The Economics of Living (Split from TfL Strikes thread)

[radamfi]

but as far as I know there is little on offer to protect against redundancy.

There are various types of payment protection insurances and even general redundancy insurance but they are overpriced and these policies have famously been missold, leading to companies specialising in getting compensation for misselling. Much better to self-insure.

But the bigger point, as economists know, is that if large numbers of people stop buying such things and save their money instead, the economy goes into decline. Hence the boom from the 1990's to 2007, which was built on consumer spending and credit.

Finding the right balance is extremely difficult.

This is getting a bit off topic, but an interesting discussion nevertheless. Taking the Germany example again, the population is so risk averse that the lack of domestic consumer spending hindered economic growth for a long time, generally coinciding with the boom in the UK and other Anglo-Saxon nations. I worked with a German who came to Britain for better opportunities, but he went back when the tables turned. The German way is less likely to lead to fast economic growth, but probably less likely to lead to a big economic disaster. Ireland went even more crazy than the UK during the credit boom, but despite a much worse recession than the UK, their savings rate has actually gone up dramatically since 2008, presumably because they feared for their jobs.

In regard to your own situation, I'm pleased you didn't have to take a pay cut, but do you think you would have felt differently if you had lost 25% of your pay at the same time as being forced to relocate? I expect it depends on other cirucmstances as well, as you mentioned ease and cost of transport, journey time, the age of any children, housing costs in the new location and so on, but I'm interested in knowing, if you don't mind.

I've never had a 25% pay cut so I can't really comment with authority. But by that stage I had been working for about 13 years, and thanks to my prudence, I had already paid off my mortgage and had good savings. So even if I had lost my job, it would not have been that serious. However, I do know people who were made redundant as a result of the same cutbacks and many of them left the industry altogether. Ironically, some of them are now probably earning a lot more than me as they went into lucrative jobs in other industries.

Now it might have been a different story if I had made different choices. I only have a small flat but I could have bought a 4 bed detached house. I don't have kids, primarily because I'm not interested, also for ethical reasons, but also because they cost a lot. So if I had lost my job at that time, had a big mortgage with several kids, I might have been in trouble, particularly if I had also binged on credit.

 

[Greenback]

This is getting a bit off topic, but an interesting discussion nevertheless.

Agreed on both counts. I will start a new thread, and move this into it, as our discussion is increasingly unrelated to this topic!

Taking the Germany example again, the population is so risk averse that the lack of domestic consumer spending hindered economic growth for a long time, generally coinciding with the boom in the UK and other Anglo-Saxon nations. I worked with a German who came to Britain for better opportunities, but he went back when the tables turned. The German way is less likely to lead to fast economic growth, but probably less likely to lead to a big economic disaster. Ireland went even more crazy than the UK during the credit boom, but despite a much worse recession than the UK, their savings rate has actually gone up dramatically since 2008, presumably because they feared for their jobs.

That's right. Despite promises to end the culture of boom and bust, the policies of the last couple of decades since the early 1990's recession have, in fact, exacerbated matters. I did see a very interesting TV programme relating to how sustainable the traditional economic views will be in the future, as governments try to force growth, but I can't remember now what it was caleld, or even what channel it was on!

Personally, though, I would prefer slower growth and a more stable economy. I suspect most lay people would feel the same!

I've never had a 25% pay cut so I can't really comment with authority. But by that stage I had been working for about 13 years, and thanks to my prudence, I had already paid off my mortgage and had good savings. So even if I had lost my job, it would not have been that serious. However, I do know people who were made redundant as a result of the same cutbacks and many of them left the industry altogether. Ironically, some of them are now probably earning a lot more than me as they went into lucrative jobs in other industries.

Congratulations on your prudence (you'd probably have made a far better chancellor than the one who was given that nickname originally, but lost it!). I ended up with a far greater pay cut than 25%. I think it was 40% less salary when i finally maanged to get a new job. But Iw as able to work my up the pay ladder quite quickly, and now I would estimate that I am probably 20% worse off than if I hadn't been redundant.

We haven't suffered too much overall because my losses have been covered by my partners promotions and increased salary. Sadly not everyone else is in the same fortunate position, and I do recognise that this may well be because not everyone is as careful as we are (and we don't seem to be anywhere near as good as yourself in that respect!).

