Millennial Money: FT writers give advice to today's 18 year olds

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The financial lessons FT writers want to pass on to today's 18-year-olds. Could they help you master your money? Are classic cars ever a good investment? And how expensive is your company pension scheme? Our columnist Merryn Somerset Webb shares her frustrations.

Welcome to The Money Show, the FT's weekly podcast about personal finance and investing. I'm Claer Barrett, FT money editor, bringing you this week's money news.

We all like a freebie on the money desk, but a free subscription to the FT is a pretty valuable gift. Well, the good news is, that if you're a sixth former, you can now get free access to ft.com through the new FT for Secondary Schools initiative. This was the brainchild of Krishan Puvvada, a plucky young sixth form student who came up with the idea when he was interning for the FT last summer. Having convinced both the FT's CEO and editor that this was a good idea, I then asked him to interview John Ridding, Lionel Barber, and a host of other FT columnists and commentators to ask them about the financial lessons they would pass on to today's school leavers.

Joining me now to discuss is, of course, Krishan, who's broken off from his A-level studies to talk to Money. Thank you for joining us, and welcome.

Thank you.

So, lovely to hear your voice again. But firstly, tell us what the most common money worries are for young people today.

Well, definitely amongst my friendship group it would be about student loans and student debt, because we're all coming up to the end of school and thinking about universities and further education, and eventually getting a job. But equally, we realise that we'll be going onto those things with massive student debt, especially for my friends who decide to go to university.

And it's not just the debt that's the problem. It's also a lack of understanding about what the debt means, how it works. And I think that really does scare quite a few of my friends. And it scares me a little bit, as well.

So how did that inspire you to set up the FT schools programme?

Yeah. Well, it came from a couple of angles, really. Number one is the lack of financial and political literacy. And I feel that, as young people, we have so many political challenges and so many financial challenges to overcome in the future. And in order to be able to find solutions to these problems, we need to be engaged with the world of money and the world of politics from a much younger age than we are now. And we need to really take a real interest in those issues.

And I thought, well, what better way to help stimulate that interest and engagement than by reading a paper like the FT. And that led me to think of ways in which the FT could be made more appealing. And the proposition grew from there.

Well, exactly. And at which point, I should say, we bumped into each other in the FT canteen, and we were talking about the kind of article that an 18-year-old or even an older person might want to read about answering some of those big questions, which you've attempted to do in your article. So tell me what it was like to interview these big beasts of the financial world about their teenage money habits.

Yeah, definitely. Well, it was a privilege to have the opportunity to speak to people like Lionel and John. And it was a genuine honour to be able to listen to what these people had to say. Speaking about Lionel, I mean, I guess it was a shame that he supports Tottenham, but nevertheless it was really insightful. And I learned a great deal from being able to listen.

And in terms of Lionel's interview, three things really stick in my mind. The first was that he said he had a phobia of debt, which I found interesting given how much debt that there is. It's sort of a debt-fueled economy that we live in. The second was that he never invested in shares until he was 40, which I guess was strange because I just imagined that he would have invested in shares a lot earlier. And the third one that was interesting was that he worked in a vinegar factory.

I know. The Sarsons vinegar factory, nonetheless.

Indeed, yeah. And he had I think it was glandular fever while he was working there. So I guess it really does emphasise the importance of working hard.

Yeah. And he didn't want to rely on his parents for money when he was at university, which is why he took that job. But of all of the pieces of financial wisdom that you've received through doing this article, what are the ones which stick in your mind?

I think there's one in particular that really had an impact on me. And that was from [? Theo ?] [INAUDIBLE]. And his message was we have to find something that we care deeply about in terms of a career or something, an aspiration. Find something that you care about, and then care about it deeply and be really passionate about it, because you're going to be working for a long time, a long working life. And it's much easier to make money if you are enjoying what you're doing.

So therefore, it's important to really take the time as a young person to find out what interests you. And then you can develop it. And the money kind of flows on from that.

Yeah. So the money isn't the first question, like how do I deal with the student debt pile, which I've tackled hopefully well in my answer for you. But what you actually want to do with your life is the bigger question. And you shouldn't let the money worries get in the way. Very good advice.

