Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. Welcome to Meren Talks
Speaker 1: Your Money, the personal finance edition of Meron Talks Money
Speaker 1: and these bonus podcasts. We talk about the best strategies
Speaker 1: for making the most of your money. Ameren Tum's that
Speaker 1: Web and with Me Senior Avoord and Money Just sled
Speaker 1: all for John Steffeck Hi John Hi mel Now, I
Speaker 1: guess everyone's talking about personal finance this week. I'm a
Speaker 1: bit nervous about the budget. You're nerves about the budget?
Speaker 1: Or are you more nervous or more looking forward to
Speaker 1: being entertained? Which way does it work for you?
Speaker 2: Ah? We see this is one of those work life
Speaker 2: balanced dichotomies. For work it's immensely entertained, and for life
Speaker 2: is absolutely gram And the half of me's hiding behind
Speaker 2: the sofa and the other half is like a child
Speaker 2: before Christmas.
Speaker 1: The other half is deaf brilly going laf a curve,
Speaker 1: laf a curve, laver curve.
Speaker 2: You'll haveving a laugh of cove.
Speaker 1: They won't be having many laughs afterwards. They don't think
Speaker 1: they come for the laughs, don't they. Right? This week
Speaker 1: we've got a persent from someone who you know well.
Speaker 1: I think also be watching their budget very very carefully. Hugo.
Speaker 1: The question is from Hugo. Hugo wrote quite a brief email. Actually,
Speaker 1: he's asking for advice for twenty somethings. You've got more
Speaker 1: than fifty pounds in student debt. What should they be
Speaker 1: doing with the money they're earning? Should they pay off
Speaker 1: that loan the extent it's a real loan. Should they
Speaker 1: get on the housing ladder? Or should they buy stocks
Speaker 1: and shares? So lots of things to think about here.
Speaker 1: You know, we're quite please that Hugo is earning good money.
Speaker 1: I'm thrilled by that. But what we don't know is
Speaker 1: what student loan plan he's on, because there are so many,
Speaker 1: and if he's in his twenties, I think that puts
Speaker 1: him on Did that put him on two?
Speaker 2: Probably because that's if you start to just course between
Speaker 2: September twenty twelve and July twenty twenty, So yeah, almost
Speaker 2: it does. That would be what he's doing.
Speaker 1: Well plan to But the essence of all the student
Speaker 1: loans are roughly the same. After a certain threshold, you
Speaker 1: pay nine percent of your income towards your loan, regardless
Speaker 1: of how much you are earning, it remains the same,
Speaker 1: So the essence is the same. A large percentage of
Speaker 1: your income will go in what they call loan repayments,
Speaker 1: but you and I really think of as a tax,
Speaker 1: and you can make that tax go away by paying
Speaker 1: off the loan. And the extent of whether it's worth
Speaker 1: it or not is just about maths, isn't it. Yeah?
Speaker 2: And the maths bet is that that makes it difficult.
Speaker 2: I guess it's about maths, But it's also about have
Speaker 2: any make assumptions, which is the checky bet, having.
Speaker 1: Made assumptions about your future earnings. For example, I mean,
Speaker 1: what if? What if? Sacred argument? Hugo, who's earning very
Speaker 1: nicely at the moment. Let's say that Hugo meets the
Speaker 1: lover's life, gets married, has two kids. Hugo's the one
Speaker 1: that gives up work to look after the kids. Get
Speaker 1: on your Hugo because his wife's a higher owner, etcetera.
Speaker 1: Tuesdays at work, Suddenly he's earning nothing and he may
Speaker 1: never again get above the thresholder you know, Welcome, Welcome
Speaker 1: to the ladies world, Hugo. Sometimes you never make back
Speaker 1: up to your old income after your maternity lives, paternity
Speaker 1: lives in your case.
Speaker 2: I mean, Shugo. If I was you, I would make
Speaker 2: that your plenty. Mary Rach marry out. Yeah softly, let's
Speaker 2: go with the pop.
