What’s happened to the High Street and why do we need Money Shops?

I haven’t been into town for a while, well, you don’t need to go there if you aren’t going to buy anything. It’s a lovely day, so I took a detour via the cemetery and the park, to be treated to the lovely sight of a couple of jays flying over the railway line.

So I get into town and there it is, WHAM – what the heck has sprung up in the last year or so?

A Money Shop

What the hell is a money shop? What’s the current rate of £1 – well it ought to be £1, natch. But no, here we have an outfit that is going to sell you money, for money. Howzat work then? I took a butcher’s at The Money Shop website to find out how it all works.

At the Money Shop we believe that you should get your hands on cash when you need it. So why wait?

Why wait? Because you don’t have any frickin’ money and will have even less after getting out of The Money Shop! Just what is so hard to understand about that?

Not only can you give yourself the right royal shaft but you can get incentivised to stiff your similarly hard-up mates. So what is the current price on money? Well, say you need £100 and you’ve just been paid, but all your pay went on the last payday loan. Well, heck, so you write out a cheque to The Money shop for £100. The kicker is they only give you  £83.01 but the Money Shop will cash your £100 cheque after 30 days. That’s truly awesome.

Let’s assume you are the typical punter. you spend more than you earn, which is why you are coming to the Money Shop. Let’s say you want to buy Shanice some trinkets for Christmas and you need £100. Nobody else will advance this to you, so hello Money Shop. You need to borrow £100 from them, plus the amount they will charge you on top (£16.99)

Say this carries on for a year. You obviously have to borrow more and more since you need to borrow to cover the cost of the charges. How much are you borrowing at the end?

month borrowed charge
January £100 £16.99
February £117 £19.88
March £137 £23.25
April £160 £27.20
May £187 £31.83
June £219 £37.23
July £256 £43.56
August £300 £50.96
September £351 £59.62
October £411 £69.75
November £480 £81.60
December £562 £95.46

Yikes. Just. Say. No. Wilkins Micawber had it taped when he said that if you spend more than you earn the result is misery. The advantage of the Money Shop is it helps you get to the misery faster than the competition. I vote for Mr Money Mustache‘s approach:

when you come in and actually ask for a loan, I PUNCH YOU IN THE FACE AND TELL YOU TO WISE [...] UP AND GO SELL SOME OF YOUR SHIT INSTEAD OF BORROWING MORE MONEY!

Say what you like about MMM, but you can’t deny his dedication to excellence in customer service. Sometimes the customer is just so wrong, and needs to know the truth. Straight between the eyes…

Flabbergasted by this, I carried on, looking for places where fools could be parted from their money. The opportunities are legion –

more »

25 May 2011, 11:36am
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  • Why is rail travel so dear in the UK?

    Exhibit A Ipswich to London rail ticket at £75!!!

    Consider Exhibit A, at nearly £76 for an Ipswich to London + tube + bus to the station ticket. This is the most expensive thing I have bought this month, with the exception of Council Tax. Ipswich is about 74 miles from London so why on earth is this so shockingly expensive. Rail apologists will say you can get it cheaper, and yes, you can, if you want to book the ticket three months ahead for a specific time and train out and back. All I wanted to do was go to a business meeting, leaving Ipswich after 9:30 and coming back some time the same day. A few years ago this would have cost £22 or so which is a fair price. Now, to even get an off peak ticket I have to return before 4:30 pm or after 7pm. So to do anything useful with a train ticket, like travelling the day after you book it and not risking ridiculous pettifogging penalties you have to pay up £70-odd.

    I did this journey to a different part of London at the weekend, by car. I put £60 worth of petrol in the tank, I still have well over half of it left. Why is rail travel so damned expensive in the UK? For less than half the cost of this I can travel, return, from Hoek Van Holland to Amsterdam CS and back without all this penalty malarkey. Why do we make such a pig’s ear of it in Britain, persistently and consistently? What’s wrong with us? The only good think about this ticket is that I’m not stuck with the cost!

    One of the great things about high petrol prices is that it prices other people off the road, apparently it’s Squeezing the Middle

    There seems to be a constituency of consumers out there who are calling themselves the Squeezed Middle. And they’re mightily p*ssed off, so much so they want to vent. I got some choice words for them later on. However, I had a surprisingly pleasant experience yesterday.