However, if I had been offered the choice of a 25% pay cut, along with an extra 80 mile round trip a day, or redundancy, it would have been a difficult choice. Looking back, I was confident of securing another job with similar pay and benefits to my old one, and that proved to be wrong. I'm not sure, but maybe having learned a lesson there I may be tempted to swallow the pay cut and the move today, but I do tend to think that I would find it too much to stomach and take the pay off, whatever it may be.

Now it might have been a different story if I had made different choices. I only have a small flat but I could have bought a 4 bed detached house. I don't have kids, primarily because I'm not interested, also for ethical reasons, but also because they cost a lot. So if I had lost my job at that time, had a big mortgage with several kids, I might have been in trouble, particularly if I had also binged on credit.

I also don't have children, but I think it's fair to say that most people don't share the ethical concerns. They do cost a lot, and to most people I dare say it's not really a choice but something that is very, very natural.

The bototm line, though, to me anyway, is that people are entitled to spend their money on whatever legal activities they want to, whether that is gambling, having children, partying, taking exotic holidays or buying a bigger house than they need. However, I say that with the proviso that the expectation of having a lifestyle that includes all of those things and probably more, is unrealistic for the majority of residents of the UK.

I agree that people have forgotten how to cut their cloth. That is something we have always done, which is why despite various setbacks down the years we have hardly been in debt (mortgage and the occasional small credit card balance apart) and have always tried to save money where we can. We do like to enjoy ourselves as much as we can within our limitations, and our preference for travel and nice holidays!

Making these sorts of choices are going to be increasingly important for people in future years, and I do hope that some of the sense of entitlement that some people seem to feel today is replaced by a realisation that old style assumptions and values have no place in the world that lies before us.

 

[Tetchytyke]

I agree that people have forgotten how to cut their cloth.

I'm not convinced it's quite as simple as that. I'm not practicing as one right now, but for several years I've been a specialist debt adviser with the CAB and similar charities.

I think most people are cutting their cloth sensibly, based on their income. The poorest people in society are extemely good at cutting their cloth, probably far better than more wealthy people; their problem is they simply don't have enough cloth. Those who are tempted towards payday loans tend to be slightly more wealthy, but we see with payday loans how quickly small debts can escalate.

The aspiring middle classes tend to be the hardest to work with. They are used to a certain lifestyle, including a certain amount of debt (car loans, etc) which they can comfortably support on their wages. But what they can't comfortably support are the big triggers of redundancy or divorce, and debts can escalate incredibly quickly. The first thing people do is start paying one credit card with another credit card, hoping they can ride the storm, and very very quickly they've taken out unsustainable levels of debt.

But then the idea of debt has changed in recent years. A young person going to University now can expect to graduate owing £45,000 to the Student Loans Company, not to mention the loans and overdrafts they've had to take out from their bank. I'm paying £120 a month out to the Student Loans Company for my student loan of £10,000, and that's barely making a dent in the capital debt (even though I graduated in 2004). People, rightly or wrongly, are seeing these levels of debt being imposed on them and wondering what difference another couple of grand will make.

As for living costs, it's difficult to "cut cloth" in parts of the country. My partner and I are both earning decent money as professionals, and we can comfortably pay our bills, but we don't have a great deal left over. Saving up to buy a house is a pipe dream.

 

[Oswyntail]

....
Making these sorts of choices are going to be increasingly important for people in future years, and I do hope that some of the sense of entitlement that some people seem to feel today is replaced by a realisation that old style assumptions and values have no place in the world that lies before us.

I think the "old style assumptions" I grew up with are exactly what are needed - but I suspect we are talking about different generations here. When I see the adverts for loans on the TV, I am appalled by their assumptions that you can have everything you want, and I wonder if there isn't an underlying assumption that others will provide everything you need.

 

[Greenback]

I'm not convinced it's quite as simple as that. I'm not practicing as one right now, but for several years I've been a specialist debt adviser with the CAB and similar charities.

It's not simple and I didn't mean to give the impression that it is. It's just the flow of my thoughts while I was typing.

I think most people are cutting their cloth sensibly, based on their income. The poorest people in society are extemely good at cutting their cloth, probably far better than more wealthy people; their problem is they simply don't have enough cloth. Those who are tempted towards payday loans tend to be slightly more wealthy, but we see with payday loans how quickly small debts can escalate.