Speaker 1: If only it was so easy anyway. So that's the
Speaker 1: point that you are making all these assumptions about your
Speaker 1: future once you start talking about overpaying the loan or
Speaker 1: paying back the loan, and that makes it incredibly difficult
Speaker 1: because obviously, even predictive AI can't tell you how much
Speaker 1: you're going to be earning in a decade or fifteen years,
Speaker 1: can't tell you who you're going to meet, where you're
Speaker 1: going to live, how you want to live, what kind
Speaker 1: of house you want to live in, how many children
Speaker 1: are going to have, etc. No one can tell you that.
Speaker 1: So all you can do is make some rough guesses
Speaker 1: about your earning power, and some rough guess is about
Speaker 1: any capital you might or not received during your life. Now,
Speaker 1: I think probably the first place to start is should
Speaker 1: you pay off your loan rather than saving to buy
Speaker 1: a house. And John, I think you would say, I
Speaker 1: want to put words into your mouth there. I think
Speaker 1: you would say saved to buy the house.
Speaker 2: Yeah, because I think it's reasonably straightforward this question, because
Speaker 2: if you've decided that it's time to buy a house
Speaker 2: and like it or not, you know, and I'm not,
Speaker 2: you know, completely a fan of this, but buying a
Speaker 2: house is like a life stage for almost everyone in
Speaker 2: this country, and so if that's what you need to do,
Speaker 2: then you need to save the money towards it. The
Speaker 2: one thing I understand about this is that the student loan,
Speaker 2: its impact on your ability to borrow, is only and
Speaker 2: as much as it reduces your monthly income. So the
Speaker 2: fact that you've got fifty grand a day, it doesn't matter,
Speaker 2: that doesn't count towards it mortgage. It's just in as
Speaker 2: much as it takes nine percent of your monthly salary.
Speaker 2: So from that point of view, you don't need to
Speaker 2: worry about it in terms of getting the mortgage. So yeah,
Speaker 2: save up for the house to posit if that's what
Speaker 2: your goal is. I don't really see any exclusion to that.
Speaker 1: Yeah, And I think it's also worth saying that again,
Speaker 1: you know, the interest rates on student learns whack all
Speaker 1: over the place, but the majority of the time it's
Speaker 1: probably true that the interest rate on your loan, which
Speaker 1: is not real interest of course, but the technical interest
Speaker 1: rate on your loan is going to be lower than
Speaker 1: the interest rate on a mortgage, right, So if you're
Speaker 1: going to hold onto one kind of debt, it might
Speaker 1: as well be that. Yeah.
Speaker 2: But also if you think of it as a tax
Speaker 2: rather than a loan, then the idea of haven't you
Speaker 2: keep the loan at a certain level is less of
Speaker 2: an issue because you know, I mean especially the other
Speaker 2: thing is she goes on if you go isn't planned to,
Speaker 2: and I guess he must be, or almost certainly must be.
Speaker 2: That's going to get right and off thirty years after
Speaker 2: he could situated anyway, so he will get that weight
Speaker 2: clean before he's a patientage. So that's the other thing.
Speaker 2: I mean, some of the later loans are going to
Speaker 2: have less for the problems.
Speaker 1: Horrible that the new ones are the poor people who
Speaker 1: started in twenty twenty three. That loan sticks with them
Speaker 1: for forty years, so that I mean that really is
Speaker 1: a tax. You can stop all the arguments, but it
Speaker 1: is a loan r a tax. By that that is
Speaker 1: definitely a taxes with you for forty years, and it
Speaker 1: takes your marginal rate of tax for high end as
Speaker 1: well well over fifty percent of the scandal. So I
Speaker 1: don't know why we put up with it. Young people
Speaker 1: do something process well, protest, get on the streets, vote,
Speaker 1: vote for someone who's going to make your tertiary education
Speaker 1: more efficient for you financially. But come back to that
Speaker 1: in another podcast. So most likely, although there's not financial advice,
Speaker 1: it's just what would most likely be the better thing
Speaker 1: to do for most people. Save up for your house
Speaker 1: as opposed to paying off your paying off your student
Speaker 1: loan in any kind of lump somewhat over payment. That's
Speaker 1: an INEFFICI into use of money. But when it comes
Speaker 1: to anything else, now I think we would both agree,
Speaker 1: I'm not even sure we have to talk through this one.
Speaker 1: We would both agree that you should definitely continue to
Speaker 1: contribute to your pension through order enrollment rather than pay
Speaker 1: off your student them. That's that's a given.
