60 years ago, a revolution happened in the savings industry- it was the “standing order”. The standing order became the “variable direct debit” and people were able to establish regular savings plans which worked like magic, taking money from your bank account without troubling you at all.
My mother used to buy me savings stamps from the post office which I stuck in my savings books and a man from an insurance company used to call at our house and take money from my Dad. I remember these things from childhood.
But when I was 17 I got an evening job and started saving with Sun Life of Canada £10 per month into a maximum investment plan, this was by direct debit and the policy matured ten years later and paid off my first big self-employed tax bill.
A man , not much older than me, came to our house and he spelt it out to me over the dining room table. I remember that meeting so well. He set up a standing order for me, it was from the bank account my mother had made me set up when I started bringing home cash from working with John Heanon, felling trees.
I have always considered the direct debit or standing order as the most valuable part of a savings plan and I now consider the capacity of payroll to make deductions on my behalf into ISAs, pensions and even credit union savings accounts, as pretty wondrous.
What you don’t see , you don’t miss and it’s been part of my financial DNA to save 10% of my salary since the man from Sun Life of Canada suggested I did so in 1977.
As I’ve got older, I’ve discovered the value of saving into equity funds. The value of some of my savings (those that weren’t blighted by high charges) are now- 20-30 years on , out of all proportion to what I paid in. Even taking into account inflation, I have done really well by saving into share-based plans.
Part of this was because of great months when I bought when shares were depressed, thank goodness I did not panic and stop saving in 1987 (a few of my clients did). Again, I heeded the things I was told about pounds cost averaging and kept my nerve.
All this doesn’t make me Warren Buffet, but it proves to me that the simple lessons that I was taught when in my earliest years and through my teens were worth listening to.
When I sold savings plans, I told people that saving between 5 and 10% of their earnings into a plan would build them a vast capital reservoir by the time they got to their fifties. Relative to some people, I don’t have vast capital, but I have capital to meet emergency needs and the means to pay myself a proper income when I wind down from work.
I worry that the simple messages I was given are obscured today by over-elaboration. I hear talk of financial education including detail about swaps and options, of people being taught about the properties of different types of bonds – of understanding the meaning of a yield curve.
Other people fret about debt, especially student debt- I saved to pay off my debt (to the taxman) and I suspect that good savers do not get into so much debt- they know the value of financial security.
Others give you sage tax advice, suggesting that tax is the primary driver for saving and that you should time your saving to mitigate tax.
Nothing- to my mind- replaces the importance of regular saving, and saving meaningful amounts- at least 5% and better 10% of gross income. If you do this, you won’t go far wrong.