Definitely. Because if you look after your aspirations in life, the money will follow on from that, whereas if you focus on the money first, you may end up doing something that you don't enjoy, and then the money becomes a lot harder to get, was what he said.

Absolutely. And if I had listened to the careers advisers at school, I would be working in the law industry now, and probably earning a lot more money, but I'm sure ultimately feeling unfulfilled.

And we would have never written this article.

I know, just think. But finally, if people listening want to get their school signed up to the FT for Secondary Schools project, or want to get in touch with the school they went to to tell them about it, what do they need to do?

Well, it's really simple. If you were to type in FT secondary schools into Google, it's the first one that comes up. And the only sort of condition is that, in order to sign up, you need to be a person of authority, i.e., a teacher at the school. So if you are a current teacher, that's fine. But if you want to recommend the school in your network signs up, just simply forward the link to them, and they'll be able to register.

Well, thanks very much there to Krishan Puvvada. You can read his cover feature in FT Money this week. I wish I'd known that when I was 18. That's in the FT weekend newspaper or online from Friday at ft.com/money. And I have to let you in on a sneaky secret. I've got a feeling that Krishan could well be my boss one day soon. Thanks very much.

Thank you very much.

Classic cars have been powering up alternative investment indices in recent years. But if you're only driven by the returns, you have got the wrong end of the gear stick. So says James Max, a writer and broadcaster. And in his Rich People's Problems column this week, he debates whether it's finally time to sell his beloved Aston Martin. He joins me now on the line to discuss. Welcome, James.

Hi.

So what great problem has cast a shadow over your gilded existence this week?

Well, I'm delighted that you think my existence is gilded. And certainly when I was stranded off the French auto route just a few days ago, I was not thinking my life was in any way gilded, because the Aston, it broke down.

Oh, dear. I must say, when I got your text and said, don't worry, James, you can turn this into a column, I didn't realise that you would take it literally. But you did have a pretty rubbish time after this happened.

Well, exactly. Look, the holiday itself was brilliant. Motoring holiday, went with some neighbours, it was fantastic. We'd made all these arrangements. And the car itself during most of the journey, it did 750 miles without too many incidents. But then just on the way back, so we're one day away from reaching the channel and getting back home, we pulled into a services, we got a horrible sandwich, and-- it really was terrible, one of the worst-- anyway, so the car broke down. It just stopped. It just wouldn't start again.

So then we had to explore those things that you hope you're never going to have to use, which is the insurance company always says, oh, yes. We'll get you back from wherever it is you break down. You don't worry, you've got cover. Da-da-da. And I had to put that all to the test.

And you explained in the column that, you know, by and large, after some delay, those things worked, although your car, which you have given a name--

Doogle, yes.

--is still in France.

That's correct. So I did actually receive a call this very day saying that Doogle is still very happily ensconced in France, and he will be back in about 10 days' time. They have these enormous lorries. They don't just pick up one car, they pick up 20 cars from all over Europe. And as and when all the slots are filled with all these people who have broken down all over the place, they fill up this great big double loader, and then they bring it back to the UK. And Doogle will be one of those sort of crammed onto a sort of rather sort of hefty sort of vehicle to be brought back to the United Kingdom in due course. And I have to say, yes, it's a pain, it's not what I planned, but it did actually work in the end and I wasn't left stranded.

But has it caused you to rethink the investment case for owning a classic car?

Yes. Because look, when you own a car-- so this is a car that, when I bought it, it wasn't a classic. I've now had it for, I don't know, 12 years or so. And it's beginning to get to the stage of is it a classic, isn't it a classic. It's not there yet. It's probably 10 years away from being a classic per se. But it's beginning to also go up in value. And I've been thinking, well, it's probably worth keeping it on. It's quite fun to drive. You can take it on these grand tours. And yes, at the same time, it's probably rising in value. So, why not?

But it was proving pretty expensive as an investment before the French farce, if we may call it that.

Well, indeed. The thing is, can you call a car an investment. And certainly, at the very top end, yes, you can. And one of the great things about cars and wine and one or two other asset [INAUDIBLE], they're known as wasting assets when it comes to classification for tax purposes, which means that any capital gain you may achieve is tax-free.

