Building on the last post on 7 things that hold black children back from succeeding. This is the current Economic status of black people in the UK relative to other groups:

ASSETS
 
On home ownership
 
According to .gov.uk:

• 63% of households in England owned their own homes in the 2 years from 2016 to 2018;
• 68% of White British households owned their own homes, compared with 74% of Indian households;
• households in the Black African (20%) and Arab (17%) ethnic groups had the lowest rates of home ownership at 20% and 17% respectively;
• home ownership among Black Caribbeans at 40% was twice that of Black African (20%);
• in every, socio-economic group and age group, White British households were more likely to own their own homes than all ethnic minority households combined

 
On pensions assets:
 
According to a January 2020 report by the People Pension, compared to White ethnic groups,

• Black ethnic groups have a 27% lower pension;
• Asian ethnic groups have a 30% lower pension;
• Mixed heritage  groups have a 13% lower pension;
• Arab and other ethnic groups have a 6% higher pension.

 
The average gap between a female pensioner from an ethnic minority group and male pensioner from white ethnic groups is 51% (half). This figure is 27% for an ethnic minority male pensioner.
 
The average ethnic minority pensioner has £3,350 less in annual pension income.
 
Ethnic minorities are also less likely to qualify for auto-enrolment into a work place pension because they are more likely to earn less than the auto-enrolment threshold of £10,000.
 
INCOME
 
According to gov.uk:
 
In the year ending March 2019, the median annual household income in each quintile before housing costs were paid was:

• top quintile (top 20%): £54,000
• second highest quintile: £35,700
• middle quintile: £26,800
• second lowest quintile: £20,500
• bottom quintile (bottom): £13,300

 
If we look at the bottom two income quintiles, that is the lowest 40% of income earners,

• If you are black there’s a 57% chance that you are there;
• Only two ethnic groups perform worse – 67% (two-thirds) of Bangladeshis and 74% (three-quarters) of Pakistanis are in the bottom two income quintiles.
• Only 38% of whites and 38% of Indians are in the bottom two income quintiles.

If we look at the top two income quintiles, that is the highest 40% of income earners,

• If you are black there’s a 25% chance that you are there;
• Only two ethnic groups perform worse – only 15% of Bangladeshis and 11% of Pakistanis find themselves in the top two income quintiles.
• 42% of whites and 44% of Indians are in the top two income quintiles.

 
These figures are before housing costs. The picture changes a little bit after housing costs but I chose to present the ‘before housing costs’ picture because there is a degree of discretion with regards to how much a household decides to spend on housing.
 
While there are income disparities that will feed the gap between the assets of the rich and the assets of the poor, I feel as though the reasoning behind the asset differential is very basic and needs further exploration.
 
On job security:
 
Do ethnic minorities just work less and as a result earn less?
 
No! According to gov.uk:

• 75% of working age people (aged 16 to 64) in England, Scotland and Wales were employed in 2018;
• 82% of people from White ethnic groups were employed, the highest percentage out of all ethnic groups;
• 57% of people from the combined Pakistani and Bangladeshi ethnic group were employed, the lowest percentage out of all ethnic groups; and
• 67% of working age Black people were in employment.

 
Based on these stats, the employment rate for black people is 8 points lower than the average for the population  and 15 points lower than for Whites.
 
In addition, it’s worth noting that Black people and other minorities are more likely to be self-employed, be on zero hours contracts and are generally more likely to be employed in less secure lower income jobs including as part of the gig economy.
 
Two things stand out as definitely missing:

1. How many ethnic minorities don’t own a home in the UK but own a home (or homes) back home in Africa or the Caribbean? This would be an interesting statistic but the government would probably struggle to get any meaningful data on it except perhaps through anonymised surveys.
2. Also, what proportion of people are struggling to build a meaningful asset base because a high proportion goes to support relatives back home? 

 
The UK doesn’t have an identical history to the US and certainly I don’t think UK mortgage lenders discriminate according to race directly or indirectly but if someone thinks they do, I’d love to hear their story.

Remittances are a key component of economic growth in Africa. According to Pew Research, "money sent by the African diaspora to their home countries in sub-Saharan Africa reached a record $41 billion in 2017...a 10% jump in remittances from the previous year", another source suggests $46 billion was remitted in 2018, that would be the official figures but billions more are remitted via unrecorded channels. Official development aid to Africa was just shy of $52.8 billion in 2017 (OECD 2019 statistic). Provided this money isn't all being used for consumption, wealth accumulation by Africans is underestimated if we look purely at wealth held by the diaspora within the countries they live.

In addition, after discussing the issue of low rates of home ownership with my African peers other factors to consider include:

• A knowledge gap in which either people do not think of buying a home because they don't think it's possible or they think it's a complex process.
• Misinformation within the community with regard to the financial sense of buying a home in the UK;
• Poor financial literacy in black communities including the fact that we are not held accountable by the community in the same way Indians are;
• Indians also have a lifestyle which means many full-time earners commonly live in the same household thereby allowing reduced costs and homeownership for investment, etc;
• A higher proportion of people struggling with mental health problems meaning it's more difficult to deal with big life issues like home ownership...they become stressors and triggers.

 
Social mobility
 
According to research from the University of Manchester,

• Ethnic minorities in Britain are experiencing growth in clerical, professional and managerial employment (absolute mobility), however they still face significant barriers to enjoying the levels of social mobility of their white British peers (relative mobility)
• Immigrant minorities have lower rates of social mobility than does the rest of British society. Their children experience rates of upwards mobility that are similar to their white British peers. Despite this mobility, the second generation still faces what they called “significant ethnic penalties in the labour market.”
• “Levels of educational attainment have improved significantly for ethnic minorities, but these have not translated into improved outcomes in the labour market. The success of policy interventions and third sector projects targeted at ethnic inequalities in early childhood and education, contrasts to the continuing employment barriers faced by young black men and Muslim women.” This finding means that even if they succeed in education: young black men and Muslim women struggle to get jobs that are commensurate with their human capital. Apparently, “unemployment rates for Black African and Black Caribbean men have consistently been triple those of white men”.

