Looking after the 'future you'

The UK has left the European Union, there’s been a near-unprecedented pandemic and an unexpected war. It should therefore not be too surprising that the UK is experiencing severe market turbulence and the highest inflation since the 70s. However, it took many by surprise, including the Bank of England.

The last 40 years have exuded abundance and, some would argue, taught complacency. Life has been good and many have either forgotten – or have not known – financial hardship. Those that have experienced such hardship tend to be hard-working and driven, motivated, live modestly and are prudent savers. It is a generation prepared as people remember 12% mortgage interest rates, food shortages, power cuts and general strikes.

These individuals have planned and are proud to have supported themselves and their families and to be passing on the wealth they have built-up to the next generation, whom they have lovingly shielded from the same hardships they have endured. But now their old adversary, inflation, is back in town and is about to threaten everything they have worked so hard for. How do they stop it?

How do they secure their wealth for the next generation? With mortgage interest rates now in excess of 5%, how do young people get on the housing ladder when attractive mortgages for first-time buyers are disappearing overnight and deposit requirements increasing? How do they help their children build their own lives?

Home ownership challenge

As hard as they remember their lives being, the average weekly earnings in 1977 was £70 (£3,640 pa) and the average cost of a three-bedroom home was £16,493 - around four-and-a-half times salary. In 2023, it is £642 pw (£33,384 pa) and £365,000, almost 11 times salary. Realistically, it is much harder for young people today to get on the housing ladder, so most must rely on help from their parents. In these new, unprecedented times, many of the older generation must secure and protect their own future too. If these inflationary rates continue longer term, how will they fund the unexpected such as long-term care costs? How do they help their children and secure their own futures? Must they adjust their own plans?

This is where cashflow modelling can be invaluable. There has never been a more important time to put a firm financial plan in place and cashflow can help map your current assets and income and project them forward, anticipating future events and needs and how inflation can impact upon them. It can show the impact of a capital gift to help others and how it can affect your own needs.

In such uncertain times, I would urge everyone to undertake this exercise, it can show us all our own reality, good and bad. It can then be adapted as our lives naturally change direction from time to time. This is equally important for the young. It can help them understand how much they need to save, how long it will take and how they can budget better to achieve their goals. It will help put their own needs and wants into perspective and help them adjust and adapt as necessary.

Parents should share their own life stories with their children and help prepare them for this new age, knowledge is a powerful ally. The current generation needs to be armed with lessons from the past, not shielded. The time has come to dig deep and pay it forward.