    I hauled my carcass into the car to drive to London to visit my parents, guess it’s a 75-mile trip each way. I’m mortgage free and I have no intention of taking out the small mortgage I’d need to buy a rail ticket. I’m going to London tomorrow by train for work and it costs my company £78 of their Great British Pounds to do it. I hope I can add that much value to the meeting compared to a phone conference, but heck, it’s their call as it’s on their coin.

    So I fill up the car flexing the credit card for £62-odd. It’s been a couple of months since I bought petrol, as the trusty bicycle doesn’t touch the stuff. I note that it’s probably the highest about I’ve ever spent on a tank of petrol, and then I set myself on my journey down to The Smoke.

    I launch myself onto the A12 from Ipswich, and I think to myself blimey, where have all the people gone? Is there a football match or a Royal Wedding on? Okay, so it’s a Sunday late morning, but I know what the traffic should be, I’ve done this journey often enough. So I settle in and try and maintain an even speed of about 60 to optimise my fuel consumption of my 12 year old car that has already seen more than 100,000 miles of road, and it’s dead easy. I’m not streetfighting the trucks and I can let all the folks who have more money than me hare along in the outside lane, but even they aren’t streaking past me at about 40-50mph above my speed as they used to.

    This reminds me of how Britain’s roads were when I learned to drive, in 1984, you didn’t have the frenetic and tiresome jockeying for position then that has become the norm on our crowded highways.

    So I say hooray for high petrol prices – it prices all those other buggers off the road that were getting in my way. I arrived at my parents’ place more relaxed than usual, heck, I’d pay more to get the balance shifted even further. Which is kinda just as well, as I’m sure it will go that way, for all sorts of reasons, like peak oil, the increasing debasement of Britain’s currency, the general decline of the Western world relative to the East in competing for natural resources etc.

    According to the New Statesman we are into ‘peak car’ where people really are being priced off the road (hat tip to Alex for the heads up). About time too, the ever increasing volume of traffic on Britain’s roads, particularly the huge number of trucks doing the old truck race blocking both lanes of a two-lane road, was beginning to make inter-city driving in the UK really draining. On-cue the Grauniad delivers us this heart-wrenching tale of the Blanchards, a couple comprising of a chap and a SAHM who are part of the Squeezed Middle.  Let’s take a look at the ways they seek to design oil dependency into their lifestyle.

    So they had to get rid of one car, so the remaining vehicle naturally gets driven by the wage earner to get to work. What, then, is the nature of the complaint? It appears the lady (a SAHM I observe) has to take the 16-month old out of nursery ‘cos she no longer has a car to take him there, and now considers herself imprisoned in her home, to wit:

    It means I can’t get anywhere now, including nursery.

    Well, err, colour me a cynical son of a gun, but lady, you are a SAHM, so what’s with this nursery lark then? One of the upsides of living in a purty li’l village is you get to enjoy the birdsong and the smell of the countryside in its rich variety, one of the downsides is you are miles from anywhere – well, 10 miles from Cambridge. Apparently the bus fare for those 10 miles is now £5.40 return. Count yourself lucky, lady, the bus fare for me to get to work and back is that much and it’s only 6.5 miles each way, which is why I get on my bike.

    These Squeezed Middlers have built themselves an unsustainable lifestyle, though at the moment the solution is easy – SAHM actually has to be a SAHM and SAH to be a M, the clue’s in the acronym. Tesco or Ocado are going to have to deliver… Then we have the coup de grace

    Our children are missing out and the government needs to lower the price of petrol much closer to £1 to help families out.

    It’s the classic please won’t you think of the children? line. Why does the government need to use my taxes to subsidise your lifestyle? I’m not being a child-hating fascist here, when I was a kid my family didn’t even have a car till I was in secondary school! Schools, yes, health, yes, excess driving for SAHMs to live out in the country yet have access to the facilities of the town like the nursery, let’s just hold on a moment. It is possible to survive without a car, y’know. The choice has been one that people took for years before oil – you store or save your needs for about a month if you live in the country, and make a monthly trip into town, or you live in a more modest abode in town with easy access to the facilities around you and shop every day.