 
 
FACTORS THAT COULD HOLD BLACK PEOPLE BACK
 
When it comes to discrimination in the labour market, some of the same things that lead to targeting or discrimination in the formative years (as described in my previous post) can also adversely affect the likelihood of black people getting well paid jobs:

1. Name – some research suggests people with non-white sounding names are called to interviews at lower rates.
2. Black hair styles can be interpreted as not professional and lead to potential employers not hiring a black person based on their hair with reasons like, “we didn’t think they were an appropriate fit.” Certainly, when I go to interviews I make sure to have a Westernised wig on, I don’t want my hair to hold me back. Once I get the job, I style my hair as I please.
3. The perception of being threatening – may prevent black people and especially black men from getting jobs that they desire.
4. The stereotype that black people are less intelligent – an absolutely abominable stereotype to hold in this day and age may prevent some getting well paid jobs and result in a higher propensity for black people to be hired into lower skilled, manual jobs.
5. And all the issues of poverty and educational inequalities and racism in educational institutions covered in the last post are cumulative and have long run negative effects on black people’s economic prospects.

 
So there you have it. This is a summary of the current wealth and income stats for black people in Britain. I think it raises a lot of questions. I would love for people to contact me and leave a voice message or a note at katsonga.com/coach or as a comment on this post explaining what they think has helped them succeed or what they believe is holding them back from progressing to higher levels in their career and in building wealth.

​​Heather 
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!

I thought it would be fitting to end the 2020 series of The Money Spot podcast with a series on the Economics of being black. The issue I would like to explore first is a list of things that could hold a child back before they are even 18.
 
Where possible, I will depend on UK studies and statistics but if that’s not possible reference will be made to US studies where much more research on race tends to be available.

1. Name 
​
Having a name that is perceived as “different” may be a factor that exacerbates a black child’s feeling of otherness, of being different to the mainstream.
 
In the worst case, it may lead to teasing or just feeling discomfort and insecurity with what might seem like innocent questions from teachers, like “how do you say your name?”
 
I’ll talk more about names in my piece about what holds black adults back.
 
Personally, our desire for our children not to be discriminated against in mainstream British society was a key consideration in name selection. We want them to blend to the extent possible and didn’t feel that name was an issue they should need to deal with in addition to everything else.
 
2. Hair 

Is there an issue more contentious? My son noticed the difference in his hair before he mentioned that his colour was different to that of everyone else in his class.
 
There are many anecdotal examples of black children being treated in an unfair way at school on account of their hair, for example:

• Being told that they can’t wear their hair in styles that are completely normal and more convenient for black kids;
• Comments about their natural hair being wild or unsuitable;
• Having their hair cut or inappropriately handled by teachers, etc.

 
But, while a name and hair, in addition to skin colour may add to a feeling of being different, there are real and recent statistics from the Social Market Foundation and other research organisations to show that black children are discriminated against at higher rates:

3. The perception of being threatening  

There is a perception and stereotype of being threatening which especially haunts black boys. In studies, black boys as young as 5 years old have been perceived as more threatening compared to similar aged white boys which is a scary fact. This has been elicited with tests of association of faces and objects like guns or puppies rather than by asking directly.
 
And where as being “tall and dark” would give a white boy advantages with perceptions of stature, strength and athleticism – for a black boy the exact same tallness and darkness may only serve to make them appear more threatening and with that all the disadvantages: more regular police stop-and-searches and fewer opportunities. This sentiment is my own, rather than from elsewhere but it is something that recently occurred to me as a risk.

4. At-school and In-class discrimination  

The Social Market Foundation reports that “discrimination in education frequently takes place outside of the syllabus. There are a range of institutional practices that underpin Black students’ exclusion and, ultimately, their educational attainment.” For example:

• “Punishment in UK schools disproportionately affects Black children… Black students have reported facing disciplinary action for their uniform, because of stereotypical perceptions that they are more disruptive, even because of their hair.” This, I wrote about before I even found the SMF report. This is consistent with US research that shows that black children are frequently punished for behaviours which when displayed by white children are not at all punished. Kuba Shand-Baptiste reports in The Independent that at school her “confidence would often be interpreted as arrogance, rudeness or just plain naughtiness.” She says it took her a while to accept, especially when she saw her white classmates rewarded for the same behaviour. 
  • And children, even very young ones, notice. My friend’s mixed race daughter in the first half term of reception has already received 3 yellow cards AND in the latest instance she observed that her white friend who was doing exactly what she was doing at the same time did not get a yellow card!
• Black Caribbean kids are almost 3 times more likely and Mixed White and Black Caribbean 2.5 times more likely to be permanently excluded from school than white pupils. This data is supported by various reports. It is thought that racist stereotyping of black children may play a key role here.
• “There is a lack of Black teachers in schools, especially amongst senior staff.” I find the general lack of Black teachers at my children’s private school problematic. There are very few non-White teachers and I fear this may accentuate the belief among children (tomorrow’s leaders) that a figure of authority is “meant” to be white.
• Black children have their abilities and grades undervalued.

 
So, unfortunate as it is, black children especially black boys face discrimination at much higher rates at school.
 
I haven’t found any research to back it up but a friend who works in the field told me that some recent studies suggest that black boys are ahead of all other ethnic groups on entering school but within a year they are behind others because of the poor engagement they receive.

5. Low expectations  

Akala in his autobiographical, “Natives: Race and Class in the Ruins of Empire” recounts how he was a gifted child, highly intelligent with a GCSE reading age by the time he was 7 and yet, he was placed in a class with children with learning difficulties. It took his (white) mother advocating for him and speaking up for this to change.
 