I suspect you are correct. however, during the boom years in particular, quite a lot of people, at all levels of society except perhaps the very bottom, over extended themselves in some way. Whether it was store cards, credit cards, buying things on easily available finance deals, taking on a large mortgage or something else, we are still paying this off now.

I don;t solely blame banks or othe rinstitutions for lending the money, or the consumers for borrowing it. Home owners in particular were just swept up in the excitement of what apepared ot be easily affordable credit, and the assumption was, despite the evidence and opinions to the contrary, that increases in property prices and cheap mortgages would go on forever and would more than cover any debts that were built up.

The aspiring middle classes tend to be the hardest to work with. They are used to a certain lifestyle, including a certain amount of debt (car loans, etc) which they can comfortably support on their wages. But what they can't comfortably support are the big triggers of redundancy or divorce, and debts can escalate incredibly quickly. The first thing people do is start paying one credit card with another credit card, hoping they can ride the storm, and very very quickly they've taken out unsustainable levels of debt.

Again, you are correct. In fact, the description you give is almost 100% correct in terms of a relative of mine who faced bankruptcy a few years back simply because they wanted a certain lifestyle and convinced themselves that they could afford it. The sad fact was that they could not. In relation to my earlier comments about choices, they wanted a good social life alongside people who earnt a lot more, they wanted good holidays, a brand new top of the range car every year, and the best, most trendy clothes for them and the kids. It was not realistic, even before the recession hit us.

But then the idea of debt has changed in recent years. A young person going to University now can expect to graduate owing £45,000 to the Student Loans Company, not to mention the loans and overdrafts they've had to take out from their bank. I'm paying £120 a month out to the Student Loans Company for my student loan of £10,000, and that's barely making a dent in the capital debt (even though I graduated in 2004). People, rightly or wrongly, are seeing these levels of debt being imposed on them and wondering what difference another couple of grand will make.

This is the crux of the matter. I believe that the introduction of student loans, brought about by a desire to keep the unemployment figures lower than they would have been through encouraging more young people into education, helped to remove the stigma of debt that used to exist.

Admittedly, it has always been seen as acceptable to take out a mortgage, but people of my generation and older do have a more natural reluctance to taking on debt than those of my acquaintance who are younger.

It's not only that, of course (I have no desire to give the impression that it's simple in this post!), there ar eother factors involved, but in my view it's part of the reason there have been such changes in attitude.

As for living costs, it's difficult to "cut cloth" in parts of the country. My partner and I are both earning decent money as professionals, and we can comfortably pay our bills, but we don't have a great deal left over. Saving up to buy a house is a pipe dream.

It is difficult for some, as I hope I made clear in the strike thread itself. But I do believe that some people don't even try, never mind make an attempt to set an effective budget for themselves, because of the things we have already mentioned. My own relative is one of them!

I think the "old style assumptions" I grew up with are exactly what are needed - but I suspect we are talking about different generations here.

Yes, sorry I should have been clearer! What I meant was the recent assumptions that credit will be easy to get and we can all just buy everything we want, rather than what are currently considered old style attitudes of scrimping and saving until you can afford to pay up front.

But I did also mean to refer additionally to the assumptions I mentioned earlier, where it used to be a given that a person with a job, working hard will be preogressively better ioff as they get older. There ar etoo many uncertanties to make that a given now. My father in law's generation, on the other hand, could look forward to choosing a career and beinmg realtively certain that they would never be made redundant, never have to retrain, and that their income would rise throughout their working life.

When I see the adverts for loans on the TV, I am appalled by their assumptions that you can have everything you want, and I wonder if there isn't an underlying assumption that others will provide everything you need.

Exactly. That is the sense of entitlement that I referred to. It is partly fuelled by such adverts, and also by the general idea reinforced by shows like The Voice that anyone can achieve and be whatever they want, even though you need a far higher than average level of talent to be successful. The celebrity obsessed culture also encourages young people in particular to aspire to such a lifestyle, even though only a very, very small percentage of the population can ever achieve it.

 

[radamfi]

But then the idea of debt has changed in recent years. A young person going to University now can expect to graduate owing £45,000 to the Student Loans Company, not to mention the loans and overdrafts they've had to take out from their bank. I'm paying £120 a month out to the Student Loans Company for my student loan of £10,000, and that's barely making a dent in the capital debt (even though I graduated in 2004). People, rightly or wrongly, are seeing these levels of debt being imposed on them and wondering what difference another couple of grand will make.

