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FOOL'S EYE VIEW
I've acquired various nicknames during my years (too many!) in financial services. Some of them, such as "Statto", "Excel Man" and "Anorak", reveal my love of numbers, statistics and facts. Here are ten startling financial snippets that I'm fond of repeating: 1. We spend £110 for every £100 that we earn Anyone should be able to see that persistently spending 110% of your income eventually will lead to financial ruin. Yet, according to a 2003 survey from City watchdog the Financial Services Authority, we Brits are spending about 10% more than we earn. Where does this extra money come from? My second fact gives you a clue (credit!), but we've also splurged a slice of our housing wealth during this binge. Mortgage equity withdrawal (money borrowed against our homes that isn't reinvested in property) has boomed in recent years. In 2001, it totalled a modest £21 billion; in 2002, it almost doubled to £40 billion; 2003 saw it hit £58 billion, before falling back to £51 billion last year. That's £170 billion splashed out in four short years. Ouch! Why not turn the corner by learning to budget? 2. We have £189 billion in non-mortgage debt According to the Bank of England's lending figures for May 2005, our non-mortgage debt (on credit and store cards, personal and car loans, overdrafts, etc.) is £188,520 million, or close to £189 billion. In May 1993, we owed a mere £51 billion, so our debt has risen almost fourfold in just twelve years. To be exact, it's grown at over 11% a year, far faster than wages or inflation (rising prices) have gone up. My first point partly explains why. Dynamite your debt with a visit to our Get Out of Debt centre! 3. Our annual spend on mortgage interest is at an all-time record of £50 billion The latest Bank of England figures show total domestic mortgage lending at a little over £910 billion. Some of the UK's 11½ million mortgage borrowers are paying as little as 4% a year on their loans, while others are paying standard variable rates of 6.75% or more. The overall average is close to 5.5%, which means that we're forking out around £50 billion a year in interest on our home loans. Despite low interest rates by historical standards, this remains our largest bill for mortgage interest ever, largely thanks to mortgage debt doubling since the start of 1999. Slash your mortgage interest with a visit to our Mortgage centre! 4. Since 1945, house prices have risen by around 8.5% a year UK homeowners have witnessed remarkably strong house-price growth in recent years. According to the Halifax House Price Index, the average UK house currently costs around £163,000 – almost double the £84,000 recorded halfway through 2000. Being more precise, the average house price has risen 93% in the last five years, equivalent to annual growth of over 14%. Given the established tendency for financial data to return to long-term trends (known as 'reversion to the mean'), I don't hold out much hope for house-price growth for the foreseeable future! 5. We have £528 billion of savings As I've been a little depressing so far, I'll give you some good news: Bank of England figures reveal that UK residents have £528 billion of cash on deposit. Averaged out across the UK's 25 million households, this comes to over £21,000 per household. Of course, in reality, this money is very unevenly distributed, with about three-quarters of it owned by roughly six million people. Another problem is that we don't make this cash work hard enough on our behalf, so we lose out on billions of additional savings interest. Earn 5%+ a year by visiting our Savings centre. 6. Our economy may grow by just 2% this year The government's spending plans for this financial year rely on the UK economy producing annual growth of 3% to 3.5%. Unfortunately, with half of 2005 behind us, most pundits are predicting a figure of around 2%, which would blow a big hole in chancellor Gordon's Brown's budget. He can narrow this gap by cutting spending, raising taxes, or both. Personally, I think that, given Labour's commitment to increased public spending, tax rises are almost inevitable. Are you ready for the financial hurricane of lower take-home pay and higher bills? 7. A £2,000 debt can take over 40 years to clear Let's say that you buy a £2,000 plasma TV on your credit card, which charges interest at 1.5% a month (19.6% APR). Let's also assume that, being strapped for cash, you repay this debt by paying only the minimum monthly repayment required. This comes to 2% of your slowly reducing balance (subject to a minimum of £5 a month). In total, you will repay £7,466, made up of your original two grand, plus £5,466 in accrued interest. What's more, it will take you over 40 years to do so! Give yourself a nine-month break from paying interest - get a 0% credit card today! 8. We waste nearly £10 billion a year on everyday insurance According to the Association of British Insurers, we spend about £30 billion a year on general insurance policies, such as motor, household, travel, and payment protection insurance (the biggest rip-off). However, by shopping around for lower premiums, I estimate that we could trim our spending on these policies by, say, a third. That would mean an extra ten billion pounds in our wallets and purses, which is well worth having. So, don't renew that insurance policy without first shopping around; otherwise, you're pouring money down the drain! Lower the cost of your cover in our Insurance centre. 9. The long-term return from the stock market is about 11% a year As I demonstrated in The Stock Market Needn't Be Scary, investing in shares isn't as risky as you might think. Indeed, since 1918, the UK stock market has produced an average annual return of 11%, with dividends (the income paid by shares) reinvested. In other words, over a typical thirty-year period, it would have turned £10 into £229, which is a decent result by anyone's standard. By playing a long game (ideally, a minimum of five to ten years), saving monthly, reinvesting your dividends, and minimising charges and taxes, your portfolio should beat cash, bonds and other mainstream investments. Invest in around 700 leading companies via a cheap, simple, flexible index tracker. 10. Up to half of today's workers face a miserable retirement According to the Pensions Commission, about twelve million people (42% of the working population) are saving too little – even nothing – towards their retirement. The Commission also reckons our 'pensions gap' to be a staggering £57 billion a year (the difference between what we should be saving towards our old age and what we actually stump up). Granted, the public has become very cynical about pensions, thanks to the stock-market crash of 2000-02, the Equitable Life scandal and falling rates for annuities (which turn pension pots into income). However, I can't see any easy way out of this crisis, other than paying more into my pension. Hence, I'm paying as much as I can into our company Stakeholder pension. Visit our Pensions centre to learn more about your retirement options. I hope that you didn't find this article too shocking (or shockingly dull). Perhaps a nice cup of tea will calm your nerves! More: Find better mortgages, savings accounts, 0% cards, insurance, investments and pensions.