    In the coming decades transport will become ever more expensive. We will move ourselves are our supplies about less. We will manage stores better, as the fragile just-in-time supply chins that gorged on cheap oil fracture and fail in service. We will reimplement some of the systems that were used in the past, or more evenly distributed and graduated local, city, regional, county and country stores.  We will probably still have modern communications and data processing, so we will manage our stock far more efficiently than we used to. And country dwellers will make infrequent trips into town. £5.40 return is a killer if you do it every day, but it is not outrageous if you do it once a week. My Mum shopped one a week to the shopping centre for durables and ISTR twice a week if not more often for fresh veg from greengrocers and market stalls.

    We are going to have to think differently about how we live and how we supply ourselves. At least in Europe we still have a physical geography that reflects a time when supplies were distributed before cheap oil. I don’t know how Americans are going to be able to keep the suburbs and exurbs supplied in future, but they are a resourceful bunch so I am sure there’s a way.

    Oh, and before I take some stick for being some hyper-rich Toad of Toad Hall, I spent a total of £319 on petrol last year, so I am not Mr Toad, and it is why I can afford it if petrol doubles in price, indeed I could cope if it went up 10x, though I would probably cut my mileage even more and bike in the rain. I’m not rich as Croesus either, my household income puts the household into the nominal Squeezed Middle, though having no mortgage probably puts me at the upper end of it in terms of disposable income. I haven’t designed a long commute into my lifestyle, that was a choice I made decades ago. My London commute was 15 miles and 1.5 hours each way, and I resolved that one of the things I was going to fix was making sure I didn’t have that experience again. I was lucky in having that bad experience, but in general we are increasingly going to have to design our lives to involve less driving. Moaning that the government should subsidise fuel to allow SAHMs to drive their kids to nursery isn’t the right answer…

    In the meantime, I look forward to increasingly empty roads. I hadn’t noticed this drop in traffic going to work because my bike ride doesn’t go via too many main roads, and indeed it seemed to be the inter-city part of the journey that had less traffic, I can’t say I noticed any big reduction in town or in London.

    21 May 2011, 12:32am
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  • The Times They are A Changing – Be No Boiled Frog

    Change is part of life, it indeed is characteristic of life itself. It’s a double-edged sword; it makes life more interesting on one hand. We go on holiday to find change, else we’d just stick at home and go to the park on our time off.

    On the other hand, it makes it hard to live life, set in a sea of roiling change in the society and expectations around us. One of the characteristics of previous ages was that people lived more stable lives – there were people only a generation or two ago who grew up, raised a family and lived and died without having ever been more than 50 miles from the place they were born. George Ewart Evans related some of these tales from first-hand interviews in his book “Ask the Fellows Who Cut The Hay”.

    As a result, societal changes happened slowly, whereas now they happen a lot more quickly.

    There are some assumptions that many people build into their lives that were drawn from how their parents and other lived. In particular, some of the assumptions of how to live a middle class life are becoming very shaky indeed.

    President Obama called it out well in his State of the Union speech.

    “Many people watching tonight can probably remember a time when finding a good job meant showing up at a nearby factory or a business downtown. You didn’t always need a degree, and your competition was pretty much limited to your neighbours. If you worked hard, chances are you’d have a job for life, with a decent paycheck, good benefits, and the occasional promotion. Maybe you’d even have the pride of seeing your kids work at the same company. That world has changed. And for many, the change has been painful.”

    There are lots of difficult questions we might want to ask our politicians about how they delivered us such a screwed up world where so many of us have taken the shaft. In return, the more astute of them might return that they are merely a mirror to our desires and hopes. The problem is that

    we wanted it all, and we wanted it now, and it was mainly in terms of things and stuff

    Satisfaction delivered, largely, in the West. In the first half of the 20th century, lots of Stuff made great improvements in people’s lives, you can’t knock decent sanitation, the arrival of electricity in the 1930s, washing machines and vacuum cleaners in the 1950s, cars in the 1960s and 70s, central heating and double glazing in the 1970s.

    Then it all started to go wrong, and in a sudden rush of blood to the head we wanted more and more stuff, while not realising that we were taking on more and more debt simply to live.

