To think being intelligent or successful doesn’t necessarily mean you’re good with money?

To be honest the person is h the wit 70s seems to have it right!

it’s important to get the balance right: financial servitude is important, but we also need to live and enjoy our money.

We All have different risk appetites, and different job security. If I find myself spending £18k on a holiday in my 70s, living off a generous pension with limited savings that will be just fine🥰

They’d feel a lot more secure with their house paid off and an extra few hundred thousand pounds left over in the bank because of compounding on the investments, rather than repaying a debt attracting 1% interest before they needed to do so!

An understandable decision for someone in their 60s to want to clear their mortgage. To prioritise this over investments in your 20s/ 30s/ 40s is pretty much the definition of financial illiteracy.

TBF it might be because they are accounting professionals. They are probably more aware of the high risk, and have dealt with clients who gambled and lost. Might make them over-cautious.

@NotAnotherScarf this is illustrated in the classic "pyscology of money " book.where he casts a new self made tech millionaire flashing the cash v a janitor who was a secret millionaire through continuous careful investing.

He doesn't say however who enjoyed their life more !

There’s a difference between an endowment mortgage and people who have capital repayment mortgages that they are repaying already from monthy income deciding to voluntarily overpay rather than invest their surplus income at a much higher rate of return, particularly when you are talking about a period decades long in which short-term volatility in investments obivously is not such a significant concern. People waste tens of hundreds of thousands of pounds with this lunacy, all because they don’t understand basic maths, then pat themselves on the back and think they’re financially savvy!

@TheNinkyNonkyIsATardis but your also advantaged with a degree teaching you how to "research".

I never said it wasn’t relevant.

All I was saying is that not many people necessarily realise that paying off the mortgage may not be the best financial decision.
If they realise this but chose to still pay or overpay the capital (for whatever reason) then that’s obviously fine - they are doing this fully informed.

Financial literacy is about understanding the
risks and benefits, which then enables you to make the decision that you feel most comfortable with. That’s it.

It’s continuous learning process for me as I reach various stages of my life. Now I am in the estate planning stage.

I live in a very middle class area and worked as a gardener and have seen the following:
Person spend £18,000 on a 7 day cruise for themselves alone, best of everything TV, gadgets, new suite every year high end, house professionally decorated every 3 years, and never has anything left at the end of the month...in their late 70s and very little in savings.... just has good pension due to their job and their late partner.

Young couple in their 30s he's in hospitality owns bars, restaurants etc...she SHAM. Spends fortune doing up big house. Prices start to rise re COVID, Brexit effects cheap staff costs. Business goes under. Turns out she's having an affair and leaves taking him to the cleaners for what's left. He later told me he spent everything that he earned on watches, jewellery, cars (they bought new ever six months BMW, mercs). She took the jewellery and other bits that were hers

Another young couple 30s....two doors up as it happens. Good job commission based making great money decided to work only 3 days a week for a better work life balance. But no savings. COVID hits. No one recruiting. He has to sell his expensive motorbike, for a loss. The car went too. Eventually had to sell the house and downsize dramatically.

So you can be earning great and it goes tits up, with nothing to fall back on...

But it is very relevant.
I am financially pretty literate.
I am aware that paying off the mortgage is maybe not the best idea on a balance sheet, but I balance that against the emotional security, and for me it pays off.

My friend and her dh are both accountancy professionals - they are so risk-averse it's frightening - they don't spend much money but for many years their savings did not have to work hard for them, instead it lingered in a cash saving accounts - earning piss poor interest rates. I think they've finally woken up to investing in global index funds - it took a lot of convincing.

Most of my friends are well off and well educated but very few of them understand enough to look after their own investments - a few pay an advisor because they are not interested or don't feel confident enough to learn. The others are terrified of losing money on the stock market - and have instead focused on paying off their mortgages, building up cash ISAs and having a buy to let with the extra cash. They do not understand pensions either.

That’s the emotional side, which is completely understandable, but not necessarily the correct decision financially - on a thread about financial literacy.

Of course investments can go up or down - over along period of time they do go up. When signing up to anything like this you need to consider how you will pay your mortgage off and you need to justify it to the lender - it maybe a case of selling and moving to a cheaper property.

And that is because paying off the mortgage isn't just about money/bank balance. It is the feeling of security that comes with knowing that your house is fully yours. For many people that is worth ££.

Which is why I suggested they should speak to an IFA about their specific circumstances.
But, the bare facts are that investing the capital is better than overpaying on a low interest mortgage - a concept that often goes against the holy grail of paying off the mortgage.

Slight tangent, but whenever I got to the doctor, I'm asked if I'm a medical professional. Nope, my degree was history.

But I can search my symptoms, do basic tests on pulse and respiratory rate at home, and use Latin medical terms comfortably.

