23 Sep 2014, 1:42pm
personal finance:
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  • the trials and tribulations of the rich poor

    Or should that be the poor rich? Anyway, it’s hurting, and particularly would like to make it known that Things Are Not What They Used To Be. It seems to be particularly through their kids that they are hurting, more specifically that, y’know,

    one does everything one can for Tarquin and Jemima, even, good lord, shopping at Aldi, driving a secondhand Fiesta and forgoing the annual holiday to Tuscany. But it’s really, really hard to make the public school fees, yah?

    Shock, horror, even on £370,000 p.a. we can’t afford to pay to send them to private school these days. Whatever is the world coming to?

    I indirectly know a couple who have had to send the SAHM out to work after 10 years at home to pay for the school fees. Obviously they think this is terrible, along with the beastly Government not giving them child tax benefit because he earns more than 60k. Oh yes, the ermine nodded. How terrible. dreadful, indeed, while secretly asking myself how it was that myself along with the other good taxpayers of England were subsidising their lifestyles and how it’s perfectly reasonable to ice child benefit for people paying higher rate tax FFS. He worked harder than me and earns more than I did, which is fine and as it should be, but me, and indeed someone earning 15k a year for that matter, paying for someone on well over the average wage to have kids? Don’t get me wrong, he was perfectly entitled to take it up when it lasted, but I’m not that amazed it was canned, and can’t imagine it made a huge difference to their lives 😉

    Every so often the Ermine thinks back to the guys getting on their bikes to cycle out or get the bus to the old glass factory in Charlton when my Dad once worked, and where you’d see the wives line up outside the factory gates on Friday which was payday to make sure the money didn’t get flushed down the pub when the end of day siren blew 1. And I ask myself how the heck has Britain gotten so damn soft in 45 odd years that the rich need sponsoring like that – I believe CB was originally targeted at the poor though the history of child benefit is so convoluted I don’t really know.

    How do you know you are rich?

    Easy. You look at all the shit in the external world that tells you that you are great because you have it or consume it. The stuff you have, the size of your house, the services you buy like the au pair, the holidays, the cars you drive, how often you change it, the public school for your kids. For the sake of any non-British readers, in the UK if you deem the universal education paid for from general taxation to be beneath your dignity/requirements you pay for private schooling at what is called a public school, as opposed to a State school which is one paid for from taxation.  I believe Americans quite sensibly called State schools public schools and public schools private schools, because they are logical that way. Go figure.

    I look up to him and down to him - seminal comedy skecth on being rich

    I look up to him and down to him – seminal comedy sketch on being rich

    You look down on people that have and spend less, and you look up at people that spend more. You are rich if roughly speaking there are twice as many people below you as above you 2. To save you the embarrassment of doing this publicly you can head over to those guys at the IFS on where do you fit in. There is a hidden implicit assumption at the IFS that you spend everything you earn with that tool, which is of course not a way to doing well financially

    So why are the rich feeling poor, then?

    The problems for the modestly rich is that they also look back along the time axis at their parents. Say you’re a GP on about 100k, the daughter of medics, and your parents sent you to public school. Assuming you’re married to another GP so the combined income is 200 kilosods, you are still short of sending both Tarquin and Jemima to Eton 3

    Fundamentally the problem is too many other people are getting rich. Although your absolute living standard 4 is vastly greater than that of your parents, your comparative status has dropped, and you feel the draught. You feel poor and hard done-by. Your parents simply had the benefit of fewer rich people to compete with them for finite resources. You will live longer, have better food, better houses, better health than them but there are more people above you in the income scale, because this happened. I know it’s US data

    the 1% are falling back - it's the .01% you want to be in

    the 1% are falling back – it’s the .01% you want to be in

    so I am winging it a bit assuming the pattern is followed in the UK. Interestingly if you look at general plot of the S&P500 over the same period you get to see some similarities

    this is price, not total return, of the S&P500 over a similar period

    this is price, not total return, of the S&P500 over a similar period

    So how do the .01% get rich? From the Atlantic

    How’d they all get so rich? It wasn’t the way the rest of us get rich. It wasn’t their wages. It was something else.

    The richer you are, the more likely your riches come from stocks, not salary. For the three groups graphed above—1 percent, 0.1 percent, and 0.01 percent—capital gains account for 22, 33 and 42 percent (respectively) of their average income. […]

    Practically all the growth in average income at the top comes from stocks. Between 1992 and 2007, the average salary of a top-400 tax return doubled, but average capital gains haul increased 13X. Wages are for normal people. The richest get richer from their investments.