    That was sustainable in the world that President Obama described, of stable jobs and a steady society. However, we started to demand more and more of our companies, and in order to deliver on the promises they made to our pension funds, our companies started to demand more and more of us. We could have had the Fifties lifestyle but working far fewer hours, but companies don’t like hiring part time staff, so what we got was a lot more unemployment, and a rise in asset prices like houses.

    Let’s take a look at where things have gone wrong:

    Jobs

    • there aren’t enough of them, decent ones anyway. We doubled the workforce in the 1970s, and the economy hasn’t adapted well
    • they aren’t particularly secure
    • you don’t get career progression, everything is a fight now
    • on the job training is disappearing
    • job descriptions are exploding in complexity without much cash return
    • people are managed as interchangeable components, less and less attention is paid to using them to the best mix of talents and specialisations
    • increased focus on paper accreditations rather than successful work done
    • far less opportunity to shine as an individual, everyone is a cog in a team now
    • more rigid structures
    • outsourcing and faux-self-employed agency working without rights

    Housing

    • Ever since Thatcher’s sale of council housing we have had insufficient housing, poor rental conditions and increasingly overpriced owner-occupation
    • the rise and rise of the interest only loan. Why do people to this to themselves FFS.
    • the rigidity of owner-occupation doesn’t suit the mobility requirements of todays insecure jobs, so we have accidental amateur landlords
    • Buy To Let. About time you started to pay capital gains tax, guys. There’s actually a case to be made for that on all property, but definitely on non-main-residences.  It also results in old money competing with young money, and old money always wins…
    • You need two earners to be able to afford a house

    Education

    • When everybody gets a gold star because we can’t allow ourselves to tell some of our children that they are thick, we can’t tell who’s bright and who isn’t. Plus some people get to leave school without being able to read properly or add up.
    • University. What is it for and what good is it? How do we know who is good enough and who isn’t. Is there any such thing as not good enough?
    • Student Loans/tax
    • Is 50% university entry desirable? This means university entry for people with an IQ of 100 or above. IMO universities should be more selective, they were in my day, taking about 7% of school-leavers.

    This is what has gone wrong in the last 20-30 years. Let’s take a look and what is likely to go wrong in the next 20:

    • Britain, and the West in general is bankrupt. In the end the rest of the world is going to get bored with giving us money to keep our lifestyles high. What that means is that wages, in real terms, are going to come down. Big time – I would guess at least 50%, if not more.
    • We have an increasing polarisation of wealth

    The share of UK income taken by those on various slices of the top income ranges

    Look at where that is going. That means you want to be in the top 10-20% of the income distribution. You can find out where you are with the Institute of Fiscal Studies’ Where Do You Fit In page.

    If you’re not up there, then you will find it increasingly hard to do many of the things that you saw your parents do. If your household income isn’t in the top 10% you would be unwise to take out a mortgage to buy a house in my view, as over the 25 year term you will probably not be able to accumulate enough wealth to pay down the capital. You’re better off renting, because losing a house involuntarily means it gets sold off for a song and you still get chased for the debt, unlike in the US with their non-recourse mortgages. You still get to lose your house in the States, but the debt is cleared.

    If you’re young, you probably want to think about whether you want to move abroad to a more dynamic economy. Asia isn’t bad… Germany is good for budding engineers, if I were in my 20s Germany is where I would be looking! There may be advantages to your university funding, should you choose that way.

    University – to go or not to go? I can’t really understand why anybody would go in England, saving £30,000 seems worth learning a foreign language for and studying at least in Europe.

    Lots of people are going to come unstuck in the couple of decades ahead making bad assumptions that they will track some of the life path their parents did. I was older when I discharged my mortgage that my Dad was when he paid off his mortgage, we were both single wage-earners, but he managed to do it while raising children! I was a white-collar worker, he was blue-collar. The reason it took me longer is written in the shape of that graph – Dad managed to buy his house on the downswing when wealth was shared more evenly from 1960 to 1985, I was in the upswing from 1988 to 2008. Not only that, he was competing with other families with a single breadwinner, I was the single breadwinner as only occupant, competing with two-income households so I had to pay more for my house as a proportion of my salary, even though on other measures I was earning more than Dad. That will hold more and more, as governments lower benefits and increase taxation to try and balance the books.