In a way I was lucky to go to university 10 years earlier, and so didn't have to pay fees and had a maintenance grant, although it meant that I graduated at a time of high unemployment. But student loans shouldn't really be put into the same league as credit card debt or personal loans, or even mortgages, given the low interest rate. For most of the time student loans have been in existence, it has not been worth paying them off as it would be better to put the money in a good savings account. Even now with the record low savings rates, you could still get a Santander 123 current account and get 3% for balances up to £20,000 (for a £24 annual fee, and some other restrictions), which is higher than the low (circa 1.5%?) interest rate paid on the student loan.

When I went to university, student loans were being rolled out for the first time and I realised you could make money off them so I took out the maximum amount each year even though I didn't spend it. I wish that I could have borrowed more money. It doesn't work that way now as the interest rate is high in the early years to stop people doing that. But once you have one, it is generally not worth paying off.

 

[ainsworth74]

IEven now with the record low savings rates, you could still get a Santander 123 current account and get 3% for balances up to £20,000 (for a £24 annual fee, and some other restrictions), which is higher than the low (circa 1.5%?) interest rate paid on the student loan.

Well whilst they're at University it's RPI + 3% so currently for someone at University it's 4.6% interest on their loan. Once they graduate if they're earning less than £21,000 (and therefore not repaying) the interest is RPI so that would 1.6%. Once they earn over £21,000 the interest is jacked back up to RPI + upto 3% (I believe there's a sliding scale)

 

[radamfi]

Well whilst they're at University it's RPI + 3% so currently for someone at University it's 4.6% interest on their loan. Once they graduate if they're earning less than £21,000 (and therefore not repaying) the interest is RPI so that would 1.6%. Once they earn over £21,000 the interest is jacked back up to RPI + upto 3% (I believe there's a sliding scale)

Just looked it up. If you earn £21,000 exactly then you still just pay interest at RPI. The interest rate goes up 0.00015% for each £1 earned, up to a maximum of RPI+3% for income £41,000 and over.

This system only applies to students who started in September 2012 or later. Students starting earlier will still be paying RPI or less.

 

[Tetchytyke]

Well whilst they're at University it's RPI + 3% so currently for someone at University it's 4.6% interest on their loan.

Indeed. For all the talk of "cheap borrowing" that's less than one percentage point cheaper than what I'm paying on a commercial personal loan with the Co-Operative Bank.

I don;t solely blame banks or othe rinstitutions for lending the money, or the consumers for borrowing it. Home owners in particular were just swept up in the excitement of what apepared ot be easily affordable credit, and the assumption was, despite the evidence and opinions to the contrary, that increases in property prices and cheap mortgages would go on forever and would more than cover any debts that were built up.

I don't blame anyone for making the mistake once. Property rises shot up and lending had to shoot up to accommodate it. Banks were taking the short-term view (prices must go up!) and customers were taking the view that if the bank would lend it then they could afford it.

Sadly we seem to be making the mistake again, at least in the south east, even though we are STILL paying for the hangover with UK Asset Resolution. It's not happening in the rest of the country (I lost £15,000 on my house in Newcastle- and I bought £20,000 below the top of the market) but it's only a matter of time. "Help to Buy (votes)" is going to cause carnage, and all because the Home Counties middle classes don't want to see their "paper worth" drop down to accurate levels.

 

[Greenback]

I don't blame anyone for making the mistake once. Property rises shot up and lending had to shoot up to accommodate it. Banks were taking the short-term view (prices must go up!) and customers were taking the view that if the bank would lend it then they could afford it.

Then there were those who mortgaged themselves to the hilt, took out store cards, bought new cars and never worried very much about how they would pay their debts off.

As I said, I don't blame either the banks or individuals. It's just as shame that those of us who weren't so profligate have had to pay the price as well!

Sadly we seem to be making the mistake again, at least in the south east, even though we are STILL paying for the hangover with UK Asset Resolution. It's not happening in the rest of the country (I lost £15,000 on my house in Newcastle- and I bought £20,000 below the top of the market) but it's only a matter of time. "Help to Buy (votes)" is going to cause carnage, and all because the Home Counties middle classes don't want to see their "paper worth" drop down to accurate levels.

It certainly isn't happening down here! Things here are stagnant at best!

 

[radamfi]

The main problem could be a lack of education. Maybe they have started teaching people about basic money management, such as understanding concepts such as compound interest. Although I have met people who are very shrewd in their corporate life, questioning every penny, but when it comes to their personal life they are profligate. An increase in interest rates to more normal levels might focus the mind.

