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As we give up on saving, we give up on our future As we give up on saving, we give up on our future
(7 days later)
Once upon a time there was a Frenchwoman who made it her life’s mission to save two of everything. Not just a spare for every possible eventuality – filling every cupboard to bursting, littering her cellar – but a twin for every object she owned, right down to table lamps.Once upon a time there was a Frenchwoman who made it her life’s mission to save two of everything. Not just a spare for every possible eventuality – filling every cupboard to bursting, littering her cellar – but a twin for every object she owned, right down to table lamps.
This hoarding made no sense at all, until it emerged that her grandfather once saved his family’s lives during the war by producing a spare reel of thread for a German soldier who needed to repair his uniform. Without that favour, they could have died. And so even as an adult, she could only feel safe so long as she had one of everything in reserve.This hoarding made no sense at all, until it emerged that her grandfather once saved his family’s lives during the war by producing a spare reel of thread for a German soldier who needed to repair his uniform. Without that favour, they could have died. And so even as an adult, she could only feel safe so long as she had one of everything in reserve.
Although Madame Rosen the hoarder is nominally fictional – she’s a character in Muriel Barbery’s novel The Elegance of the Hedgehog – one senses her creation must have been inspired by a true story. The children of wartime refugees often have family anecdotes of slightly demented scrimping and saving, drawers full of oddments that will patently never be used. We all save to feel secure, and not merely financially; even if it’s only spare coppers in a jar, saving makes us feel more in control of our destinies, more confident of facing down unknown threats.Although Madame Rosen the hoarder is nominally fictional – she’s a character in Muriel Barbery’s novel The Elegance of the Hedgehog – one senses her creation must have been inspired by a true story. The children of wartime refugees often have family anecdotes of slightly demented scrimping and saving, drawers full of oddments that will patently never be used. We all save to feel secure, and not merely financially; even if it’s only spare coppers in a jar, saving makes us feel more in control of our destinies, more confident of facing down unknown threats.
But saving isn’t just about holding off the darkness. To save is to plan, to imagine a future and work towards it: just ask any teacher. Saving teaches self-discipline, impulse control, the ability to forgo instant gratification in exchange for future reward – all the things famously measured by the Stanford marshmallow test, in which four-year-olds were offered the choice of one marshmallow now or two if they could bear to wait 15 minutes.But saving isn’t just about holding off the darkness. To save is to plan, to imagine a future and work towards it: just ask any teacher. Saving teaches self-discipline, impulse control, the ability to forgo instant gratification in exchange for future reward – all the things famously measured by the Stanford marshmallow test, in which four-year-olds were offered the choice of one marshmallow now or two if they could bear to wait 15 minutes.
What makes the experiment so famous is that those few kids who resisted temptation didn’t just grow up to get higher exam scores, but were also still leading more successful lives four decades later. But what if it had all been a con, and there hadn’t been a second marshmallow? What happens when you save and save for a whole lot less reward than expected? What makes the experiment so famous is that the minority of kids who successfully resisted temptation didn’t just grow up to get higher exam scores, but were also still leading more successful lives four decades later. But what if it had all been a con, and there hadn’t been a second marshmallow? What happens when you save and save for a whole lot less reward than expected?
Anyone with a mortgage will probably have breathed a faint sigh of relief this week when Mark Carney, the governor of the Bank of England, made clear that interest rates weren’t about to rise after all (with the tacit implication that it’s no longer clear when they will).Anyone with a mortgage will probably have breathed a faint sigh of relief this week when Mark Carney, the governor of the Bank of England, made clear that interest rates weren’t about to rise after all (with the tacit implication that it’s no longer clear when they will).
But it’s a very different picture for savers, gloomily watching their nest eggs shrink in real terms. The paltry interest earned in the average high street bank account is so quickly outstripped by inflation that you might almost as well keep cash in a biscuit tin under the bed. And that’s no longer the only threat to what, in Britain, was never a terribly strong savings culture to start with. The next big battle will be over pensions.But it’s a very different picture for savers, gloomily watching their nest eggs shrink in real terms. The paltry interest earned in the average high street bank account is so quickly outstripped by inflation that you might almost as well keep cash in a biscuit tin under the bed. And that’s no longer the only threat to what, in Britain, was never a terribly strong savings culture to start with. The next big battle will be over pensions.
I know, I know: nobody wants to read about pensions. Pensions are boring snoring, except when you briefly consider how long you might be living on one, when they become briefly terrifying. That’s why outrage over pink lady razors costing more than identical men’s ones is headline news, and the fury of older women only now realising they’ll be hit by a sudden rise in pensionable age is not.I know, I know: nobody wants to read about pensions. Pensions are boring snoring, except when you briefly consider how long you might be living on one, when they become briefly terrifying. That’s why outrage over pink lady razors costing more than identical men’s ones is headline news, and the fury of older women only now realising they’ll be hit by a sudden rise in pensionable age is not.