    Additionally, we have increasing competition. From 1950 to 2000, the West had a clear run, but other countries are catching up fast, and they have far larger and younger populations.

    The world may start running out of resources, particularly oil. we’ve only got one world, and we are adding an increasing number of people to it, and their lifestyle is increasing. There’s not enough world for everybody to have a European lifestyle. Globalisation will be the great leveller, it was great when it meant cheap DVD players in Tesco, it’s not so great when it means petrol at £50/litre.

    How do you respond to this?

    • You avoid debt, at all costs, particularly debt incurred to fund a ‘lifestyle’
    • eliminate fixed costs as far a possible
    • where possible, organise with other people to produce essentials for yourselves and grow food.
    • Spend less than you earn
    • Consider some of these ideas

    It’s all about resilience and eliminating unnecessary costs. It’s about people, not things – a lot of your quality of life comes from who you know, not what you have. There is a whole advertising industry telling you otherwise, but a lie repeated is still a lie. Our lifestyle and  standard of living may have to drop, but if we live in a way more according with our values and relate better to each other then our quality of life may not drop.

    Forewarned is forearmed. It’s more comfortable to go lalalalalalalala and believe the ads. Taking on extra debt is like the junk food mantra ‘a moment on the lips, a lifetime on the hips’. Live within your means – or be a wage slave for your whole life. It will be harder in future to recover from a debt binge.

    Funnily enough, Vince Cable seems to be of a similar opinion regarding the coming decline in British living standards.

    People do not understand how bad the economy is [...] politicians have not made clear the time and pain needed to restructure Britain’s broken economic model

     

    17 May 2011, 11:04pm
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  • Fat Cats and the Power Of Wealth

    The Daily Mail has a shock-hold-the-front-page kind of diatribe about FTSE fat cats getting paid 145 times the average pay in their companies, and when you look at the slice of national income taken by the top 0.1% of earners the profile is quite remarkable.

    The share of UK income taken by those on the top 0.1% of the income range

    It’s hard to get a handle on something like this. I postulate that what it shows is the gradual shift of post-war power away from capital towards labour and back again. There seems to have been a low-water mark round about 1978 in the slice of the national income taken by fat cats, followed by a gradual rise.

    What would actually be more interesting to me is the distribution of wealth according to income slice. It isn’t your income that determines whether you have a yacht or own your house. It is your accumulated wealth. Obviously if you earn £1,000,000 p.a. then you can do in two months what it has taken me 20 years to do, ie buy my house outright. However, I did get there in the end, by accumulating wealth, even though I am unlikely to earn £1,000,000 in my entire working life.

    Anyway, what’s the story here? FAT CATS ARE GETTING ALL THE MONEY, LYNCH THEM!!!. Or is it?

    It certainly wasn’t in 1978, when the fat cats took about 2% of the national income.  If you’re a fan of The Spirit Level, catchphrase “why equality is better for everyone” then you’re probably also a fan of whatever happened between 1956 and 1986, culminating in 1978, which seemed the spread the fat cats’ cream more widely amongst the mangy alley cats too.

    Before we get all dewy-eyed about 1978, let’s remember what it was like then. It was the Winter of Discontent. Rubbish was piled high in Leicester Square. We had lowlife varmints like miners’ union boss Arthur Scargill running the country, whose hired goons “accidentally” dropped concrete blocks on taxi drivers from motorway bridges.

    Be careful what you wish for – if you want income shared more equally, it means lending power to all sorts, including people like Art’. The optimum probably lies somewhere between what we had then and what we have now, but I will leave that to cleverer people than me to figure out.

    So I then thought I’d run the query again, looking at the amount varying slices of the top take. Presumably in the top 10% is included the top 0.1%, but anywy the results puzzled me. From a cursory glance it would appear that it is the 10-1% slot which is running away with all the lolly, so the figures would indicate it is the medium sized cats that the jealous should string up. But there are a lot of them. And if anything they are doing rather well, well, they were in the mid 2000s.

    Bearwatch has an interesting thought experiment into how things get this way. If he’s right, then perhaps if you want the outcomes that are approved of in the Spirit Level then probably Karl Marx was right, you have to go after the means of production and get it in the hands of the proletariat. Now where did we try that and how did it turn out?