Single people, and especially couples with no children who both work, should really be able to save. Think about it this way: having 2 children is a very common and traditional lifestyle and people who do that seem to cope OK in general. What is the total net cost in having 2 children? If you live in the SE, that means buying/renting a bigger house as a flat will no longer do, and one parent will stop working some or all of the time. Obviously you will be spending a lot more on so many different areas of expenditure. There are some subsidies, such as child benefit, but they will not make up for the extra expenditure and reduced income.

So if you don't have kids, you could simply spend exactly the same on what parents spend, and therefore have exactly the same standard of living, but just save what you would have spent on children.

 

[Greenback]

I know plenty of parents where both have continued to work full time, leaving grandparents to care for their children.

It seems to me that a lot of it is to do with people's aspirations being far greater today than they were half a century ago. Or even a quarter of a century ago!

 

[455driver]

I've never had a 25% pay cut so I can't really comment with authority. But by that stage I had been working for about 13 years, and thanks to my prudence, I had already paid off my mortgage and had good savings. So even if I had lost my job, it would not have been that serious. However, I do know people who were made redundant as a result of the same cutbacks and many of them left the industry altogether. Ironically, some of them are now probably earning a lot more than me as they went into lucrative jobs in other industries.

Try doing the highlighted bit in London!

That is what we are talking about, it is all very well where the housing costs are realistic (such as where you live) but the costs are not realistic in London for ordinary workers who have to stretch themselves just to get on the property ladder.

By all means make comparisons but please bear in mind the different (higher) costs that these people who are facing redundancy and pay cuts in London will have to bear!

edit-
I was going to post-
Your idea of cutting your cloth accordingly (which obviously works for you) seems to consist of minimising your risk by purchasing a flat and not having kids, these are the sort of ideals that do not appeal to the majority of the population who want to have a family and that will also mean buying a house.

But I didnt but just thought I would mention it at the end!

 

[radamfi]

Try doing the highlighted bit in London!

That is what we are talking about, it is all very well where the housing costs are realistic (such as where you live) but the costs are not realistic in London for ordinary workers who have to stretch themselves just to get on the property ladder.

By all means make comparisons but please bear in mind the different (higher) costs that these people who are facing redundancy and pay cuts in London will have to bear!

edit-
I was going to post-
Your idea of cutting your cloth accordingly (which obviously works for you) seems to consist of minimising your risk by purchasing a flat and not having kids, these are the sort of ideals that do not appeal to the majority of the population who want to have a family and that will also mean buying a house.

But I didnt but just thought I would mention it at the end!

Before I bought my flat, I was working in central London and commuting in from Surbiton. I could have bought something there, but I thought it was safer to buy somewhere cheaper further out of London and commute. If you lose your job you no longer have to pay your train fare but you still have to pay the mortgage. I researched which areas were cheap, so I looked into north Kent or Essex, but I decided in the end to move near Three Bridges station because of the 24 hour train service. Living here is more convenient than living in many parts of Greater London as I have round the clock access to central London without the need for night buses. There were cheaper places but they didn't have a 24 hour service. I had a job at the time that required me to get to anywhere in Greater London by 0700 so a 24 hour train service was useful.

I don't really see the point in living in inner London. I could have lived there when starting work in central London but I deliberately moved to Surbition for the 12 minute journey time to Waterloo. Given that you have to endure higher crime, high insurance costs (car/home), worse air pollution, bad traffic etc. etc. it should be cheaper to live in inner London, but instead it is extortionate! I could buy a flat in inner London now, but I simply don't think it is value for money. If I was to raise a family, I would definitely move out of London for a better environment for the children, as well as it being more cost-effective.

In my view, having children should be considered as an expense just like any other. They cost what they cost and so judgements about whether to have them are no different to buying anything else. If you can't afford them, don't have them.

 

[Greenback]

We also need to ebar in mind that where people are in a relationship it is not just the individual making the choices. There is usually, through necessity, a compromise between the views of both partners. Sometimes, their views align quite closely, sometimes less so, but while it may be important for one to live in a particuler location, it may not be such a high priority for the other.

Similarly, there may not be agreement on how much money to save. Quite a few people of my acquaintance have the attitude that they could be run over by a bus tomorrow, so what's the point of scrimping and saving so much that you can't enjoy yourself now?