    So now you know what to do. Listen to that Monevator fellow and get on the side of Capital, because that’s where all the action is, and it’s slaughtering Income.

    So what’s with all this public school stuff then?

    That’s the problem for our doctors, and indeed our rich poor. Capital is riding into town and eating their lunch, outcompeting them. The public school system has increased, but not by as much as Capital is increasing. These poor rich people’s mental picture of what it means to be rich is formed in their early years from their parents, but their parents weren’t in such a competitive space. So it stands to reason that the merely rich are feeling poor, and they’re pissed off about it.

    Something that struck me, listening to Mr 60k+ and his SAHM about to go out to work after a 10 year break so they can pay for the school fees is that there’s a category error in their assumption. They assume that by sending their kids to public school they will earn more.

    This isn’t the only reason – public schooling buys you influence, connectivity 5. The fact that entry into public school is selection by parental wealth 6 means you of course keep your kids away from chavvy poor people who make up the 93% of Brits that can’t afford it. You aren’t meant to say many of these things, but observation shows me that people become extremely tribal when it comes to their children – if I had them and I had earned enough I am sure I would send my children to public school too. Just whatever you do make sure you can keep doing it till they are 18 because if you suddenly can’t afford it and they are hoicked out of Eton to be sent to the local comp with all the rough sorts and chavs that make up the rest of the 93% of the population then Tarqin and Jemima are going to have a really, really hard time as the rough sorts take the piss. Not only will they get the detriment of a scummy State education like wot I had but their self esteem will take a bit of a hit.

    As a text-book example of why people send their children to public schools I offer Polly Toynbee, who is strongly for State education – but only for other people’s children. As the Independent says

    She is far from being the only prominent liberal journalist whose children are privately educated, but her head seems to be furthest above the parapet.

    Trouble is there is an opportunity cost, and if these kids are entering secondary school (at 11 in the UK I believe) let’s take a butcher’s hook at the costs. Apparently school fees are £14,000 a year, (update – from this comment it appears I screwed up here and the figure is double that – so double all the school figures from here) so that’s seven years at 14k, or 98,000, let’s call it £100k. There’s a lovely infographic on how much it costs to send your kid to public school on Nutmeg. Add onto that another 50k for university, which starts to look like a bargain. Trouble is, these kids are going to enter a world where humans need not apply. I know every parent thinks their little precious is a genius mathematician with great artistic talent and all round at the pinnacle of human existence, but after we’ve done the Lake Wobegon thing they are up against this

    There is an alternative – the money set into this, accumulated over time and assuming you put the same 14k a year into university (£9k fees, £5k maintenance NOTE TO NON-RICH PEOPLE – MASSIVE WEALTH WARNING for God’s sake don’t pay up front for university rather than a loan until you have read and digested this) then this would accumulate

    savings of school + university fees vs age of child

    savings of school + university fees vs age of child

    to £200,000 of capital. Enough to buy them a house outright in many parts of the UK and/or derive an income of about £5k p.a. Clearly they would have to go to school with the lowlifes that make up 93% of British schoolkids, and going to public school can buy you influence and all sorts of good stuff. But it’s certainly worth looking at the road not travelled, particularly if the child is likely to graduate into a world in 10 years time where humans will find it harder and harder to add value unless they are exceptional. MisterSquirrel has an interesting narrative of the last 30 years of the workplace and the direction isn’t good for the averagely talented. Getting on the side of Capital has much to be said for it…

    The IFS is behind the time with their focus on income

    FWIW the IFS informs me that I am abjectly poor, because it’s all about income. You have to search elsewhere to find out about capital – I got this chart from the government who got it from the IFS. Now unfortunately the IFS often talk about households whereas I always do this calculation as an individual, I believe ELSA is the English Longitudinal Study of Ageing so this assumption should apply to this. I was surprised to learn the the state pension is a capital wealth of 100k and have never factored this into my networth. Let’s just say that my position on this chart is not the same as the one on the where do you fit in site.

    wealth distribution in the UK

    wealth distribution in the UK

    Clearly as a retiree I need to be on the side of capital. But if the rich are feeling poor, then they need to stop spending so much on consumer shit and McMansions and start saving and get their asses on the side of Capital, and particularly if they are going to be realistic about their kids not being poor then it’s time to think outside the public school box. Instinctively they know this, because of the keening noise about inheritance tax and many articles about how to avoid it.