    The share of UK income taken by those on various slices of the top income ranges

    This still doesn’t really deal with the wealth effect. It is one of those ironies in life that, provided you do not spend up to your income, you accumulate wealth. Poor people buy Stuff that they consume, rich people buy assets that produce an income. I used to buy Stuff, now I try and buy income. At the moment I wouldn’t go as far as to say I am rich, but then people rarely do view themselves as rich. In some ways I am – I own my house outright, and I have good health.

    In many other ways you are probably richer than me. I drive a 1999 reg car with > 120,000 miles on the clock, I don’t own a mobile phone, I don’t have Sky TV. My computer is elderly, it was bought in 2005 under the Home Computer Initiative. I don’t have a video games console or a flat panel TV. I haven’t been on holiday for the last three years. Half the time I ride a bicycle to work. I could afford to change all of these to closer to the norm, but I choose not to, because buying an income is more important to me than any of these things.

    It is far easier for me to save, now that I am about to see 50 summers, than it was when I had seen 40. The reason is that a lot of the costs in life are associated with a large capital purchases of Stuff, like your house, so once that is paid off you have more money left. Even if you haven’t paid it off, if you have savings you can take advantage of bulk deals, you don’t have to use expensive loans, you can get some income from investment, everything is working for you. Money attracts money.

    In the last 12 months I have saved more than I saved in the 12 months before, which was more than in the 12 months before that. Some of this is through deliberately targeting costs and gaining skill and experience with that. Some of it is because investments are paying me a return. Double glazing reduces my power bill. So does my wood burning stove.

    Of course, ostentatious consumption is a good part of being a Fat Cat, so I am disqualified as I have to take the frugal route. Lloyd Blankfein doesn’t need to worry about frugality while he’s doing God’s work at Goldman Sachs.

    However, he probably accumulates wealth faster than I, because in the end there’s only so much clobber you can spend money on. Plus Lloyd Blankfein may be directly descended from the Bad Guy downstairs with the pointy tail and sulphurous breath, but he didn’t get to be head honcho at Goldman Sachs by spending more than he earned, unless it was to buy power and influence – assets again!

    Looking at those graphs, I would say we are seeing a reversion to the mean in terms of wealth distribution. Old money owned all the stuff in the 19th century because they controlled the means of production, primarily land. Corporations will probably own everything in the 21st, once again because they control the means of production, and often the access to customers. At least while they can still pump oil out of the ground, they will, after that there may be a shift back to the power of labour in the ensuing bunfight. Or we will get indentured servitude, or slavery perhaps, but in an energy-challenged world it will probably be more local, up close and personal, rather than Apple, McDonald’s and Coca Cola owning the United States of Earth.

    Corporations will try and favour machinery over human labour, both because for a lot of things it is more effective, and because it is cheaper. I still recall as a kid seeing huge phalanxes of men coming out of factories at the end of the day’s shift – I wouldn’t know where to go to see such a spectacle in the UK now.

    The big question has to be what the heck happened in the middle years of the 20th century? My parents saw a gradual improvement in wealth distribution, but all through my own working life I have seen an continuous degradation in wealth distribution. What on earth was the countervailing force to the tendency for money to accrete to money?

     

    NS&I bring some good cheer on the financial front – widows, orphans and prudent mustelids get a break

    It’s been a rough couple of years for cash investors. Okay, so investing in cash is a bit of an oxymoron. You can’t invest in cash, not in the modern developed world. The tragedy of democracy is that it has its dark side, and the dark side is that the electorate have the “I Want It Now!” attitude of a two-year old, without the cute smile that goes with the latter. The yelling and throwing the toys out of the pram, however, is endlessly present in the voting masses, and as a result the unfortunate parents that have to get this two-year old to bed get re-elected every five years promise to deliver toys worth more than the toddlers can afford. They print more money to pay for those promises, and the increasing amount of money sloshing around the system outcompetes your cash, so it is a claim on less work tomorrow than it was yesterday. Sometimes the parents politicians get it very wrong, and it all goes to pot very suddenly and in a really big way.