And in her time on Desert Island discs Sonita Alleyne, the first black Master of a Cambridge college admits that exactly the same thing happened to her when she arrived from Barbados as a young child. Placed in the special needs class, her mum walked into school and explained that her daughter’s accent wasn’t a sign or symptom of being stupid.
 
The most frustrating thing about these examples is that similar things are happening to many black children today and they don’t have an advocate. What of those children that reveal they want to be a doctor, lawyer or astronaut that are told to be realistic and guided towards nursing, hair dressing, plumbing and other manual jobs. Or towards sports and more artistic jobs like music – yes, there are more examples of black people succeeding in these fields but this is simply because you can’t pretend the boy or girl who came first in the 200m sprint actually didn’t. If nurtured correctly there’s nothing to stop black children excelling in any and every field.
 
Further, many black children up and down Britain simply assume it’s “stupid” or “unrealistic” for them to aim for Oxford and Cambridge and there is no one there telling them otherwise. Conversely, the majority of those in private schools assume it’s a given that they are expected to apply to the top universities.
 
Not long ago women had many of the same challenges – in her time on Desert Island discs retired surgeon Averil Mansfield (born in 1937) says her mum told her to lie she wanted to be a nurse rather than admit she wanted to be a doctor to avoid the mockery. Any girl can say they want to be a doctor now and no one would bat an eyelid and that is the position I would love all disadvantaged children and black children specifically to get to.

6. Poverty  

People can live in a vicious cycle of poverty from which they struggle to escape.
 
What proportion of black children live in poverty?
 
The Social Metrics Commission found that almost half of people living in a family in the UK where the head of the household is black are in poverty. This compares with 19% or about a fifth for white people.
 
This means black-headed households in the UK are 2.5 times more likely to live in poverty than their white counterparts.
 
Poverty comes with many disadvantages that you can probably list yourself, a few that are commonly discussed in the press include:

• Trouble providing children with a nutritious diet which may affect a child’s ability to learn well;
• Inability to pay for extracurricular activities that other kids have an opportunity to access, e.g.: learning an instrument, learning various sports including swimming, getting coached for the 11-plus to get into a grammar school, no access to the stimulating environment of a nursery in the formative years;
• Possibly insecure housing which may mean children move around schools leading to instability in their education;

 
These are example economic factors but poverty, of course, also has negative social consequences, living in an economically deprived area may mean increased exposure to crime etc. According to research  by the University of Manchester, “a fifth of its Black African, Black Caribbean, and Arab populations live in the country’s most deprived neighbourhoods compared to 8% of the white British population.”
 
I will tackle “social mobility” in my next instalment, for now it is enough to know that many more black children than white children are living in poverty and therefore do not have access to opportunities taken for granted by middle class and more well off children.

7. Single parent home  
​
This data is a little old (from 2007) but is unlikely to have changed much so I will use it. According to a Metro article, “48% (almost half) of black Caribbean families have one parent, as do 36% (a third) of black African households.” This figure is 10% for Indians (and marginally higher for those of other South Asian background), 15% for the Chinese and 22% (a fifth) for whites.
 
90% of single-parent families are headed by mothers. Children who grow up without their biological father are more likely to be

• unemployed,
• commit crime and
• leave education early, according to research by think tank Civitas.
• They are also twice as likely to be homeless.
• Lone-parent families are three times more likely to live in rented accommodation than couples with children; and
• are also more likely to live in homes that fall below minimum standards.

 
I don’t want to stereotype the single parent with lots of dreary stats but suffice it to say having to manage as a single parent according to the data tends to exacerbate poverty – which stands to reason because one person equals fewer resources including services like washing, cooking etc rather than financial resources. It may also mean the child has less access to parental support for homework and possibly other emotional needs.
 
In summary, before a black child is even a teenager they may face major challenges with their development because they are:

• More likely to be poor;
• More likely to live in a single parent home;
• More likely to be punished or discriminated against by teachers;
• Less likely to be pushed towards the highest paid careers because teachers and their social circle have low expectations for them;

and if that were not enough black children are more like to be bullied, teased and targeted in other ways because of their:

• Name;
• Hair; and
• An erroneous perception that they are threatening.

 
If ALL school teachers could treated ALL children like they are special and going places regardless of race so much progress could be made in erasing educational inequalities between the races. And over the long run, erasing wealth inequality.

​Heather 
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!

Hey heather, thanks for your podcast, I find it incredibly useful because it's UK specific and everything else I find seems to be geared towards the US.

Anyhow, my name's Dee, I'm in my 50s and have been a military stay-at-home mum all my adult life although I went to university. Being a military wife has exposed me to so many countries and cultures which I love but you do sometimes encounter traumatic things so it's nice to settle in the UK.

My family currently rents and all our adult children live at home including one that is dependent.

We'd like to get on the property ladder but have been struggling with when and whether to do it. In the past I've left all the money stuff to my husband but now that the children are older I'd also like to start earning an income and I've been considering investment property. I want to gain some financial independence and I'd love to be able to help the children out financially.

I am so ready to make up for the time I spent raising children. I don't know if it was stupid not to use my degree sooner but I guess better late than never.

Keep helping with your posts! Thanks.

Hi D,
 
Thank you for this question that covers a very wide range of things. I am also very sorry that you have experienced something traumatic. Your life choices are not stupid, many women find themselves in circumstances that mean they have to stay at home with the kids for whatever reason so your question may well resonate with lots of other mums.
 
Being in my mid to late 30s, you will forgive me for providing what might sound like a slightly optimistic review of your situation.
 
Your question as it is framed requires me to speak to:
1.Providing for your children particularly the dependent child with medical needs;
2.Buying property as a home;
3.Buying property as an investment;
4.Earning an income for yourself;
 
PROVIDING FOR YOUR CHILDREN
By letting your adult children to stay at home rent free you are doing plenty. That alone should allow them to save for their own property deposits and is a financial boost many people including myself did not have. If I could have lived at home rent, free, that would have had me on the property ladder a lot sooner.
 