    I personally believe that people featherbedding their kids in the way they want to will lead to huge wealth discrepancies in Britain in a couple of generations particularly as the ability of earn and save capital from income falls for most people. By doing so you will advantage your children which is understandable but the societies they will grow up into will be violent, dog-eat-dog and the English revolution we never had may ensue. But I’m not going to fight that because I don’t have children so I am neither part of the problem nor the solution – I’d expect the revolution in about two generations of IHT being repealed, for which there is strong political pressure. Good luck all those future souls, and I hope the solution is peaceful and equitable.

    It’s worth noting from the school example that the rich poor can give a decent amount to their kids within the tax threshold – even one-year olds have a personal allowance so from a standing start you can give your child 7 £210,000 by the time they are 21, and probably more because of compounding and investment – 21 years is enough to see a good few business cycles. Of course, you also have to bring them up with enough nous not to blow it all as they come of age…

    Notes:

    1. for the record my Mum didn’t need to do this. But I think she did take me to see it as a nipper once when I said I didn’t believe it
    2. this is my guesstimate from observation of people who think they are rich. There is a seminal class sketch that satirises this. In the 1960s being rich didn’t automatically give you class in the UK, but I think it does now.
    3. I may be displaying my chavvy lack of savvy about public schools, because I’m not totally sure Jemima would be allowed into Eton. ‘Cos she’s a girl, bur fear not, we have public schools for girls, so it can be fixed. Whatever…
    4. you know, like how long you live, how warm you are, enough decent food. Humans are odd blighters, because being rich is not about having enough shit to live like a king of days gone by but all about being better than other people
    5. This only really works if you already have connections, so maybe a moot point for Mr 60k+ who doesn’t AFAIK
    6. I’ve never been able to work out if there is an intellectual ability entry standard, or if the smaller class sizes means that they can coach those that used to be called educationally subnormal in my schooldays
    7. It appears you need to take great care to avoid being taxed on the income if the capital comes from you. A junior ISA seems to be the way to go for up to £4k p.a. – I guess if you are saving the full £14k p.a. you can pay for advice in how to do it for greater sums. Laundering the money through grandparents and friends seems the obvious gonzo way to avoid the money coming from the parents but don’t blame me if that doesn’t work – DYOR 🙂
    7 May 2014, 4:51pm
    rant:
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  • The Squeezed Middle are Doomed

    Because they are puppet slaves buying empty dreams. They’ve lost the ability to look around them and the cornucopia of goods and services an advanced industrial nation has to offer them, and ask themselves the simple question

    Does buying this crap improve my quality of life?”

    and if the answer is no, then leave it well alone!

    Firestarter and MMM kicked this off with a deconstruction of one example from the USA, and I’ve now found one from the UK. Get your violins out for Guy and Shaz on £120,000 who haven’t been out for a meal for yonks.

    Annually it’s costing £45,000 after tax, which is a considerable outlay, but I’m happy to pay because I want them to have the best start

    Folks, you were part of building a world where there are no bloody jobs for your kids no matter how much money you throw down the toilet of school fees. We’re talking a sunk cost of  £157,000 per child (11 to 18). There’s a case to be made for setting up the trust fund – it’ll deliver ~£8k each for your precious nippers to sit on their backsides all day. Every year for good.

    Independent schooling seems to be one of those empty dreams that caters to people’s understandable sense of vicarious living and immortality through their children. But here’s a shock finding – it is values, grit and integrity that maketh the man, along with a decent dollop of good old-fashioned luck. That used to be your job as parents to do bar the luck, but I guess along with the usual trend of outsourcing things so you can earn more money to outsource more things that sort of thinking seems to be passe.

    Now you can tell that this is ad-land berlercks from the Mission Statement of Lord Wandsworth college where Guy sends his progeny to –

    LWC is a socially inclusive non-denominational boarding and day Foundation school for boys and girls. We focus on the needs of each individual, while developing in each child a concern for others and a love for and loyalty towards the school community. We ensure that each pupil shapes their values and aspirations within a stimulating and supportive environment, and strive constantly to improve the quality of teaching and learning.

    We aim to equip pupils with character attributes, passion, resourcefulness, independence, skills, knowledge and qualifications so they can become the best possible version of themselves and make a great contribution to a changing world.

    LWC should reach out and become known as a leading and opinion forming school, in principle and in practice.