There two extremes. One is being thrifty to the point of miserly, and at the opposite end of the spectrum there is my relative, who accrued so much debt in the fruitless search for contentment that bankruptcy was on the cards at one stage. I'm sure most people fall somewhere in the middle, and do the very best that they can in the circumstances they find themselves in.

 

[Tetchytyke]

"Living further out" isn't always the solution to the problems of working in London. There was a study at Christmas reported by the BBC which showed that it wasn't always cheaper to live further out.

I was living in Muswell Hill and the combination of my rent, council tax and travelcard was £1000 a month.

My partner (who was living in Newcastle, where I used to live- don't ask!) has now moved down, and her job is in Amersham. As a compromise I've moved out of London and we're both in Apsley, just south of Hemel Hempstead, again because of the fast trains from Apsley to Euston. My combination of rent, council tax and travelcard is £930 a month, and bear in mind that that I'm now only paying 50% of the rent.

I'm not comparing like-for-like: I was living in a small studio flat by myself and now I'm in a reasonable-sized two-bedroom flat looking out over the Grand Union Canal marina.

But I'm not saving very much money at all by living out here; everything I save on rent I pay to London Midland in travel. I actually prefer it out here, but that's not because it is cheaper.

 

[455driver]

Before I bought my flat, I was working in central London and commuting in from Surbiton. I could have bought something there, but I thought it was safer to buy somewhere cheaper further out of London and commute. If you lose your job you no longer have to pay your train fare but you still have to pay the mortgage. I researched which areas were cheap, so I looked into north Kent or Essex, but I decided in the end to move near Three Bridges station because of the 24 hour train service. Living here is more convenient than living in many parts of Greater London as I have round the clock access to central London without the need for night buses. There were cheaper places but they didn't have a 24 hour service. I had a job at the time that required me to get to anywhere in Greater London by 0700 so a 24 hour train service was useful.

So can you explain to me how I can commute in for an 0400 start or a 2359 finish when I am based at one of the central ticket offices?

A lot of people dont work 'normal' shifts you know!

I don't really see the point in living in inner London. I could have lived there when starting work in central London but I deliberately moved to Surbiton for the 12 minute journey time to Waterloo.

The point is you wont be able to get to and from work for half of your shifts if you dont live nearby!

In my view, having children should be considered as an expense just like any other. They cost what they cost and so judgements about whether to have them are no different to buying anything else. If you can't afford them, don't have them.

In my view if you can afford children then have them but what if, 5 years down the line, your employer decides to do away with your job?
And dont come out with any of that 'but anyone can be made redundant' rubbish, rail transport industry jobs are classed as one of the safest to have so come up with what other safeguards the staff need to put into place!

 

[radamfi]

So can you explain to me how I can commute in for an 0400 start or a 2359 finish when I am based at one of the central ticket offices?

A lot of people dont work 'normal' shifts you know!

I deliberately chose Three Bridges as it has a 24 hour service, so you can commute by train at any time of day. I've seen LU staff on overnight trains from here. You can even drive into central London from here in about an hour in the middle of the night.

In my view if you can afford children then have them but what if, 5 years down the line, your employer decides to do away with your job?
And dont come out with any of that 'but anyone can be made redundant' rubbish, rail transport industry jobs are classed as one of the safest to have so come up with what other safeguards the staff need to put into place!

I'm not quite sure what you are saying here. If we assume that railway jobs are 100% untouchable, then you could then argue that you can spend all the money you earn without risk. Even if you are always in employment, though, there is still a lot to be said for saving and investing and being frugal, for example piece of mind and maybe even the ability to retire early. I'm 39 and could retire now if I wanted as long as I continued to live cheaply. Alternatively if I do work until 60 I should have a very good retirement.
--- old post above --- --- new post below ---

"Living further out" isn't always the solution to the problems of working in London. There was a study at Christmas reported by the BBC which showed that it wasn't always cheaper to live further out.

I was living in Muswell Hill and the combination of my rent, council tax and travelcard was £1000 a month.

My partner (who was living in Newcastle, where I used to live- don't ask!) has now moved down, and her job is in Amersham. As a compromise I've moved out of London and we're both in Apsley, just south of Hemel Hempstead, again because of the fast trains from Apsley to Euston. My combination of rent, council tax and travelcard is £930 a month, and bear in mind that that I'm now only paying 50% of the rent.