The other thing you could do is direct them to read the type of personal finance books that will give them ideas for how they can be financially responsible so that you don’t need to worry about them. I recommend The Richest Man in Babylon and The Millionaire Next Door as good starting points.
 
Does your child with medical needs financial support from you as well as general support for all their living? I won’t touch too much upon this except to say that make sure that you are accessing all the state benefits you can for the child’s support including the carer’s allowance if it is applicable.
 
BUYING A HOME
 
Firstly, as far as the UK is concerned I always advise that, if you get nothing else right, at least buy your own home.
 
From your message, it’s not clear whether or not you and your husband discuss finances but I am guessing that this may not be the case. Firstly, I would try to get the two of you on the same page. Working as a team when it comes to building wealth can really supercharge your financial health.
 
The UK property market is completely different to the US property market in so many ways so I’d be a little careful before taking advice on property from US authors and podcasters (lots of property advice on the internet tends to be US-focused that’s why I bring this up). To begin with the population density of the UK is 281 per Km2 (727 people per mi2); population density in the United States is 36 per Km2 (94 people per mi2). What does this mean? It means that UK property in many areas doesn’t see price crashes (too many people, too little land) and there is a propensity for house prices to be sticky upwards.
 
In addition, because US mortgages are fixed for the full term of 25 years whereas UK fixed terms are only for 3, 5, 7 or 10 years, interest rates are much lower in the UK compared to the US (almost half). The result of this is that very often the interest you pay on your mortgage is much much lower than rent. As an example, I live on a street where the rents range from £1,200 to £1,500, however, the interest we pay on our mortgage is just £350 (it was a 25% deposit mortgage). The full monthly mortgage payment is almost £1,000 but everything above the interest of £350 is money that will come back to us if we sell our home.
 
So, provided you can get a good deposit together, you will save a lot of money by buying a home rather than renting. In the long run owning where you live will give you a lot of security including the psychological comfort it provides.
 
At 50-something, you are not too old to get a mortgage and may even be able to get a mortgage of 20+ years, however, if you owned property abroad and sold it when you left then it’s worth buying the home outright.
 
State pension
 
Another thing to consider with regard to your financial security is that even the full UK state pension only pays £175/week per person (about £759/month) this would be double for a couple. If you live in a home that’s been completely paid off, no mortgage, then you can survive on the state pension relatively comfortably.
 
However, as you have lived abroad for many years you need to contact HMRC to see how many qualifying years you have. Your UK State Pension will be based on your UK National Insurance record. You need 10 years of UK National Insurance contributions to be eligible for any amount of the new State Pension and for people my age 35 years of credit are needed to get the full entitlement, you may be in the generation that only needs 30 years of credit.
 
You may be able to use time spent abroad to make up the 10 qualifying years. This is most likely if you’ve lived or worked in:

• The European Economic Area;
• Gibraltar;
• Switzerland; and
• certain countries that have a social security agreement with the UK.

 
I would contact HMRC as soon as possible (link above) and ask what you need to do or pay to increase your entitlement to the UK state pension.
 
You may get National Insurance credits if you cannot work - for example because of illness or disability, or if you’re a carer or you’re unemployed.
 
You might also be able to pay voluntary National Insurance contributions if you’re not in one of these groups but want to increase your State Pension amount.
 
BUYING AN INVESTMENT PROPERTY
 
I recently read David Tarn’s “The Complete No-Nonsense Guide to Becoming a UK Property Investor: The 1-2-3 on Property Investing” and found it useful on the topic. The author is based in the North of England where property is much cheaper. He is into buying property and letting out the whole house to a single group like a family – so, standard single let properties.
 
In addition, I would recommend The Inside Property Investing podcast. There are over 300 episodes, if you binge listen to the episodes that appear interesting, you will move up the knowledge curve rapidly. The ‘Inside Property Investing’ podcasters are themselves heavily into High Multiple Occupancy properties (this is when you let a single property out to 3 or more unrelated people like students or professionals). However, the beauty of the podcast is that they regularly interview people on the show that follow a variety of different property investment strategies.
 
Don’t pay for any overly expensive property course before you’ve gained all the knowledge that is available for free or almost free – a friend of mine recently paid £24,000 for a property course, she went 50-50 with her daughter and even had to put some of the cost on a credit card! You’ve been warned.
 
For the basics on property investing I have a course up on Udemy for under £50. This will give you all the basic knowledge you need about the property buying process in the UK.
 
EARNING
 
There are many jobs out there. If you just want to boost your confidence and get some money rolling in there are plenty of jobs out there provided you are not too picky about the pay as long as you get your foot in the door. If you want to build a work life for yourself have a look on jobs boards at what’s going and start applying. If you want to build a career within a specific field related to your field of study consider taking a course to freshen up your skills.
 
I have no idea what your salary expectations are but median UK income for 2020 is 30,800 according to the ONS. After tax that would bring home just over £2,000/month; if due to covid etc you secured a job with a salary of £24,000/year, that’s still £1,600/month which definitely isn’t shabby especially if your husband earns too. A GQ article gives an interesting breakdown on age, occupation and the covid-19 pandemic’s impact on earnings.
 
 
I hope this helps. Far from thinking you are too old. I am feeling soooo excited for you. This is a fresh start and even over a 15 year period you can build an amazing life and financial cushion.
 
Good luck.

Dear Miss Katsonga,

What is your opinion on Critical illness cover? What are the alternatives (for lump sum payout to cover mortgage or other debts) in case one partner is unable to work?

Thanks!
Ronjoy

Very formal, Ronjoy…you can call me Heather.
 
So, you want to know how you can cover yourselves if one person is unable to work.
 
1. Critical illness cover 

The first thing you mention is life insurance with critical illness cover. Typically people will have this on their mortgage insurance.
 