    Thus it happens that inflation slowly rusts cash. That’s particularly bad at the moment because interest rates are low and yet inflation is high. Even if you could get an account that pays you RPI, you’d be taxed on the interest, so if you are a basic rate 32% taxpayer you need to get an account that pays a third more than inflation. Higher rate taxpayers can forget it, they get paid too much anyway according to the taxman, and that’s how they get levelled down so everybody is happy.

    So don’t hold cash then. D’oh, it’s not hard. How about some of those nice shares, if you try really hard to forget about the events of 2007-8 shares can hit the ticket, though you still get taxed at least 10% on dividends before you get them. The problem comes if your roof falls in during a stock market crash, you end up as a forced sale and lose hand over fist. I dodged that bullet at the end of 2007 when I had to suddenly totally liquidate my index fund ISA in a ‘life changing event’ because I was still decently in profit, but had that happened six months later I could have ended up still paying that debt off now. Once you’ve heard that bullet ping past your ear and ricochet off the floor, you learn. Cash has its place, and that place is your emergency fund, and you do it first, so you don’t have to sell up into a bear market. Just. Do.It. Before you go all Gordon Gekko and hold stocks :)

    The trouble is, cash is the only thing that is almost guaranteed to not suddenly throw a wobbly and fall in value by half. Everybody needs to have a cash buffer against the unexpected. Unless you are ERE who just uses a credit card. I admire and support his logic, which is impeccable, but I don’t have his courage. Once you have lived a year not owing a single entity any money, it is very hard to willingly return to owing money, though I note ERE uses the credit card to give him time to marshall his financial resources.

    A good rule of thumb is an emergency fund of about half your annual outgoings, which for most people means half their salary (if it’s more they aren’t going to be saving anyway!). For the average Brit that’s £10,000. RPI is currently 5% so you get to lose 5% of your emergency fund eery year, or £500 a year. So you have to top up by £500 a year just to stay still, and insure yourself against the same amount of emergency next year as you could cope with this year.

    Don’t know about you, but I can think of better things to do with £500 this year than the care and feeding of the emergency fund. So I am dead chuffed to see those nice people at National Savings and Investments offering index-linked savings certificates again. That way you lob your emergency fund into NS&I, and you get the following wins:

    • You can cash in early if the emergency turns up, which is what an emergency fund is for, none of this no access for five years lark some term accounts do
    • did I say they were tax free?
    • They track inflation, and that’s RPI, none of this CPI chicanery here
    • Pretty safe, if you lose money in NS&I a lack of cash will be troubling you less than you current immediate lack of tinned beans and an AK47. This is HM government, and they can always print the readies :). It’s not like saving with Icesave or Northern Rock

    All in all, pretty awesome, a safe home for your cash. You aren’t going to get rich on it, but your cash is worth as much at the end of the five year term as it was at the beginning, there’ll just be more of it. I kind of like that in cash. Monevator and his chums were griping about the paltry rate of extra interest - he balked at 1% so he’ll be scathing about the current 0.5% + RPI offering. But I don’t mind that. I don’t expect cash to make me any money, I’d just like it to be a store of value, and for it not to suffer a slow inflationary death to pay for empty promises made by governments to financially illiterate electorates. If I want to make money I have to start buying into companies or start my own, or work for The Man.

    So hats off to NS&I. I’ve just tossed £8k in their direction. I can now decommission my Cash ISA, which had been guardian of my emergency fund until now. However, I’m not going to withdraw the cash, I will do a transfer in to my Shares ISA, so I have effectively transferred my cash ISA to NS&I Index-Linked certs, and have the opportunity to still put in £10k for the year 2011/2012. Whether or not I get to achieve that is another matter, because saving £10k a year is challenging enough, but saving £17k a year in post-tax income is pushing the boat out a bit for me.

    So hats off to NS&I. That’s emergency fund, Job Done for me. Roll up to NS and I’s web-site here and grab yourself a slice of the action. They are a perfect fit for an emergency fund, with their £15k maximum. If you need an emergency cash fund of more than that you are someone of a seriously nervous disposition ;)

    AV or not to AV – proportional representation and stuff

    Yesterday there was a referendum on changing the UK voting system to something I struggled to understand. The mechanics are easy enough to understand for the alternative vote, but what it would mean aren’t clear to me at all.