I'm not comparing like-for-like: I was living in a small studio flat by myself and now I'm in a reasonable-sized two-bedroom flat looking out over the Grand Union Canal marina.

But I'm not saving very much money at all by living out here; everything I save on rent I pay to London Midland in travel. I actually prefer it out here, but that's not because it is cheaper.

I saw that BBC article. There's no point in living in Oxford or Cambridge as it is cheaper to live in Didcot, Bicester or Bishop's Stortford. Oxford and Cambridge don't have particularly attractive train services anyway. For more expensive houses, longer commutes are more viable. For example, instead of paying £1.5 million for an executive house in London, you might be able to get a similar house for £500K about 50 miles away, and the train fare would be relatively insignificant.

Renting (compared to buying) in London is better value now than when I was renting in the mid 90s. House prices have tripled or more in that time but rents have only gone up about 50%. So if you are renting there is less reason to commute. Obviously if you flat share then that is particularly economical. I looked into buy-to-let in London but the yields are not that great. Yields seem better outside of London.

For some (actually many) people, getting a job outside the SE would be the best option. For example, Manchester has a pretty decent economy, yet you can get 2/3 bed terraced houses in towns north of Manchester for around £60K. If you've got a lot of equity in your house in London, you could potentially sell up, move up north and retire.

 

[Bevan Price]

Agreed on both counts. I will start a new thread, and move this into it, as our discussion is increasingly unrelated to this topic!


The bottom line, though, to me anyway, is that people are entitled to spend their money on whatever legal activities they want to, whether that is gambling, having children, partying, taking exotic holidays or buying a bigger house than they need. However, I say that with the proviso that the expectation of having a lifestyle that includes all of those things and probably more, is unrealistic for the majority of residents of the UK.
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Yes - but some people try to spend more than they can afford. Others just squander money on frivolous luxuries, then expect the state to pick up the bill if they lose their job, rather than save some money for the proverbial "rainy day". And even when short of money, some people seem unable to distinguish between what is "necessary / essential" and what is "nice to have".

And, from someone whose parents / relatives experienced the recession of the 1920s/1930s, a lesson from them. As far as feasible - if you can't afford something, you either save until you can afford it, or you manage without it. In the long term, renting or hire purchase is almost always a lot more expensive than outright purchase. Only really expensive purchases like houses need hire purchase (mortgages) by most people.

Things you need most: Somewhere to live; a basic level of food & drink; energy for heating, lighting & cooking; kitchen & bathroom equipment, etc., plus a simple entertainment system (TV, DVD or CD player, maybe a basic computer ) to stop you getting bored. Furnishings, etc. will need very occasional replacement due to wear & tear, but not just because you or your partner are fed up with the existing design.

Some things that might be "nice to have", but which you can do without:
Subscription TV; Massive screen-size TV; booze; expensive foreign holidays; luxury cars; second homes; etc., etc.

 

[Greenback]

Yes - but some people try to spend more than they can afford. Others just squander money on frivolous luxuries, then expect the state to pick up the bill if they lose their job, rather than save some money for the proverbial "rainy day". And even when short of money, some people seem unable to distinguish between what is "necessary / essential" and what is "nice to have".

That's true, but since people's values differ, what can be done? Should central government produce a list of 'essentials' versus 'luxuries'? Some people may say that children are frivolous luxuries, others may decide to have children and then say that a large people mover is an essential.

As I have said elsewhere, there is a balance between spending and saving that is essential to the economy. Finding that balance is difficult for those who try and manage the economy, and it's also difficult for individuals and families.

I do believe, however, that a lot of people in employment have managed to build up some savings to cover a rainy day. But in many cases it is indeed a rainy day, not a rainy couple of years.

And, from someone whose parents / relatives experienced the recession of the 1920s/1930s, a lesson from them. As far as feasible - if you can't afford something, you either save until you can afford it, or you manage without it. In the long term, renting or hire purchase is almost always a lot more expensive than outright purchase. Only really expensive purchases like houses need hire purchase (mortgages) by most people.

I agree. The easy availability of credit in the 1990's and first half of the 2000's plus the aspirational lifestyle of many are contributors to the boom and bust of those years.