None of this SHOULD be necessary to get adequate medical care, but if I have a problem I know how to look up relevant information and process it.

That's what most people expect when people are educated professionals - the ability to solve problems themselves.

But money is about habits and behaviour as much as knowledge. I agree with PP that being rich can be disabling of practical money skills. Being very poor can create unuseful habits around money too.

I couldn't agree more and I also count on my fingers.

Problem with that is, it's fine if your earnings means you can cover any shortfall at the end of your mortgage term. IFAs were, at one point, heavily pushing 100% endowments, leaving many unable to pay the balance on their homes at the end of their mortgage terms. Investments can go down as well as up, and when it's against your home, I understand not wanting to take the risk.

If you decide to to take an interest only mortgage and invest, you have to pay attention to shortfall and make contingencies against the possibility of not being able to cover the outstanding balance. For some, interest only mortgages proved to be a very expensive disaster.

@DrRylandGrace I'm thrilled something is happening about this. The times is also trying to campaign to get financial literacy into schools and make us into a nation of investors.

However you really do only need a basic level of maths to understand it all.
Reading the books helps as well the classics and general research.

I speak for myself my own maths is appalling and yet I invest.
I've been around many maths teachers who don't invest at all and it's not even on their radar.
I've even had other people around that area say to me they don't have time to buy and sell shares and watch it all day to day !

Unfortuntly it can get over complicated and using the proper financial jargon can be a barrier.as well.

It's not purely about simple maths though.

Reasons it suits me to overpay the mortgage

• I know I don't have brilliant impulse control so I like that overpayments are locked in
• I would have to pay tax on any interest (above ISA allowance) so the headline interest rate isn't the actual interest rate
• I have a disability that could at some point leave me unable to work in which case having hefty equity in my home will be better than hefty savings as the savings would count against me for benefits claims
• I just emotionally really like the idea of being paid off and owning my home
• I have a very good pension pot and will be able to take a big lump sum if I wish to in the future

Plus I am just not that driven by having huge mounds of cash in the bank, it doesn't excite me. Getting to the point I fully own my own home however does motivate me

I never understood overpaying for those of us who had a 25 year mortgage at low interest rates. I would say, though, that low-risk/low-yield investment isn't a bad idea for lower earners because they might not be able to weather losses through high risk investment. Invested money can go down as well as up and, as shown by the endowment fiasco, some people can end up losing a lot.

We had a part repayment, part endowment. Over the years, we were able to.put aside the difference, should there be a shortfall. We were lucky, we even made a bit on ours, but many with 100% endowments lost the lot.

Higher risk is great, but people do need to understand there's no guarantees. In the case of pensions, higher risk can be disastrous if you aren't able to contingency plan for not getting out what you expected. Over-reliance on single sources is never a good idea. Spread it, don't put all your eggs in one basket.

I am hopeless at maths, but very good at paying attention to the small print...

Yes, people look at me in horror when I tell them they may be better off considering an interest only mortgage and investing their capital(obviously caveat that they should discuss this with an IFA).

I used to work as a debt advisor but have racked up ridiculous credit card debts myself. Definitely a case of ‘do as I say, not as I do’ 😬

Edited to say: Also have ADHD!

Exactly. One of the main reasons so many people made wealth in property is because of the leverage available through mortgages where in effect they received the full rise in asset price even though the money they had invested was a small proportion of the full asset value. That kind of leverage is not available to ordinary members of the public through many easily accessible routes. But obviously due to the relationship between risk and return, higher leverage means higher risks.

It’s shocking how many people don’t seem to grasp the relationship between risk and returns so leave their pension funds invested in low risk/ return assets in their 20s/ 30s/ 40s, for example. And their savings in cash, or wasted savings paying off mortgages at sub-5% rates or even now. There were even crazy people making mortgage overpayments regularly when mortgage rates were 1%!!

The mathematical understanding required is very basic but it’s more than just YR2 level (adding and subtracting). To make competent financial decisions people need to be able to understand percentages, compounding (and therefore the non-linear growth in both investments and debt) and make comparisons between the net effect of this compounding plus tax implications etc.

It’s still primary school level mathematics so very simple but there are evidently many people who still don’t grasp it, for example: people who say they are living/ planning to live only on state pension in retirement and are surprised they are poor when they saved nothing throughout their live even though tiny amounts per month would have grown immensely over their lifetime; people who leave savings in cash (other than emergency funds); people who seem proud to have used excess income to have overpaid mortgages when mortgage rates have been far lower than average investment returns for almost all of the last 7 decades; etc. The irony is that many people in this group actually seem to think they are financially literate when clearly they are anything but.

I am involved in a charity which goes into primary schools to try to rectify this financial illiteracy for those growing up now, at least with the basics.