    For what I guess must be historical reasons Britain groups its voters into relatively small clusters called constituencies, and currently the ~ 70000 voters in a constituency vote for one of the candidates. The candidate with the most votes wins that ‘seat’.

    I can see the case to be made for proportional representation, possibly with a 5% minimum vote cutoff, and perhaps we may move to that one day. However, to make PR work, to my eyes we would have to eliminate the small constituency groupings.

    The reason for this is that all electoral systems are a map of the voters’ views, and they come with their own distortions. Let’s take a 5% accuracy as good enough – we would then need up to 20 MPs for an area, so each can represent 1/20th of the popular opinion. In a constituency with 40% Lab, 40%Con and 15%Lib and 5% Monster Raving Loony Party, we’d have a chamber with 8Lab, 8Con, 3 Lib and 1 MRL members.

    Suffolk, the region I live in, currently has 7 MPs each serving about 70,000 voters so unless the cost of politicians’ salaries is going to rocket up, we’d have to upscale the size of the constituency, to 70,000 * 20 = 1.4 million voters. We could do that – indeed we do when we elect members of the European parliament, where there are 72MEPs representing the UK. The actual process whereby they allocate MEPs strikes me as overly complicated, but doable.

    IMO we either have to do this job properly or not at all. Either we get rid of our small constituencies (along with the link to the local people and MPs surgeries etc) and accept the large faceless constituencies that go along with getting a more accurate representation of the vote, or we retain the small constituencies and accept the distortions, but at least we can hold politicians to account for their manifestos, something that is lost with coalitions.

    In practice the distorting issues of first-past-the-post voting seem to integrate out over time. I have voted for all the big three parties, depending on the issues of the day, and overall I feel my views were acceptably represented. In some ways the UK stumbles along veering from left  to right as the inconsistencies inherent in any excessive duration of one extreme or the other start to upset enough people that they switch allegiance.

    In this way a rough path is trod, in a similar way to how your central heating maintains an acceptable temperature, despite the fact the boiler can usually either be either running flat out or not at all. A set-point is established, and if things are too cold the boiler is run, until the temperature gets too hot, and then it is turned off. The temperature is never exactly what you set, but it’s near enough most of the time.

    We’ve had a run of tax and spend for a while, and it was nice for some Britons while it lasted, but now enough voters sort of came to the conclusion we need to stop paying so many people to do nothing. That tends to go too far as well, as anybody who remembers the early 1980s can recall.

    So I voted no, either fix this right or leave us with the imperfection we are used to. If we want PR then let’s have it. Perhaps we can have this debate again with the elected House of Lords if it ever happens.

    Of course, there’s the other issue of it being one in the eye for Nick Clegg. On the occasions where I have voted LD I was after something reasonably left wing. If I want Tories I’ll vote for them, thanks all the same Nick, I don’t need a proxy. It would have really pi**ed me off if I had voted LD last May and ended up being part of making a a Tory led Coalition happen. Whereas had I voted LD and ended up with a LibLab coalition I would not be too surprised, as I view them as two similar flavours with different emphases.

    The trouble with getting a hold of a tiger by the tail. Nick, is that you end up going where the tiger wants to go… Something gives me the feeling that’s not the same direction as where most of your voters wanted to go hence the hammering you got last night. As he said

    “Clearly what happened last night – especially in those parts of the country, Scotland, Wales, the great cities of the north, where there are real anxieties about the deficit reduction plans we are having to put in place … we are clearly getting the brunt of the blame,” he told reporters.

    “To the many families, in those parts of the country especially, there are some very strong memories of what life was like under the Thatcherism of the 1980s, and that’s what they fear they are returning to. We need to get up, dust ourselves down and move on.”

    I’m not sure how you do “move on” from that, what part of “Why are you enabling the Tories to do this to us” do you not understand, Nick?

    I don’t know what the results of the AV vote are, but either way it will have served to open the debate. This was rushed and the wider issues of changing the constituency system were not aired well. We may be happy to rattle along using first-past-the-post and accept that over time we get something approximating to what we want, or we may reflect that we would prefer something more accurate in the 21st century. It’s no bad thing to think about that.