Mortgage insurance is usually decreasing term which means the amount by which you are covered falls over time roughly in line with your mortgage balance. The result is that if the person covered by the insurance falls critically ill near the end of the mortgage term the pay-out may be quite small but at least it would clear whatever mortgage is outstanding, if an appropriate level of cover was taken and updated if the mortgage amount was increased.
 
A problem with critical illness cover is that only specified illnesses are covered and different providers cover different things. This means if you or your partner get ill and can’t work and your specific illness isn’t covered then you don’t get a pay-out from the insurance provider.
 
The cover usually also has a condition that you need to be ill for a specific amount of time before a pay out is due to you, e.g. you need to be ill for 6 months plus or in an intensive care unit for at least 3 months and you’re not due a pay-out if you don’t fulfil those conditions.
 
2. Employment insurance 

You can also buy insurance to cover you if you’re unemployed, e.g. due to redundancy. This type of policy would cover you even if you were not ill but may specify that you need to be unemployed for a given number of months before you are due a pay-out.
 
The key problem here is that unemployment insurance tends to be expensive during turbulent times. When I first started working in 2005 I bought unemployment cover and it was very cheap. When the 2008 crisis hit the cost of the cover increased so exponentially that I cancelled it, it wasn’t worth it.
 
3. Rental insurance 

If you own rental property you can buy insurance to cover tenancy gaps. This could be a good idea so that you never have to worry about both being unemployment and having to support a vacant rental. The policy will likely state that the property needs to be vacant for specific amount of time before payouts are due.
 
I buy my rental protection via RentGuard, however, they did stop writing new policies when the government made it harder to evict non-paying tenants during the covid-19 pandemic so, it is not always available.
 
4. Emergency fund 

A good idea would be to keep an emergency fund of 6 to 9 months of living expenses. This would give you peace of mind that you would survive even if you didn’t have both incomes coming in.
 
If only one person was unemployed, then a 6 month fund would last longer too,
 
5. Live on one income 
​
Last, but certainly not least, if you arrange your finances such that your family can survive on the lower of your two incomes then the loss of one income is never something you need to worry about. This is our personal favourite.
 
Our household saves the equivalent of one income every month either as actually cash saved or as repayments on mortgage debt. Should one of us be unemployed the most we would have to do is call our bank and pay interest only for a limited period. Banks are usually very happy to do this.
 
In the long run, we would also like to build up a cash emergency fund but for now we do invest all disposable income and we have made peace with that risk.
 
Hope this helps.
 
Heather 
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!

Fifi asks about how best to manage her money when her income from month to month fluctuates a lot with some months bringing in just enough for her to get by. She also wonders how best to manage her credit score and to boost her monthly income. 

I give a broad answer covering:

• cutting back on expenses;
• increasing revenue;
• thinking about the legacy you want to leave; and 
• creating an exit strategy

Heather 
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!

Hey Heather, my name's Jennifer, I want to start a side hustle but I don't know where to start or how to organise myself. No one that I know has a side hustle; they just do the 9 to 5 then chill...are side hustles just not a British thing? Please help me with some tips, I need some direction...thank you!

I stumbled upon Sylwia when I read her post on The growing trend of side hustles in the UK - this was written before the covid-19 pandemic and seems to be very topical right now as people think about ways to diversify their income.

The most shocking thing about my intial catch-up with Sylwia was that she knew recognised my name because she read my book To Become An Investment Banker which i wrote in 2012. I was shocked and please in equal measure.

I learnt a lot in our discussion in which we covered, among other things:

• Why side hustles are a growing aspect of UK life;
• How much you are allowed to earn from side hustles before paying tax;
• What national insurance contributions you should be paying;
• At what point you need to register for VAT;
• Xero - the accounting software;
• The types of errors people approach her with;
• Whether you should register a company or just declare side-income in your annual self-assessment;
• When a side hustle might conflict with your main job and what you should do about it...

And much more, you can contact Sylwia with any questions:

Sylwia Kotarba-Harris
Accounts and Legal
0207 043 4000
s.kotarba@accountsandlegal.co.uk

Heather 
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!

Hi Heather

My name’s Grace. I’m looking into saving money for my little one so that it can be invested in the same way as government-backed child trust funds. My older one has a child trust fund but I don’t know how to go about opening something similar for my younger child. As I understand it, banks don't offer government-backed child trust funds anymore.

Hi Grace,
 
Thank you for this message.
 
In podcast episode number two, I talked about how you can save and invest for children in today’s world. All that information is still relevant so please have look at that post for ideas on the best saving strategy.
 
A Child Trust Fund (CTF) is a long-term tax-free savings account for children.
 
You cannot apply for a new Child Trust Fund because the scheme is now closed. The alternative available for today’s parents is the Junior Individual Savings Account or junior ISA.
 
What is a junior ISA?
 
A junior ISA like its adult equivalent is a tax-advantaged account that can be used for saving or for investing in the stock market. Once you place money into a junior ISA it cannot be withdrawn until your child is 18 and it legally belongs to your child so you would not have control over how that money is used.
 
This is not necessarily a bad thing but it’s something you will need to consider when you’re making a decision. I know a few people that don’t want to use junior ISAs because they don’t want their children having cash that they as parents can’t fully control. Personally, I think that I would still be able to guide my children about the wise thing to do with the money and if they didn’t want my advice that would still be useful information for me to know.
 
My approach is that because you won’t have full control over the money you might want to limit how much you put into the junior ISA so that your child doesn’t have too much money available at the age of 18.
 
 
The junior cash ISA
 
Saving into a junior cash ISA is like saving into any bank account, it earns a very poor interest rate and is therefore not a great idea at a time when interest rates are so low.
 
A junior stocks and shares ISA
 
The alternative option is a junior stocks and shares ISA.
 
The value of the stock market falls and rises but when money is invested over a long period of time it tends to rise. For example if you are investing for a 10-year period or more you can have a reasonable degree of confidence that your investment pot will produce a good return – certainly a better rate than current savings rates.
 