Speaker 2: Right absolutely, And just in case you don't know, because
Speaker 2: that is because it's part of your overall compensation, your
Speaker 2: employer has to contribute to it. If you don't join
Speaker 2: nod to enrollment, your sacrifice and X amount of your
Speaker 2: salary for absolutely noughtiesn't at all.
Speaker 1: Yeah, So don't do that. So that's clear the other bit,
Speaker 1: Would it be a better idea to instead invest into
Speaker 1: stocks and shares? Do you know what I'd like to
Speaker 1: run a little campaign. Join me in this campaign. I
Speaker 1: would like to stop saying stocks and shares. Yes, nobody
Speaker 1: knows what that means. What does that mean? It means
Speaker 1: shares and shares, equity, equities and equities, stocks and shares?
Speaker 1: It is it because it brings in debt as well?
Speaker 1: Are we talking about? What? What? I remember?
Speaker 2: Try to look this up at one point and it
Speaker 2: it really it's yet another one of those things like
Speaker 2: bulls and bears that is not entirely clear at all
Speaker 2: what the definition ever was or where it's originated. And
Speaker 2: I totally agree. It's like stocks and shares are the
Speaker 2: same thing now. They're both equities as far as we're concerned.
Speaker 2: So either change it to binds and shares or just
Speaker 2: chairs invest.
Speaker 1: Or why didn't we just say invest it? Would it
Speaker 1: be a better idea to instead invest? That's how it
Speaker 1: we're changing the question removing stocks and shares? Would it
Speaker 1: be a better idea to invest? Is it a better idea,
Speaker 1: John to invest than to overpay on your loan?
Speaker 2: I mean, that's a good question. And this is where
Speaker 2: all of the assumption stuff kind of comes in because hmm, well.
Speaker 1: Yeah, you're you're running through so many different scenarios in
Speaker 1: your no no idea, What is happening in anyone's into it.
Speaker 1: It's so difficult to say what the right thing to
Speaker 1: do is. I think what I would say, but the
Speaker 1: starting point would be, do you have savings and let's
Speaker 1: put the saving for a house deposit to one side
Speaker 1: for a moment. You shouldn't ever pay down any debt
Speaker 1: until you have a certain amount of savings. It's never
Speaker 1: a given you'll be able to get out new debt
Speaker 1: when you need it, So, particularly if you've got cheap debt,
Speaker 1: seems a good idea to make sure that before you
Speaker 1: even look at that, you've got your two, three, four, five,
Speaker 1: six months worth of savings or freedom money as we
Speaker 1: like to call it, sitting in a bank account. Only
Speaker 1: then can you start saying, well, hang on, now, I
Speaker 1: want to make a choice between my student loan and investing. Now,
Speaker 1: if you're young, and we're assuming that Hugo is in
Speaker 1: his twenties, he's going to be investing for the long term,
Speaker 1: or I hope Hugo will be investing for the long term,
Speaker 1: so we should assume that he will get a better
Speaker 1: return over forty years or thirty years of investing in
Speaker 1: the equity market than his loan is costing him.
Speaker 2: Yeah, that sounds fair.
Speaker 1: Well, I guess again slightly repoinds which scheme he's on.
Speaker 1: But if he's on this game we think he is,
Speaker 1: then that works. Yeah.
Speaker 2: It is one of those things where the way to
Speaker 2: think about it is to look at how much is
Speaker 2: the debt course in versus what is my likely return
Speaker 2: in the stock market, And from that point of view,
Speaker 2: as you say, then all else being equal, then it
Speaker 2: probably does make sense to invest, especially I suppose, because again,
Speaker 2: if he's on the thirty year one, then by the
Speaker 2: time he's company to take his pension out, then if
Speaker 2: there is stuff left, then it will get written off.
Speaker 1: I think the other thing says that what might happen
Speaker 1: to Hugo. Hugo's doing very while well done Hugo, as
Speaker 1: we don't know how well he goes doing. I keep
Speaker 1: looking at the fifty thousand pounds in student debt and
Speaker 1: thinking that Hugo is making fifty thousand pounds, he might
Speaker 1: not be well.
