Should you save, or should you splurge?
Are you a grasshopper or an ant? In Aesop's Fables, the grasshopper sang all summer and then when cold winter came, faced with starvation, she went to the ant for help. The ant, who had worked and saved while the sun shone, was not at all sympathetic. So the moral is, save while you can.
That used to be the way we were all brought up. But what is the point of saving now?
Given the infinitesimal interest rates, should you be an ant and be thrifty by hanging on to your savings (preferably stuffing banknotes under the mattress instead of your deposit account to avoid bank charges or a Northern Rock-style catastrophe)?
Or should you, grasshopper-style, splurge the lot, buy a picture you love or the house you've always longed for and gamble on the possibility they will increase in value, while inflation nibbles away at the money in your bank account?
Many of us are struggling with this dilemma, trying to decide which is the best way to deal with our money - to be an ant or a grasshopper.
In the genes
But watching my children as they manage their money, I realise that, in this, as in so many things, you don't really have a choice. You do what your genes tell you. I have come to the conclusion some of us are born miserly ants, while others are spendthrift grasshoppers.
For instance, my two daughters are very careful. They put their savings, such as they have, into locked-up bonds or deposit accounts, planning for a rainy day. One daughter actually sacrifices fun she could afford: the pretty, inexpensive jacket, the outing to the movies. She is a born puritan - obviously she inherited her money genes from the maternal branch of my family.
One of my aunts was a lovely woman, but hung on to every penny, and became renowned for the stingy presents she gave at Christmas. Fortunately, my daughters are generous to friends and family, but definitely mean to themselves.
My son, on the other hand, lets his money blow away with every breath he takes. In any round of drinks, he, like his father would have, leaps in to pay the bill. He lends money and he buys new gadgets as soon as he can afford them. He never, happily, goes too far and gets into debt, but he certainly sees no point in locking it away in the bank. Money, he thinks, is for spending. There are no pockets in shrouds.
And yet I always treated all three of them exactly the same. They all had pocket money, just as I did when I was very young, a small amount each week. They could either watch it mount up in a moneybox, so eventually they could buy the toy they yearned for, or splash out every penny on sweets or comics.
My parents never had much money, but they always gave me a pound or two to spend each week, just to teach me the value of frugality. So I did the same for my children, with the ant or grasshopper results you now know.
Learn about finance
How soon did these characteristics show themselves?
I honestly cannot remember whether my conscientious toddler daughters let their pocket money mount up, while my little mischievous son stuffed his small mouth with Liquorice Allsorts. But I do believe the fact they don't get into money trouble is at least partly due to learning how to spend their pocket money.
Funnily enough, I have two friends who adamantly refuse to give their sons pocket money, preferring to give them what they want when they want it. I have mentioned the value of learning how to save, to defer their pleasure until they can afford it, but the parents just don't see the point.
From September 2014, all schoolchildren will have lessons in school about managing money, about borrowing and saving. I wish I had. Perhaps then I would be more confident about making financial decisions, instead of being so confused about the value of equity release, and annuities, and the dangers of interest-free mortgages.
But, all the same, I bet half the kids will turn out to be ants and half will be grasshoppers. We can't beat our genes.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.