Eating Seedcorn

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It’s not only the Americans who are eating their seedcorn.

In a study of Britons’ savings habit (u2018What saving habit?’ you might well ask!), Sainsbury’s Bank said that while people were generally advised to save between 10 and 15 per cent of their income, their research had found that the 12.4 million people who are in full-time work were saving just 4.7 per cent, while the 3.7 million part-time workers were putting aside barely 3 per cent.

Performing a little arithmetic, the bank told the Scotsman that this suggested that people were saving 31 billion — around the present size of the whole national debt! — too little each year to have a comfortable retirement, meaning many people would have no choice but to work on beyond 65.

According to the study, two-thirds of people who were not saving enough, smoothed down their new designer-labelled threads, looked up from their bottle of Premier Cru, pushed away the plate of langoustine served up at their regular table in a swanky little city-centre bistro, folded away the statements from the car leasing company, and cut the real estate agent off the mobile phone, to complain that it was because they could not afford to.

(OK — a touch heavy on the sarcasm, perhaps, but you catch my drift.)

There might be little surprise either to know that 14 per cent said they thought savings products offered poor value, while 11 per cent said that they did not trust savings institutions.

But, if the bear market has given you a jaundiced view of all those you formerly regarded as money management superstars, to the point you no longer have any confidence in the easy promises of the whole motley of charlatans, spivs, and fat cats you now consider to work in the City, or on Wall Street, it’s a good job you can rely on the benign shepherds in government to provide for you in your old age then, isn’t it folks?

Well, you can, can’t you? Can’t you?

Derek Bottom, the deputy chief executive of Sainsbury’s Bank, said: “The government and the financial services sector as a whole is faced with a very real and difficult challenge to educate people as to why they need to take greater responsibility over their finances.”

“This calls for radical changes based around strong government reassurances to consumers and greater product transparency and flexibility so that people can see how their savings and investments can help them at different stages of their lives.”

We would demur since, firstly, this — like most things — is not a matter for government, but rather for PERSONAL responsibility, while removing — not extending — u2018reassurances’ — is what is needed to motivate people to make shift to cater for their own requirements, rather than relying on the State to rob their unwilling grandchildren in order to support them in their dotage.

Secondly, being lectured on financial prudence by the government is rather like being encouraged to live a healthy lifestyle by a tobacco company.

Which single institution, after all, routinely and mainly wastefully spends much more than it can afford, builds up actual and contingent liabilities willy-nilly in order to gratify its tastes today, undertakes no actuarial accounting whatsoever, but relies on tomorrow’s income to meet today’s bills, and — if it falls short — either takes the money it needs by the threat of force, or defaults — if rarely outright, these days, at least in part, through the sneaky means of inflation?

Moreover, which institution — in cahoots with its pals at the central bank — is so inimical to thrift, to the accumulation of capital, and to the reinvestment of u2018unearned’ (read: u2018already taxed’) income that saving to provide for your retirement becomes such a daunting prospect in the first place?

In a society which the collapse in investment, the crisis in pensions and insurance and soaring personal indebtedness continues to make the headlines, does it seem a trifle strange — not to say hugely counterproductive — that interest rates are at 40-odd year lows, something which, in a free market, would signal we were replete with genuine capital, not faced with a frightening shortfall of the stuff?

Sean Corrigan [send him mail] writes from London on the financial markets, and edits the daily Capital Letter and the Website Capital Insight. He is co-manager of the Bermuda-based Edelweiss Fund.

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