But it’s perhaps also why politicians are increasingly tempted by complex, interminably tedious pension reforms as a means of slashing state spending. After all, it could be years before anyone realises. So skip the rest of the piece by all means – just don’t say you weren’t warned.But it’s perhaps also why politicians are increasingly tempted by complex, interminably tedious pension reforms as a means of slashing state spending. After all, it could be years before anyone realises. So skip the rest of the piece by all means – just don’t say you weren’t warned.
The unlucky generation for whom life basically consists of realising you can’t have the stuff your parents took for granted – free higher education, say, or home ownership – now find a decent pension is the next thing in the line of fire. They now face an erosion of incentives to save, shaky confidence in scandal-ridden financial institutions, and perhaps the kind of stock market volatility currently busy wiping billions off pension funds. (Those bankers you saw losing their shirts this week? Strictly speaking that was your shirt, if you’ve got money in a pension.)The unlucky generation for whom life basically consists of realising you can’t have the stuff your parents took for granted – free higher education, say, or home ownership – now find a decent pension is the next thing in the line of fire. They now face an erosion of incentives to save, shaky confidence in scandal-ridden financial institutions, and perhaps the kind of stock market volatility currently busy wiping billions off pension funds. (Those bankers you saw losing their shirts this week? Strictly speaking that was your shirt, if you’ve got money in a pension.)
The Treasury swears it’s genuinely undecided over proposals to slash the tax relief that higher-rate earners enjoy on pension contributions, or to reduce the amount that can be sheltered in pensions. But the smoke signals emerging are enough to worry both Tory MPs and the Daily Mail, which this week began campaigning vigorously to save middle-class pensions.The Treasury swears it’s genuinely undecided over proposals to slash the tax relief that higher-rate earners enjoy on pension contributions, or to reduce the amount that can be sheltered in pensions. But the smoke signals emerging are enough to worry both Tory MPs and the Daily Mail, which this week began campaigning vigorously to save middle-class pensions.
Many won’t weep for the squeezed upper middle, of course. Chipping away at tax reliefs that benefit the relatively wealthy is one of the most progressive things George Osborne has done – even if the fear is that the genuinely rich will simply find somewhere else to shelter their loot, leaving people who can’t afford fancy accountants to bear the brunt.Many won’t weep for the squeezed upper middle, of course. Chipping away at tax reliefs that benefit the relatively wealthy is one of the most progressive things George Osborne has done – even if the fear is that the genuinely rich will simply find somewhere else to shelter their loot, leaving people who can’t afford fancy accountants to bear the brunt.
But the knottier problem is with the millions who aren’t saving for retirement because they can’t afford to – and with a fast-growing army of self-employed people for whom the whole thing increasingly doesn’t seem to add up (which might be why they are three times less likely than wage slaves to have a pension).But the knottier problem is with the millions who aren’t saving for retirement because they can’t afford to – and with a fast-growing army of self-employed people for whom the whole thing increasingly doesn’t seem to add up (which might be why they are three times less likely than wage slaves to have a pension).
What if work dried up tomorrow, and you needed the cash in a hurry? Is it really safe to tie up every spare penny in something that, as the small print always says, can go down as well as up – especially if there’s no employer helpfully topping the whole thing up? In a world of increasingly insecure casualised labour and dwindling returns, suddenly that promised second marshmallow starts to look a pretty sad, half-nibbled prospect – barely worth waiting for.What if work dried up tomorrow, and you needed the cash in a hurry? Is it really safe to tie up every spare penny in something that, as the small print always says, can go down as well as up – especially if there’s no employer helpfully topping the whole thing up? In a world of increasingly insecure casualised labour and dwindling returns, suddenly that promised second marshmallow starts to look a pretty sad, half-nibbled prospect – barely worth waiting for.
So, like those millennials who are increasingly giving up on saving for a deposit because the whole idea of buying a house seems so impossibly out of reach, the temptation is just to live for the moment. Spend money on stuff that makes life worth living now, try not to think about what comes next, embark on what basically amounts to a gigantic game of chicken with those future governments who will be in charge when we all retire into penury.So, like those millennials who are increasingly giving up on saving for a deposit because the whole idea of buying a house seems so impossibly out of reach, the temptation is just to live for the moment. Spend money on stuff that makes life worth living now, try not to think about what comes next, embark on what basically amounts to a gigantic game of chicken with those future governments who will be in charge when we all retire into penury.
And that’s the real problem about chipping away, little by little, at saving. It’s not just the act of saving money itself you’re destroying, although the economic implications of that are bleak enough. It’s the idea that individuals have some control over their own future lives, that self-sacrifice will be rewarded – and that the people in charge weren’t lying about the second marshmallow.And that’s the real problem about chipping away, little by little, at saving. It’s not just the act of saving money itself you’re destroying, although the economic implications of that are bleak enough. It’s the idea that individuals have some control over their own future lives, that self-sacrifice will be rewarded – and that the people in charge weren’t lying about the second marshmallow.
• This article was amended on 28 January 2016 to clarify details of the Stanford marshmallow test.