In podcast episode 2 you will see that my strategy is to invest £4k/year from birth to age 5 and then stop once I have put £20,000 into each child’s ISA.
 
Once I reach that I stop and just watch the money rise and fall. My son’s £20k investment now has a value of £26,000 and he isn’t 6 years old yet. If the stock market enjoys a 10% return on average over the next 14 years he will have just over £100,000 in his stock account from that £20,000 that I invested – that is the miracle of compounding, something Einstein called the 6th wonder of the world.
 
Even if the pot only grows at half that rate, that is at 5%, he’ll still have £50,000 – that’s a princely pot of cash that could be used for university or a deposit on his first home.
 
How to set a Junior ISA up
 
If you want to open a junior stocks and shares ISA there are many brokers you can use. To start off with, I would suggest you look into

• Hargreaves Lansdown or
• Fidelity

 
I have provided you with links to pages that will give you  more information on the junior ISA.
 
Personally I use Hargreaves Lansdown for my children. The fee for using the platform is 0.45% per year versus 0.35% at Fidelity.
 
HL have a user-friendly app and have made setting up direct debits so that investing for my kids is easy.
 
The key difference between HL and Fidelity besides the platform fee is that Fidelity also create investment products and may therefore have an incentive to push some of their own products to you. HL aren’t completely innocent though, they earn more if you invest in actively managed funds so they have an incentive to recommend actively managed funds to you.
 
The best strategy is to know what you want to invest in. As a new investor you might want to keep things simple and put the money in low-cost diversified index funds. These are funds that are invested in many companies so you won’t be putting all your eggs in one basket.
 
Here are example of funds that my children are invested in:

• FundSmith Equity, Class I – Accumulation
• Lindsell Train Global Equity, Class D – Income
• L&G Global Tech Index, Class I – Accumulation
• L&G International Index Trust, Class C – Accumulation

 
I have given you a link to each fund’s page so that you can read more about what the funds are invested in and what the fees look like.
 
I hope this helps you kick start investing for your children. Junior ISAs do not have the government boost that the Child Trust Fund did but they are a very similar product and have much more flexibility attached to them because you can invest in a wide range of products.
 
Even if you start of with a small amount, it will give you some confidence and you will begin to learn how the stock market works. Investing for our children is the path that got us investing for ourselves too.
 
Good luck and keep in touch.

Heather
​p.s. subscribe to my podcast and ask me any money question, HERE - do it now!

Hi Heather

I’m really enjoying your podcasts and have already given a 5 star rating.

I am 57 and plan to retire at 60 so love your retirement items.

When talking about 4% draw down for retirement income, it’s never clear if the figures are before or after tax. For example 4% of £1m is £40k, but after tax this could be nearer £30k.

If you then get a state pension of say £9k, the figure before tax is £49k, but after tax it is nearer £35k.

So when you talk about money needed in retirement, do you mean before or after tax?

Thanks,

David

David, thanks so much for the review! I definitely appreciate it.
 
First things first, David I am sorry that it’s taken me ages to get a blog post done on this, however, I did respond to your question directly within 24 hours of you asking it so I hope that will make up for the late blog post response to your question which you asked me roughly 3 months ago and 4 months ago by the time this airs on The Money Spot podcast.
 
Turning to the 4% rule…
 
For those that have not ever heard of it, the 4% rule states that if you don’t want your pot of invested retirement funds to run out before you die, the maximum you can take from that pot each year is 4%.
 
This means that if you want an annual income of 40,000 from your retirement pot, you need to save one million (GBP, USD, EUR) – I believe the study was done using American stock market performance but if you invest in a global portfolio it will be heavily weighted towards the US so you can use the 4% rule as the best proxy we have on what a reasonable withdrawal rate is.
 
To answer, David’s question, the 4% drawdown is gross and you would have to pay tax after that.
 
So, if you have £1,000,000 (for simplicity) in your pension pot in a given year, you would draw £40,000 and pay the tax on that.
 
If you are based in the UK, you cannot throw the gross amount drawn from your SIPP or other taxable investment account into listentotaxman.com to get a calculation of your after-tax income because your drawings from your investments are chargeable to capital gains tax so you don’t pay income tax on them but capital gains tax. Capital gains tax rates are different. In 2020, assuming 50% of the £40,000 you draw is capital gains, then your net income after tax would be calculated as follows:

 
Not taxable:                                  £20,000 (this is the portion you actually saved)
Taxable:                                          £20,000 (the capital gain)
Deduct capital gains tax allowance:               (12,300)
Taxable:                                            £7,700
 
This taxable amount all falls into the basic rate band for 2020/21 so you’d pay tax of 10% on it, i.e. £770. If you had a portion in the higher rate tax band even that is only taxable at a rate of 20%.
 
So, out of the £40,000 the net amount received would be £39,230.
 
This is a huge different to what you would have paid if this was income of £40,000 as the net income would have amounted to £30,841. That’s a difference of £8,389 – wow! People on work place pension will be taxed in that way because the DB pension counts as income, you can’t separate it into capital and capital gain.
 
 
If you are UK based and have reached your state retirement age then you would have an annual state pension. This is taxable to income tax and you can throw the total annual state pension amount that you receive into listentotaxman.com to figure out how much you will receive after tax.
 
State pension is taxable if all your sources of income sum exceed the threshold needed to pay tax.
 
That annual state pension is just over £9,000 so if that’s your only source of retirement income you wouldn’t pay any tax because it’s below the personal allowance of £12,500 – however, if this is you, you probably wouldn’t be the type of person that listens to personal finance podcasts - #JustSaying.
 
A few BIG things to remember though:
 
ISAs
 
If your retirement income is all in your ISA then it is all tax free; not tax needs to be paid.
 
Capital gains tax allowance
 
Current tax rules allow you to have a tax free allowance on capital gains in addition to the tax-free personal allowance SO your tax bill may be much less than you think because your state pension and any other pension income may fall into the regular income bucket and this enjoy a separate tax free allowance.
 