But of course, that doesn't take into account, in order to keep a car on the road, you've got to service it, you've got to make sure that the things which decide to die are replaced. And inevitably, cars are made of lots of things that either can go wrong or they disintegrate and you've got to replace them. So the running costs for this thing are quite significant. It's a few grand every year, plus the insurance, plus all the other things that you may have to do. Every four years, you've got to change the tyres. And that's eye-watering.

You know, all these things come along generally when your bank account's looking already horrified and depleted. So you've got to prepare yourself for the fact that this is going to drain it some more.

So what's the moral of this story?

I think the moral of this story is that decisions that we take in life, particularly when they are perhaps lifestyle-related, you've got to divorce yourself away from the money, and you've got to say, is it fun? Is it something I want to own? Because in the same way, when you're thinking about your main car, I am sure that, if you look at either the jalopy on your forecourt, or your garage space, or parked outside your house, or indeed the gleaming wonder that is, it's a personal decision that you take because you do sit rather a lot in your car. You make decisions based around what you might do either in your car or where it may take you. And this is a fun decision. This is a decision about spending your money, not about investing it.

Well, thanks very much to James Max. You can read his column now on our website, ft.com/money. And if you've got a problem for James to look into, you can contact him. Richpeoplesproblems@ft.com.

There's a lot to like about company pension schemes. You pay in a percentage of your salary, and in many cases your company will match this or more, plus you also get the benefit of tax relief. But what about the underlying investments? This is where the perks started to look a lot less, well, perky for Merryn Somerset Webb, the FT Money columnist and editor-in-chief of MoneyWeek, who joins me now on the line. Welcome, Merryn.

Hello, Claer.

So what did you find when you looked under the bonnet of your company pension scheme?

Well, it's interesting. I mean, nothing that's deeply, deeply shocking. You know, 20 years ago I would have looked under the bonnet of one of these things and gone, oh my god, this is absolutely appalling in every way. I look at it now and I think, nah, you know, this just isn't completely satisfactory. It's not very cheap. My particular one is about 0.6%. It's not very interesting. It's a passive portfolio. It should be much cheaper. I'm not very happy with the asset allocation.

As a default fund, it's not quite good enough. Now, I find that irritating in lots of ways, A because we deserve the best, but B because the whole auto enrollment system is effectively a massive bung to the fund management industry. You know, every penny that is given in tax relief goes to them to manage, and they skim it along the way. So it's a huge subsidy to them from the taxpayer. And I just sort of feel they should be stepping up to the plate a little better, giving us stuff that is genuinely good value and genuinely well thought through. So that's the first thing, general mediocre product. And I've had it with mediocre, and I'm sure you have, as well.

And the second thing is how badly it's communicated to people. There a billion rules about things that fund managers and pension fund managers have to tell the client. They have to tell them no end of regulatory things. And they do that, but in a way that isn't really very helpful. Page after page after page after page, and you get [INAUDIBLE] you get your pages of [INAUDIBLE], and then you have to cross-refer to your pension provider's handbook to try and figure out what on earth is going on. It's just mildly unsatisfactory all round.

So you came up with some solutions for both of those points. Firstly, what's in the pension, and secondly, the communication. So we'll deal with what's in the pension first. So you didn't like the default fund. You thought that the asset allocation, as you said in your column, was all wrong. And you also didn't particularly like the fee. So you decided after looking on the pension provider's website that there was a particular fund managed by an external fund manager that you would like to be invested in.

And I went to that, and I found that it was another 35 basis points on top of the base price. So when I'm told that my default fund is 60 basis points, they don't mean that that is the price of that fund. What they mean is that's the price, and anything else you want, any other funds you want to move to, is going to come on top of that. So the total price, had I made that move, which I haven't yet, I'm still dithering and being irritated--

It's nice to know that even you dither.

Oh, endlessly over this kind of thing, because I get so irritated and I have to go away and have a cup of tea and, you know, then think about it a bit. And then, of course, I never quite get around to it. And that's actually another point I want to make here, is that everybody hates admin. We all hate admin. We hate it so much. It's so difficult. And admin related to our pensions is extra double super hard. I mean, I left [INAUDIBLE] the papers related to this pension sitting on the floor next to my desk for a month before I was able to gather the strength to even start going through the papers. And if I find it that difficult, God knows what happens to everybody else, given that for you and me, this is our job.