    Now bearing in mind that presumably if you are charging shitloads of money for entry you can hire the best ad copywriters, WTF is this passionless management speak that we see before us – it’s more befitting an firm of book-keepers that a bunch of people who will relieve you of nearly 200 grand to do a job you could get done for free if you were prepared to be part of the solution. Let’s deconstruct this fine prose. It isn’t a fair fight – the Ermine has merely a thirty-year old grammar-school edukayshun and I failed 1 English Literature. Whereas Lord Wandsworth are education.

    LWC is a socially inclusive non-denominational boarding and day Foundation school for boys and girls

    To be honest, if I’m a parent, I want a school that is a bit socially exclusive – to keep the thickos and oiks away from Tarquin. Even if Tarquin is a moron and I know it, I want him to go to a school where they keep out the rough sorts. With the exception of people like Fiona Millar, most parents are like this, once you have loosened their tongues with enough wine. People are tribal that way. However, this is achieved in a roundabout way. Obviously if you can stump up £20k+ per head per annum, you have automatically eliminated most of the lower classes 😉

    Of course the social inclusives would say ah but 10% of our intake have bursaries. Well yeah but you gotta know the lingo to apply for a bursary. I had to look it up to know what it means in a school context.

    We focus on the needs of each individual, while developing in each child a concern for others and a love for and loyalty towards the school community.

    The usual oxymoronic claptrap. Humans are not multitaskers and you can develop the individual or generate good community sheeple, but you cannae do both. Look around you are the people who have made a difference in the world. They are often borderline sociopathic, driven and not balanced all-round team players. It goes with the patch – great talent sticks out because it is so rare. So don’t go cutting my tall poppies down, school. It’s a dog-eat-dog world out there.

    We ensure that each pupil shapes their values and aspirations within a stimulating and supportive environment, and strive constantly to improve the quality of teaching and learning.

    The Ermine has parsed this sentence searching with his beady eyes for any semblance of meaning beyond the sort of random gwana-gwana that exercised the Register years ago. And failed to discover any. It’s like the snow you used to get on a television when the aerial had fallen out – the random hiss as the intermediate frequency amplifiers are turned up in the vain search for an incoming signal. Is it a dog-whistle to acolytes of Tom Peters, MBAs an other purveyors of management-speak who torture the English language daily? WTF does it mean? How exactly do you do this? Where do you start, and where do you go for help?

    Do or do not, do not try

    We aim to equip pupils with character attributes, passion, resourcefulness, independence, skills, knowledge and qualifications so they can become the best possible version of themselves and make a great contribution to a changing world.

    Way back in the mists of time, when there was still talent and creativity flowing in George Lucas’s veins rather than an unending search for filthy lucre amongst the twisted wreckage of his youthful originality, he created a remarkably plug-ugly character whose greatest statement highlights what’s wrong with that sentence 2.

    It seems following generations have projected these wise words upon subsequent heroes, according to Google. The truth is timeless.

    my fellow Google searchers consider this worth of Dumbledore and Gandalf

    my fellow Google searchers consider this epithet worthy of Dumbledore and Gandalf

     

    LWC should reach out and become known as a leading and opinion forming school, in principle and in practice

    More of the same, really. If you should reach out and become known, then what is standing in your way, FFS, and give no quarter – sack them or eliminate them from your world. Do or do not, people.

    So I thought I would investigate more as to what Mr Squeezed Middle is shelling out for. They have an entry in the Good Schools Guide, so I took a butcher’s hook

    A good, broad, mid-range school, and a good place to be a bright kid – they are well rewarded for working hard, half a dozen Oxbridge candidates each year.

    Obviously nobody has stupid kids, because this might be a crap place to be dumb. But then no parent has stupid kids, right? Have you ever known any  parent who says “my child has shit for brains and is talent-free, not even good with his hands”? Obviously all humans are above average, then…

    That yells out aspirational mediocrity to me. Now Guy and Shaz may know that their kids are no-hopers in the smarts department, but as I said, the trust fund is the alternative, and the great thing about investing in that is that Guy can evaluate the likely return what with being a finance compliance wallah, presumably some of the know-how sticks around. The advantage of the trust fund is even if the kids have the entrepreneurial instincts of a beach pebble there’s a known return.

    As for the Oxbridge entry the odds look poor – three decades ago even my sarf London grammar school of 600 kids all in managed to muster half a dozen Oxbridge candidate in my year 3. I was one of them – though not up to scratch. I’m always suspicious of schools that talk about the candidates and not the entry, too.