For 2020 the Capital Gains tax-free allowance is £12,300. I don’t know if this will be available when I retire, there’s talk of eradicating it to raise more tax…
 
Early retirement
 
Those that retire very early, and I’d classify anything before 55 as early may be overdrawing if they draw 4% because the study of the 4% rule was based on a 30-year retirement.
 
David, you’re probably okay given you’re 57.
 
Sequence of returns risk
 
Sequence of returns risk analyses the order in which your investment returns occur.
 
If a high proportion of negative returns occur in the beginning years of your retirement, these negative returns will have a lasting negative effect  on the balance of your investment portfolio and the amount of income you can withdraw over your lifetime is reduced. This is sequence of returns risk. However, if you have a few years of good returns when you retire and negative returns only occur later, say in the middle of retirement, then there’s a lasting positive impact.
 
If this happened to me, I would probably stop drawing income from my retirement pot for 2 or 3 years and live off non-stock market income, e.g. if you have  cash pot set aside, I’d deplete that first; or I’d consider getting a part-time job; or for those fortunate enough to have rental income, you can live on that and give your investment portfolio time to recover.
 
I think that’s all the main stuff. To summarise:

1. The 4% rule is gross so tax needs to be deducted after you draw 4% from your investment portfolio.
2. No tax is due if all your investments are held in an ISA;
3. Even if the retirement investments are in taxable brokerage account, you have a healthy Capital Gains tax-free allowance of £12,300.
4. The 4% rule may not work if you retire early because it wasn’t tested on long retirements.
5. Finally, sequence of returns risk means that if stock market returns are poor in the first few years of your retirement, the value of the income you can draw during your retirement years is reduced.

 
I hope this answers all your questions and I additionally hope that I threw in a few thoughts that you hadn’t considered.


Heather 
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!

Hi Heather, my name's Kimberley. My husband and I have worked hard to build a financial safety net for our family. 
 
We both come from modest backgrounds and weren’t taught much about money so we’ve had to figure everything out on our own and made quite a few mistakes along the way. Do you have any tips we can use to teach our children about managing money so that they make far fewer mistakes than we did?
 
Thank you!

Thanks Kimberley, this is a brilliant question. As a mum myself, setting my children up for a healthy financial future is something I think about periodically. While every child is unique, from my personal experience and my experience of observing others these are the 9 things that I think help children grow up into good money managers.
 
1. Explain where money comes from early
 
By the time a child is two, or even earlier, they have created an image in their own minds of what money is and where t comes from.
 
Your child might think it comes from your wallet or from a wall in the machine or perhaps even that the plastic thing in your wallet has unlimited purchasing power.
 
What you want your children to believe and know from an early age is that money comes from work.
 
Whether you are employed, self-employed or an entrepreneur in order to earn money some kind of effort has to take place and that effort, be it pleasant or unpleasant, is called work.
 
When I was growing up, my father was a business person and my mother was employed and they showed me two different types of work. Although they both went to work physically every day – one, my mum, was generally free to enjoy weekends although many nights were occupied by trauling through her in-tray which she brought home from work; the other, my dad, generally enjoyed free evenings but spent weekends overseeing his business ventures. These were my examples and your children will observe the type of work their immediate family engages in.
 
2. Explain that you have had to save for things that you buy
 
When you bring a new expensive purchase home like a TV or a sofa your child might, in their own mind think that these purchases just happen, that they don’t involve much effort on your part.
 
To take away any such thinking, I always tell my son that mummy and daddy had to save for the thing and I explain how long we had to save for it. In reality, sometimes I stretch the truth for example, if we are working ahead of our saving plan I might just save less in a given month and get what I was planning to get later.
 
For example, two months into covid-19 lockdown our 13-inch TV broke so we replaced it with a 65-inch TV – very extravagant, I know – and I told my son that mummy and daddy had to save for a whole year to get the TV.
 
He may not understand fully what the whole saving process entails but that information is sitting in his head and is setting an expectation for himself; that expectation being, when he wants something he needs to save for it appropriately.
 
 
3. Make your children practice delayed gratification
 
Delayed gratification is difficult even for adults but I believe that the more it is practiced the less painful it gets.
 
Because things were very expensive in Malawi when I was growing up, my parents only bought us things, including some basic necessities, when they went abroad which was not very often, perhaps every 4 to 6 months, sometimes longer so I often had to wait many, many months to get what I want.
 
Living in England, everything is so much more accessible but I tell my children that they can get what they want on their birthday or Christmas, whatever comes first.
 
This means whenever they want something in shops I can just say, “add it to your birthday list” or “Christmas list” – it helps. As I am writing this article my 5 year old son is watching a YouTube video that’s marketing Paw Patrol toys to him. He has asked for a dozen or so things and because of my usual “add it to your Christmas list” he is writing a very long list for Santa and getting some much needed writing and spelling practice in the process – win-win.
 
4. Don’t give your children more money than they need
 
I remember when I was in boarding school my father made me write a list of all the things I needed for the coming term, then I’d get money to go and buy those things – snacks, feminine hygiene products, stationery, that sort of thing. On top of this, he gave me a very basic allowance for buying the odd donut from the tuck shop.
 
This taught me two things: how to plan for my needs in three-month chunks at a time and how to resist the temptation to buy too many things from the tuck shop too early in the term for fear my money would run out.
 
I hate to say it but I also became an expert at getting people to “treat me” at the tuck shop and when I say people I mean the guys. Fortunately, they were genuine friends and nothing other than my friendship was expected in return. My negotiation skills probably got a lot of flex in the process – how does one ask without sounding like you are begging…? I could do a course on that.
 
There were peers in high school receiving five times the pocket money I did and I will admit, I was jealous at the time but with hindsight I can see my father’s wisdom in giving us no more pocket money than we needed, he didn’t want to set unrealistic expectations for me and my sisters.
 
