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

[HeartyMintLurker]

It sometimes surprises me how often people assume that if someone is very successful or highly skilled in their field (e.g. a lawyer, dentist, etc.), they must also be good with money. To me they feel like completely separate skill sets.
AIBU?

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

@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.

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.

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

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.

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.

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 ££.

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.

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

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.

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.

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.

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...

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.

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

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!

@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 !

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.

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.

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🥰

Yes, I agree with you, there. I think it's a bit panic mode for some. They panic about paying it off whilst they know the money is there.

I agree, the concepts are quite basic and when you show them to children visually can be very impactful. Planting these seeds in their minds with practical exercises and visual tools while young can make a huge difference to how they think about money, and that is what we are aiming to do in schools through workshops because the national curriculum simply does not provide this.

If you give children the tools to make rational choices then they are far more likely to grow up with not just the knowledge but the mindset to do so.

I’ve done similar with my own children. Very early on I set up their own bank accounts and gave them quite a generous weekly allowance. They have debit cards, and can allocate money to their “spending pot”. But they can also save for specific other things they want, or need to (I have made them responsible for paying for their own birthday/ Christmas presents to people from their own money, by making the weekly allowance amount generous). They save some into a charity pot and donate it at New Year each year to a charity of their choice.

It’s up to them ultimately how they allocate their money so they can learn from their mistakes while the stakes are low, before they reach adulthood. I suggest they put 30% of it into a savings pot but it is their choice. I am now setting up investment accounts into which they can transfer the savings so I can teach them to do that and they can watch it grow over time.

Real experience is better than theory. There will be times when the value will dip but it will rise over time and they will see this. And rise far more than what’s left in their bank accounts. They will actually see how it compounds over the next 10 years until they are adults. If one decides to take it all out and spend it and the other ends up with more they will learn an important lesson: I will not be controlling it, only advise if asked.

Then, when they get control of their junior ISAs at 18, which are being saved separately without their knowledge, there is some hope they may realise what a privilege it is and not blow it all. Children need to see and experience how to manage money just as they would learn any other skill required for adulthood.

It’s no surprise that a huge amount of debt is run up by young adults in particular because nobody is giving them the skills and tools to learn how to manage money before they reach adulthood, hence so many adults learning the hard way or still being clueless even in their later decades. I hope the charity I’m working with can help some young people to avoid the pitfalls and make good decisions.

DH and I are both high earners. He's good with money in the sense of being a low spender on himself but has no interest at all in things like investing, finding the best savings rates or energy deals etc. He'd just set everything to auto renew and end up paying £££.

OTOH I'm a much higher spender but also an absolute ninja when it comes to comparing insurance or moving savings around, a veritable Martin Lewis.

The impulse control requires therapy to deal with.

The issue about being disabled should not affect your decision: it’s wise to keep enough to fund living costs for a while in accessible cash savings to avoid the need to liquidate investments during a downturn but other than that over long periods, for the last 70 years investments in equities have always outperformed any interest rate you could conceivably be paying on your mortgage, even after tax if you had the investments outwith an ISA tax shelter.

If you are overpaying the mortgage in regular small amounts you could shelter most/ all of this ISAs anyway. You can later withdraw the money from ISAs to pay off the mortgage balance AND keep the additional money your investments have generated above that. As someone disabled, it’s crazy not to make your money work as hard for you as possible, unless you expect to become unable to work entirely very soon.

Emotional security of course is great but that is what leads to very low returns. Being totally risk averse will leave you very significantly poorer than you need to be. Calculated and sensible risks over a long term investment with a diversified portfolio are very, very rarely high enough to be worth sacrificing hundreds of thousands of pounds and making yourself very significantly poorer just to avoid a bit of anxiety.

Also using your investments to pay off debt such as a mortgage would not count against you for a benefits claim, even if you eventually became so incapacitated that you couldn’t work and needed to make one. It is a perfectly legitimate use of funds and accepted in law as such so would have no impact on this compared to having used the money to overpay the mortgage earlier.