Things you need most: Somewhere to live; a basic level of food & drink; energy for heating, lighting & cooking; kitchen & bathroom equipment, etc., plus a simple entertainment system (TV, DVD or CD player, maybe a basic computer ) to stop you getting bored. Furnishings, etc. will need very occasional replacement due to wear & tear, but not just because you or your partner are fed up with the existing design.

We also need to consider the basic human desire to own nice things. Now compounded by the desire to own the latest top of the range device, whether it be an ipad, entertainment centre, car, clothes or furniture. It may be a recent development in human nature, and I'm not saying that it's right, but it's there and it's something that TV adverts play on to encourage people to buy these sorts of things. They aren't really sellign cars, for instance, but a lifestyle!

Some things that might be "nice to have", but which you can do without:
Subscription TV; Massive screen-size TV; booze; expensive foreign holidays; luxury cars; second homes; etc., etc.

I agree, but there seem to be a few people about who believe they are entitled, not just to one or two of those, but to most of them, regardless of income. the fourth one on the list is our vice, but due to (non financial circumstances we won't be having one of those this year, sadly. So we will be saving extra money at least!

And using the term 'we' reminds of a point I think I made earlier about it being difficult to compromise when there are two of you with different views. I wouldn't be surprised if, wher eone partner likes foreign holidays and the other would want a new car, both are purchased on credit in order to avoid a big decision. And probably a big argument as well!

 

[Tetchytyke]

Yes - but some people try to spend more than they can afford. Others just squander money on frivolous luxuries, then expect the state to pick up the bill if they lose their job, rather than save some money for the proverbial "rainy day". And even when short of money, some people seem unable to distinguish between what is "necessary / essential" and what is "nice to have".

I pay £350 in tax and £250 in National Insurance every month, not to mention VAT and fuel duty, and this is sold to me as paying for a "safety net" if something bad happens to me (e.g. ill health, disability, unemployment). Why shouldn't people expect the state to help them out, given that when they're working they pay so much out to the state.

"Tax Freedom Day", the day when you start working for yourself and not the Government, will fall on 28 May this year. Given that I'm spending the first six months of the year paying for the State, trying to argue that people shouldn't expect it back when times are tough is daft.

A lot of it comes back to what I said earlier: the absolute hardest thing to do is encourage someone to cut back on their lifestyle. When you're used to nice things- and these don't have to be bought on credit- it is extremely difficult psychologically to cut back.

Grant Thornton, the IVA specialists, have done years of research on "the psychology of debt", and fascinating reading it is too. Banks deliberately target people who have just come out of IVAs, for instance, because a) they can charge more interest and b) they know people are less of a risk because of the emotional trauma of the IVA.

That's true, but since people's values differ, what can be done? Should central government produce a list of 'essentials' versus 'luxuries'? Some people may say that children are frivolous luxuries, others may decide to have children and then say that a large people mover is an essential.

The debt advice sector already does do this, at least for people who are in uncontrollable debt. The Money Advice Trust, a body representing and working for non-profit debt advisors, have "trigger figures" in their budgeting software which explains what "reasonable expenditure" is for someone, depending on number of children etc. They're tough figures.

 

[Oswyntail]

I pay £350 in tax and £250 in National Insurance every month, not to mention VAT and fuel duty, and this is sold to me as paying for a "safety net" if something bad happens to me (e.g. ill health, disability, unemployment). ....

What would £600 a month get you? Once you have put something extra into your pension pot, private health care plan, private security provision, insurance (including fees to private fire service). I can't see much left over.
The thing about a safety net is that it's there to catch you when you accidentally fall. not when you throw yourself off a cliff.

 

[radamfi]

I don't blame anyone for making the mistake once. Property rises shot up and lending had to shoot up to accommodate it. Banks were taking the short-term view (prices must go up!) and customers were taking the view that if the bank would lend it then they could afford it.

Sadly we seem to be making the mistake again, at least in the south east, even though we are STILL paying for the hangover with UK Asset Resolution.

Actually we are making the mistake three times! After the 80s property boom in the SE, and the subsequent negative equity in the early 90s, buying property was a bit of a dirty word for quite a few years. Of course, that was all forgotten by the late 90s.

 

[radamfi]

http://www.thenews.pl/1/10/Artykul/161201,Polands-baby-boom-in-UK

says that Polish women in the UK are having twice as many babies as back home in Poland. Poles in the UK obviously think they are having a good life here in this country, as a result think children are very affordable. If they can also afford to send money back home, what does that say about the ability of British born people to budget properly?