he has a greater appetite for risk. His pension portfolio is split 75% equity, 13% multi-asset, and 12% commercial property. Core holdings include William Littlewood’s Artemis Strategic Assets, hedge fund star Crispin Odey’s Odey Opus, Standard Life Global Smaller Companies, Jupiter Global Emerging Markets, and Fidelity Emerging Markets.

He owns Neptune Japan, which he likes because manager Chris Taylor prefers to hedge out any currency risk, and First State Asia Pacific which has been a strong, core position for the portfolio over the last 10 years. Woodford Equity Income also features in the portfolio. The researcher says: “I am not necessarily an income buyer, but this is a great way of accessing small and unlisted companies.”

He has also opened a small position in J.P Morgan Natural Resources, which has been hit hard by the commodities sell-off, and is drip feeding money in to the fund every month in the hope of an eventual rebound.

4 “Direct equities are on my watch list, but funds are what I know,” says this investor. He has nine funds in his SIPP, of which almost 40% is invested in his own fund, an aggressive growth vehicle.

The next two biggest positions are in Stephen Harker’s GLG Japan CoreAlpha, and Argonaut Absolute Return, a firm favourite which he has recently topped up. Also on the list is Asian Total Return, an investment trust managed by Schroders’ Robin Parbrook. He chose this structure not because he particularly prefers investment trusts, but because Parbrook’s open-ended fund is closed to new money, and because the trust includes Asian smaller companies, so it offers something a bit different to the other fund. “It was basically about finding any way to get access to the manager,” our mystery fund buyer said.

He also holds J.P Morgan Europe Dynamic ex UK, which employs a behavioural finance screen. “I like this fund as it is nuanced and interesting,” the investor says.

Liontrust Special Situations and the BlackRock Frontiers investment trust make up a total of 15% of the portfolio. Holdings in specialist fixed income boutique TwentyFour Asset Management’s Dynamic Bond fund, plus a PowerShares index fund tracking US large-cap equities complete the line-up.

Our investor acknowledged the portfolio is pretty equity heavy and might benefit from being a bit more diversified, with more bonds and property exposure, but as it’s a SIPP which will be invested for a long time to come, taking on more risk seems acceptable.

5

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Just as doctors often don’t look after their own health, fund managers don’t always run their own money as well as they could. So I decided it was better to get my colleague to manage my portfolio for me

This fund selector has chosen a risk profile of 5 (with 6 being the highest) so the portfolio will be taking some reasonably punchy bets.

At 38% of the portfolio, UK equities are decently represented through a selection of funds doing quite different things – Old Mutual UK Dynamic Equity is a long/short fund investing in the FTSE 250, while Ardevora UK Equity is a 150/50 fund, meaning it can take net long positions of 150% of the portfolio and go up to 50% short. Man GLG Undervalued Assets brings a disciplined investment process, and Wood Street Microcap gives access to the very small end of the UK equity market, acting as a good diversifier.

This investor has more property exposure than some of the others, at just under 10%, through the Threadneedle UK Property trust.

Like investor number 4, this mystery fund buyer likes JPM European Dynamic ex UK for his European equity exposure, which makes up 13% of the portfolio. He prefers to hedge out the currency risk because, although he likes Europe, he is less positive on the outlook for the euro.

Another fan of TwentyFour’s Dynamic Bond fund, this manager also holds the Natixis H20 MultiReturns fund for fixed income exposure, which makes up a total 3% of the portfolio.

Around 15% is in US stocks through CF Miton US Opportunities, managed by Hugh Grieves and Nick Ford.

So, there you have a cheeky look into the professionals’ own portfolios. I hope it was enlightening. It’s heartening to see that they are generally eating their own cooking, and are happy to back the funds they support in public with their own money.

Why you don’t need to panic after ‘Black Monday’ market meltdown

Investors have suffered a shocker over the last few days as fears about slowing growth in the powerhouse that is China dragged down global stock markets. It’s par for the course that if you want to be in the markets, you have to take the rough with the smooth. Yesterday saw a bit of a rebound from the sharp falls seen on so-called ‘Black Monday’ (not to be confused with Black Friday, which is mainly about fighting over flat-screen tellies), but some market commentators are predicting things could get worse before they get better.

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A lot of professional investors have been expecting to see a stock market correction for some time. After all, all that easy money pumped in through central banks’ quantitative easing programmes had to come out in the wash at some point. China isn’t helping things by rushing out a fresh rate cut to try to counter hefty market falls – the market needs to be allowed to find its natural level, as convincingly argued here by Hargreaves Lansdowne’s Mark Dampier.

The Independent published five charts yesterday which basically illustrate that the volatility we have just seen isn’t the end of the world. They are definitely worth a look.

Anyway, the point I want to make is that, as painful as it might be to look at your portfolio this week, there’s no need to panic. The smart investors will have been buying on the (big) dips to pick up the stocks they like at bargain prices, and sticking with their strategy. Hopefully this will include buying good quality businesses which will continue to trade and grow and do what they do, regardless of what’s going on in China’s economy.

A lot of fund managers have learnt lessons from previous market volatility, and are happy to diversify into other areas around the edges of their portfolios, whether buying a few small and mid-cap businesses to supplement their core large-cap holdings, or using the maximum allowed weighting to overseas stocks, so their holdings are less likely to fall together during market sell-offs.

If you put the falls of the last few days into the context of a 30-year investment time horizon, it will look like nothing more than a little blip. But this latest wobble won’t be the last, which is why pound cost averaging is a sensible strategy. What is it? All it refers to is drip feeding money into the market regularly rather than putting in a big lump sum, whether by buying units in a  fund or buying direct shares. In this way, you can end up buying more shares when they are cheaper, and fewer as prices rise, evening out the market’s ups and downs.

Morningstar has explained this better than I can with a clear example:

“Let’s say you have £1,200 in cash to invest. Rather than invest all £1,200 at once, you could invest £100 per month for a year. Now let’s say the fund you’re investing in sells for £10 a share in the first month but drops to £5 a share in the second. Using the pound-cost averaging method, you would end up buying 10 shares in the first month, before the market drop, but 20 shares in the second, after the drop. Had you invested the entire £1,200 in the first month, you would have owned 120 shares, which, in month two, would have declined in value to £600. In this way, pound-cost averaging helps reduce an investor’s exposure to a potential market downturn.”

Here’s another vote for pound-cost averaging from Nigel Green, CEO of advisory firm deVere Group. He emphasised how important it is to have a good spread of investments across different regions, asset classes and sectors – in other words, don’t put it all on black 13. But he also explain why regular investment over the long term is so important.

It’s nearly impossible to predict what the stock market is going to do in the immediate future – and it is much too early to say if the current sell-off is nearing its bottom.

Stock markets tend, over time, to go up over multi-year time periods. With this in mind, a sensible strategy is [pound] cost averaging.

Investors need to ask themselves ‘will stock markets be higher than this when I retire? Looking at financial market history, the answer is probably ‘yes’, if they have a decade or more ahead of them. So, logically they should carry on buying as markets fall.

It is best to just feed the money in over time in a measured way in order to take advantage of the long-term trend of stock markets to deliver long-term capital growth. History teaches us that panic-selling in stock market crashes can be potentially financially disastrous for investors.

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