THE WAGES OF SIN
Where is our money being spent if we aren't investing?
There are times when caution is no virtue, and when vice is on the slide. Today, it seems, is one of them. Two items of household note have featured on the financial blogosphere this autumn. The first is the difficulty faced by women on saving – surveys show their pronounced caution when considering long term investment through the stock market.
When women save it tends to be in low reward cash Individual Savings Accounts (ISAs) where the capital is eroded by inflation: not a good choice in recent years.
The second item is at the other end of the financial spectrum: survey data on the spending habits of households and the apparent decline in spending – according to the Office for National Statistics – on ‘sin’, drugs and prostitution specifically.
How can the ONS credibly measure spending in these areas? It’s hardly a landscape littered with invoices and receipts, still less VAT returns. Can it really be true that we are becoming more virtuous?
And when not saving - and not indulging in vice so much - where is household money going? And how do our own monthly spending choices compare with the average?
According to data from Her Majesty’s Revenue and Customs (HMRC) women invest less and are less confident about investing. Instead, women prefer to save into cash rather than invest. This has exacerbated the gender investment gap, where men, by investing, are growing their wealth and reaching financial goals sooner than women.
The Gender Pay Gap and the fact that more women take time off work or work part time means that women are often already a step behind men in terms of income. Encouraging more women to invest can help to level the playing field.
And worryingly, according to a recent study by YouGov, 52% of women have never held an investment product and even more concerning, 57% of women in the UK worry they won’t be able to afford the necessities in retirement.
However, such surveys can tend to focus on women at the lower end of the wealth spectrum and miss the bigger picture of the growing prominence of women’s wealth in the financial world. According to the Boston Consulting Group, women now control 30% of the world’s investible assets. Their wealth is increasingly self-generated and on calculations by UBS, the global wealth of women is expected to rise from $13 trillion to $18 trillion by 2021.
Much of this is likely to be in property assets, trusts and family owned businesses, with stock market holdings accounting for a relatively small share. But nonetheless, it is a hugely significant - and growing – segment of the financial services universe.
More generally, the reluctance to invest in the stock market is far from confined to women. Almost one in four of all adults across the UK are reluctant to invest, despite 61% of us having savings of over £1,000. Instead we leave them parked in bank accounts earning little to no interest.
Now there are understandable reasons for this reticence. First, cash held in a bank deposit account is sensibly parked there to help meet unexpected expenses or temporary cash flow difficulties. Money committed to the stock market should be for medium to long term investment and should not be treated as an easy-access bank account.
And there is a more profound, intuitive reason. It might seem that the global financial crisis was a decade ago and that stock markets have recovered. But memories of loss linger long, as any private investor in RBS or HBOS will testify. The fear of loss more often prevails over the prospect of gain. The classic example is the searing memory of the 1929 Wall Street Crash and its aftermath: it made millions of Americans fearful of investing in shares for more than a generation.
The result of the 2007 to 2009 financial debacle is that millions of households prefer
not to risk their savings in stocks and shares and opt for a bank, building society account, or a cash ISA. But while the risk of sharp loss is avoided, households can be exposed to a slow attrition of their savings over time in accounts where ultra low rates of interest provide no protection against inflation.
However, today there are hundreds of defensive, cautious unit and investment trusts enabling savers to build holdings. These spread across a range of leading shares through regular monthly contributions over time – thus mitigating timing error. The dividends can be reinvested, and over periods of ten to 15 years such savings schemes can grow to a sizeable sum.
There has also been a notable increase in the number of financial advisory firms staffed by, and catering predominantly for, women. These can provide guidance and advice specifically for those looking for independent and informed financial planning for contingencies such as childcare, divorce and career break.
Meanwhile, what of the way we spend now? Latest ONS research on household expenditure over the two financial years ending in 2017 is pored over by academics and business groups looking for changes in trends. In terms of the overall picture, the average UK household spent £57.70 a week on food and soft drinks, with Scotland a touch lower at £55.30. Scottish households spent £62.30 on housing, notably lower than the UK (£72.60).
But when it comes to ‘sin’ spending, Scotland leads the way on alcohol: the average Scots household spends £13.40 on booze, well up on the UK average of
“Almost one in four of all adults across the UK are reluctant to invest, despite 61% having savings over £1000
£11.80. And on smoking, we’re in a different league: £7.70 a week north of the border compared with £3.80 for the UK overall.
On saving, despite our reputation for prudence, Scottish households save a touch less than the UK average - £5.10 a week compared with £5.90 for the UK. And the figures are dwarfed by the average weekly tax bill – a stonking £92.40 across the UK (Scotland: £80.70).
As for ‘deep sin’, only UK figures are available, but these show that spending on drugs and prostitutes has dropped by nearly a fifth in a decade. According to ONS research – and we cannot doubt it is other than thorough in this area - the total outlay on prostitutes fell by 4%, from £5bn in 2015 to £4.8bn in 2016. And the amount spent on illegal drugs plummeted by 40% in the five years from 2011.
All manner of reasons might be advanced – the falling street price of drugs and the squeeze on household budgets. But it would be mistaken to assume we have taken up more virtuous hobbies: the total ‘vice’ spend still tops the amount spent on ‘virtue’ hobbies such as gardening and cycling.
And whatever sex we are, or whether we are in gender transition, saving even a modest amount has been a battle in recent years. Average incomes have struggled to keep up with inflation, energy bills have risen relentlessly (oil is back over $80 a barrel), and in Scotland higher earners are now taxed more heavily than in any other part of the UK. To cap all this, the rewards for saving over the past decade have been abysmal, with emergency low interest rates persisting far longer than the Bank of England imagined.
How ironic, just when caution was the watchword, risk takers in the stock market have done so remarkably well.