    And we had genuine problems, like dimwits kicking a hole in the plaster because they were bored and wanted to leave at 16. I couldn’t determine how many kids LWC has but if he’s dropping three hundred grand on buying the best start it might behoove Guy to look at what he’s actually getting for his hard-earned money. And slightly lower odds than a south London grammar school could muster when five times as many people go to university now as did then is a little bit crap in my view.

    But it’s the mealy-mouthed mission statement that made me smell a rat. Now obviously if you’re dropping well over half your take-home to pay for a service that can be had for free then you don’t get to eat out much. But you’re also not going to get shedloads of sympathy. I’ve never earned anywhere near what Guy earned, and while I don’t begrudge him his hard-earned, nor his right to piss it up the wall of a school that can’t see what’s wrong with not being able to say what they stand for, I can’t really find it in myself to feel a great deal of sympathy. The single mother going to a food bank to buy her kids a book, yes. Guy who is buying what he thinks he ought to buy because he’s only a member of the middle class because he pays for his children’s education, no. Since when did you have to be paying for public school, never mind boarding school, to become middle class?

    This is where the middle class went wrong and why they are doomed. Somewhere along the line they lost their values. They’s skint because they buy without thinking, they are sold dreams of the way they should be living and go for it hell for leather. You only get one chance at life, and it’s too bloody short to spend living somebody else’s dream. Particularly if the somebody else is advertisers looking to created desires in you to make as much money out of you by selling you services and stuff.

    Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need.

    Tyler Durden, Fight Club

    Look at LWC’s website. It’s all about the sizzle, not the steak. It’s about the 1200 acres, the founder, the farm. What do you need to have a good school? You need good teachers, you need to have clear aims and goals. I’ve never been to LWC –  they may be a perfectly good school. Maybe Guy assessed this himself. Or maybe he is just buying into a chimera of what it’s like to be a well-off resident of the Home Counties doing the job of financial compliance and raising kids. Which apparently means paying shedloads of money on public schools to be in with the in crowd. I suppose you gotta spend your money on something, can’t take it with you…

    There seems to have been an explosion of independent schools out there to shake down the ‘middle class’, feeding off the inchoate fear of not doing the best for their children. I take the point that if you want political influence and are rich enough, send your offspring to Eton or somewhere where you can buy influence. Money has always bought influence. It is crystallised claim on future human work, so it goes with the patch. I suspect there are a lot of redbrick independent schools set up to feed the increasing aspiration. And why not – if people want to pay for it, let ’em.

     

    How much you need to earn gross as a household to enter the relevant decile accordig to the ONS. Guy's well over to the right

    How much you need to earn gross p.a. as a household to enter the relevant decile according to the ONS. Guy’s well over to the right, assuming his wife doesn’t work

    Finally, Guy should take a butcher’s hook at the ONS Gross Household Income by Income Decile (Excel sheet) You need a household income of £70k to enter the highest income decile. Guy and Shaz, you are not the squeezed middle. There are people queueing up at foodbanks. They are squeezed. Finding out that you have to budget and discovering it is a stretch to pay more than a 7th decile household earns for public school education 4 is not being squeezed. You have options that many Britons couldn’t dream of, so you’ll have to excuse us when we say tough luck mate.

    I don’t actually have anything against LWC, apart from their pedestrian ad copy. They may be a perfectly good independent school, just a tad short on the imagination and self-critical side. In old-skool-speak that used to be called ‘could do better’. I believe these characteristics used to be considered important aspects of self-development from Socrates onwards.

    LWC are unlucky enough to have one of their customers moaning in a national newspaper that they are bleeding him dry with their outrageous fees so he can’t afford to go for a meal with his good lady wife. His lack of irony demanded a snarl, LWC is collateral damage. I’m sure they’ll weather the storm.

     

    Notes:

    1. I got an E. In those days people weren’t afraid of calling that a fail. But then I only sampled Great Expectations, despised poetry and was slightly bored with Shakespeare. I was to become an engineer, FFS
    2. SW geeks, of which there are many, will slam me for misquoting the Great Yoda. I like my version better, this is my blog, and if you don’t like it then go read another of the several billion pages on the internet
    3. This should be taken into perspective; far fewer people went to university when I left school, roughly a fifth of the current proportion
    4. for any bemused Americans reading, in Britain public schools are the ones you pay for privately, and State schools are the one the public pays for
     
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