Speaker 2: But if he's in his early twenties and he's making
Speaker 2: enough to start paying off the loan. Then he's not
Speaker 2: doing like two bads because he must be, and then
Speaker 2: at least a high twenties.
Speaker 1: So maybe they'll come a point when he's earning two
Speaker 1: hundred and fifty pounds three hundred thousand pounds and this
Speaker 1: whole problem just goes away. That's great for Hugo.
Speaker 2: It would be that would almost be as good as
Speaker 2: the direct partner scenario.
Speaker 1: I wish I'd never put the thought in your head.
Speaker 1: This is that feminist backlash we've got on the very show.
Speaker 1: So he needs to hope, he needs to hope that
Speaker 1: this budget really does bring growth and productivity as promised,
Speaker 1: so that his income goes up very sharply and this
Speaker 1: problem disappears by itself. Yeah, the other thing we should say,
Speaker 1: there's a lot of emotion in here, isn't there? You know?
Speaker 1: How can how do you cope with that? How do
Speaker 1: you feel about debt? How how troublesome is it? Do
Speaker 1: you feel this is hanging over you or do you
Speaker 1: never think about it? How do you feel about it?
Speaker 1: Because that matters, you know, we can we can talk
Speaker 1: about all these numbers. I'm most people not doing very
Speaker 1: well because we can't come up with any specific numbers
Speaker 1: because of everyone different situations. But when you really come
Speaker 1: down to it, it's it's about money, but it's also
Speaker 1: about living standards, life satisfaction where you head it. If
Speaker 1: this debt is a real problem for you emotionally, then
Speaker 1: you might need to take a different approach. Am I
Speaker 1: veering away from what this podcast is supposed to be about.
Speaker 2: I mean, Haughy investment is about psychology, and although one
Speaker 2: reason for understanding these kinds of things is so that
Speaker 2: you can override when your brain is telling you to
Speaker 2: do something daft, you know. So if you are in
Speaker 2: that issue where you just can't handle the existence of
Speaker 2: this debt, then perhaps try and offset that with putting
Speaker 2: a little bit more to it than you need to,
Speaker 2: but perhaps not as much as you're you're wanting to,
Speaker 2: because in most cases it probably will be better to
Speaker 2: put it somewhere else. And actually, the other thing is
Speaker 2: that we hadn't mentioned, and I've just remembered it's political
Speaker 2: as well. Right now, nobody's really talking about student loan
Speaker 2: forgiveness in the UK. I mean, it's happening in the US.
Speaker 2: You don't know what's going to happen over the next
Speaker 2: thirty years, and it's possible that at some point there
Speaker 2: would maybe be a debt jubilee where they say, actually,
Speaker 2: we're going to scrap the student loans, or you know,
Speaker 2: future government might decide that a whole host of people
Speaker 2: were just absolutely missold the whole idea of university education.
Speaker 2: That's just one small thing to factor into the mix.
Speaker 2: Probably this step won't be canceled, but there's a chance
Speaker 2: that it might be at some point in the future
Speaker 2: in a way that your mortgage is never getting canceled
Speaker 2: or you know, your your your pension isn't going to magically,
Speaker 2: you know, appear by itself.
Speaker 1: Yeah, yeah, it does make sense. And I think we've
Speaker 1: pretty much ended up with a general view that once
Speaker 1: you've got your student debt, you might as well just.
Speaker 2: But if no one else is paying it off for you,
Speaker 2: because you know, you're you know, if your parents aren't
Speaker 2: don't have the money you kind of have taken it
Speaker 2: away in the first place, then yeah, you're you're just
Speaker 2: kind of stuck with it, and it feels like a
Speaker 2: low priority thing rather than a high priority.
Speaker 1: And if your parents were to give you a lump sum.
Speaker 1: Now your grandparents were to give you a lump sum.
Speaker 1: Now you'd be better off buying a house.
Speaker 2: Yeah, actually, yeah you would probably. Yeah.
Speaker 1: Okay, Well I think that's settled then, Although of course
Speaker 1: that was not financial advice. It was simply a ramble
Speaker 1: through the possibilities, and I hope HUGO that it was helpful.
Speaker 1: I rather suspect it wasn't, but I really hope it was.
Speaker 2: Thanks John, Thanks.
Speaker 1: Bill, Thanks for listening to this week's Maren Talks Money.
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