You know, this admin is a difficult and exhausting start even. So the fact that the industry plays off that apathy of ours, you know, they know no one's going to get to page 15 to try and figure out what the fees actually are in trying to figure out what that impact really is on their future. What can you do?

I mean, one of the things that, overall, people who commented on this piece said was if you hate this, why don't you just move. You can opt out of your employer's fund. Well, actually, that's not really true. It is possible to opt out and to have your HR department pay your pension contributions directly into your SIPP at [INAUDIBLE] or whatever it is, but your employer has to agree to that. And smaller companies and companies that are not really geared for this kind of thing, they can't do that. They can't allow people to opt out all over the place. It's too much admin. So you know, you are actually, in most cases, tied into your employer's default scheme.

Unless you have the clout within the workplace to say make an arrangement just for me. But when it comes to all of the providers out there, you generously gave them a template letter that they might use.

I am good to the industry. I really am.

I mean, I've just read out a little different chunks from it. I mean, basically it starts off by saying we invest the money that you and your employers give us, currently a total of x pounds per month, so that you will have a pension to help pay for your retirement. It's in this fund, which is invested in shares in companies around the world, as well as some bonds. And the fund has made a return of x percent every year on average over the past x years. That's x percent above or below the industry average.

So I mean, just in that one paragraph, you're able to condense all of the information really that you most wanted to know but had to really search through the 17-odd pages of documentation from your provider to find.

And that is not because I have special skills, it's because I wanted to condense it into a paragraph. And I don't believe that providers do want to condense it into a paragraph. They want to spread it out over 15 pages, because that way you're never going to read it.

So how did this letter template go down? Have you had any [INAUDIBLE] phone calls from people in the industry?

You know, there's-- I mean, I say in this particular article that I myself am quibbling over various things. And the response from the industry has been one great big quibble. Only you couldn't say it like that because of regulatory reasons or you don't understand that no one knows what a bond is and this kind of thing. And also, as [INAUDIBLE] pointed out, I did put one sentence in there, which was the fund has returned x percent over the last however many years, we hope it will return x percent over the next however many years. And they say, well, you know, you can't say that because no one knows what the future will bring, et cetera, et cetera.

And I say, well, of course no one knows what the future will bring. But we do have several hundred years' worth of investment statistics and market statistics that give us a clue as to what the equity market, for example, will return over the next 20 years. So you can put in I hope. You can offer someone a sense of what the future might bring.

So there's been endless quibbling here. Another thing that's come out of this is a conversation that I've been having in my columns with the industry for a decade now, is is it reasonable to put the money of the average individual into a passive fund like this. And if it is in a passive fund, what can your expectations be relative to market history.

So for example, let's say that we have a market collapse along the style of the 1970s. So let's say we have a sudden rise in inflation to above 5%, and suddenly we see, along with the Jeremy Corbyn government, for example. And we see what happened in the early '70s. You see a sudden drawdown in the market of 74, 75%. And we find that, because they're in passive funds, people in default pension funds have absolutely no protection against that. And their money goes down by that much.

Then what happens? Dear me, I've gone off-topic.

No, no.

Then what happens?

It's a scenario many readers will be worried about.

And should be worried about. And should be worried about. So actually looking at this, I mean, obviously I talk about the passive/active debate all the time. And the passive momentum has been on a roll all the way through this fabulous bull market because of the drawdowns that we've had in 1999, 2007 have been quick. They've been quick. They've been short. And so the passive strategies continue to do well. But if you have a stinker like the 1970s, does that change the whole dynamic around whether it is considered to be reasonable, moral, ethical, appropriate, whatever word you want to use, to have a default fund being a passive fund.

Well, all the more reason, if you do have a default fund, to start looking into what is under the bonnet of your own company scheme. Well, thank you very much there to Merryn Somerset Webb. You can still read her column, Company Pension Schemes Shouldn't Be This Much Hard Work, online now at ft.com/money.

That's it from The Money Show. To get in touch with our team of financial experts, email us, money@ft.com, tweet us @ftmoney, or comment on articles online at ft.com/money. We will be back next week at the usual time. Goodbye.