5. Don’t give your children an expectation that you will bail them out
 
If you rescue a child financially that robs of them of a lesson and also robs of them of any incentive to behave responsibly next time.
 
If your child finds themselves in debt, by all means help them write a plan to get themselves out of debt but avoid paying the debt off for them because that will definitely not be the last time you do it.
 
I watched a friend of mine work diligently over 18 months to pay off debts that her mother could have cleared for her at the click of a button. The person that emerged at the end of those 18 months was miraculously different: not only was she debt free but she cut up her credit cards because her experience of paying them off taught her that the pleasure of the purchase was not worth the pain of paying the loan off. She now only buys what she has saved for nowadays.
 
6. Don’t lend your children money interest-free for anything …maybe only for the deposit on a house (but even that is debatable)
 
Each time I have asked my dad to lend me money he has agreed to lend it to me but at a commercial Malawi rate of interest. Interest rates in Malawi have tended to be between 25% and 35% - so I haven’t taken him up on his offer and have instead borrowed money commercially from banks.
 
Although I am annoyed at the time, I am, again in hindsight, grateful for this approach because it’s let me own my property projects and made my successes feel like my own. It’s forced me to plan and to be prudent about how I spend money.
 
I plan to take the same approach with my children, I will make them take full responsibility for their plans and projects and if I do invest with them, it will be on a commercial basis. They should own their successes.
 
7. Don’t create an expectation that there will be a large inheritance
 
The need to make a living gets many people out of bed every morning. Those that know they don’t need to work to earn frequently don’t bother. Why would you go through that pain of forcing yourself up if you don’t have to?
 
I heard an interesting stat from The Money Guy on YouTube: apparently, 68% of Americans expect to receive an inheritance BUT only 40% of parents expect to leave one.
 
And I bet, some of those 40% of parents that will leave an inheritance are leaving it to the 32% of children that aren’t expecting it.
 
Who do you thinking is working hard to set themselves up for a good life and retirement, the 68% that expect an inheritance or the 32% that don’t?
 
My children are too young to talk inheritance but when they are they are going to know full well that I plan on spending my money liberally before my final call!
 
8. Be a good example – this is probably the most important tip
 
The way you handle money will inform your children’s behaviour around money massively.  Your actions normalise money behaviours for children. Do you buy on impulse or plan your purchase, are you frugal or a spendthrift, are you anxious about money or just sensible without making it a thing?
 
If you never talk about money then don’t be surprised if your kids turn out to be the type of adults that don’t deal with their money issues at all, they might just pretend the issues don’t exist.
 
Whatever it is you do, your children are watching and they are learning.
 
Teach them to acknowledge how much they have relative to many others. A healthy sense of gratitude may help with any sense of discontentment, you know, because Peter has more toys, more shoes or a better phone than I do…
 
…I know we adults (myself included) struggle with comparison to the Joneses constantly ourselves.
 
9. Teach your children the basic concepts of money
 
I see the basics of money as come in four categories:

1. The uses of money: giving, spending, saving and investing.
2. Where money comes from (the sources of money): work, business, property and lending.
3. Budgeting concepts;
4. The concept of ‘balance sheets’ – that is, assets, liabilities and equity.

 
If your child leaves home knowing just these things, they are well ahead of their peers and are more than likely to win with money, here is an example of what I mean, If you like what you’re about to hear get workbook – B. School: for money-wise wealth-bound kids. It’s available in 9 languages!
 
Heather x

Hi Heather, 

My name’s Harriet. Thanks for the UK-focused personal finance podcast. I feel slightly worried that I don’t have a will because of the covid-19 pandemic. I have children and some assets and I want to go about getting a will in place in the right way, please tell me what I need to think about so I get my will done correctly from the get-go. 

​Thanks a mil.

When covid-19 hit, I started getting quite a few questions on wills and as luck would have it, I got a brochure through my door from Julia Fleetwood of the Will Writing Partnership so I invited her to the podcast. In our discussion, we covered the following questions:

• What is a will?
• Do you need a will if you don't have children?
• Do you need a will if your wealth is below the inheritance tax threshold?
• What happens if you die without a will?
• There are several ways you can get a will, you can make one yourself using an internet template or just a piece of paper, you can use a solicitor or you can get a will practitioner, how is each of these routes different?
• What are the disadvantages of template wills downloaded from the internet and done without a lawyer?
• What’s the cost difference between each of the different options for producing a will?
• How come some things are set apart in a letter of wishes rather than as provisions in the will? - I asked these because when I got my will done in 2016, I was surprised by having a separate "letter of wishes" attached to the will.
• Have people started adding digital assets to their wills like what they want done with their social media accounts?
• When you die, how can you ensure that your family a) know you have a will and b) know where to find it?
• What is a lasting power of attorney? I’ve got to admit that I don’t have one of these as I see them as something I should only need when I am say 65+...
• If you have wealth above the inheritance tax threshold, how can you set up a trust so, say, the proceeds of a life insurance claim go straight into that trust?

My key takeaway from the discussion were:

1. Everyone needs a will. Even if you have no dependents you want a say over how your hard-earned wealth is distributed. Even if all you have to your name is a few hundred pounds, your will would ensure that money goes where YOU want it to go.
2. Getting a will done professionally ensure that there are no errors on the will that could invalidate it. 
3. If you have a complex financial or family situation the probate process can take many weeks and even years before any finances are released to your loved ones. Probate is the legal and financial processes involved in dealing with the the assets of a person who has died.
4. The laws of intestate (that is, when you die without a will) may different to what you expect...

If you would like to get in touch with Julia to learn more about wills, estate planning and getting your affairs in order, these are her details:
          Julia Fleetwood
          julia.fleetwood@twp.co.uk
          Phone: 0121 472 0644
          m.me/Juliathewillwriter (Facebook messenger)
          www.twp.co.uk

I learnt a lot from Julia, I hope you did too.

Heather 
p.s. subscribe to my podcast and ask me any money question, HERE - do it now!