British parents spend £29 billion on pocket money

British parents give their 11-18 year old children a total of £29 billion a year in pocket money, with a national average of £12.12 a week for each child, a survey by Abbey Current Accounts has found.

The richest children are those living in Yorkshire, where the weekly average is £16.33, compared to the poorest kids who get £10.33 in the West Midlands. After Yorkshire, the next financially luckiest children live in Scotland, the East Midlands and Greater London.

However, 88 per cent of children have to earn their pocket money by doing household chores – 73 per cent have to tidy their rooms in order to receive their weekly windfall, 65 per cent have to do the washing up, 49 per cent vacuum for their cash, walking the dog earns 24 per cent of children their sweet money, and 23 per cent wash the car in return for theirs.

Children admit to spending more than half of their allowance each week, but 46 per cent of it goes into a savings account. The most common commodity for children aged 13 and older to spend their money on is clothes, while those aged 11-12 spend the majority of their money on sweets and snacks.

The average child gets a parental pay increase twice a year, and fifty four per cent of the children asked said they understand the effect of inflation upon their pocket money.

Steve Shore, head of banking at Abbey, said: “Britain’s kids are certainly doing well in the pocket money stakes, especially those in Yorkshire where pocket money rates are at a premium. It’s encouraging that most children are learning the value of money by having to earn their pocket money. It’s also great to see that they’re saving almost half of their pocket money each week.”

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Houses And Shares Down, Inflation Up

Shares are sinking, house prices heading south and consumer spending is constipated. Can it get any worse? It can. Inflation is back on the agenda.

Britain's benchmark retail price index rose more than expected last month, and danger signs are flashing that shop prices could soon be heading even higher.

With sub-prime shock waves swamping the stock market, and today's Royal Institute of Chartered Surveyors property warning, you might assume that inflation would be slowing. Particularly as discretionary spending is being squeezed by higher mortgage repayments.

But the Office for National Statistics (ONS) has just confirmed that consumer prices rose by 0.5% in October, dragging the annual rate from September's 1.8% up to 2.1% and topping the Bank of England's (BoE) 2% target for the first time since June. Both figures were higher than analysts' expectations.

For close watchers of food and energy, though, the figures weren't too astounding. Over the last week, several food producers have issued trading statements which I shall be summarising in another piece.

The bottom line is that food prices are increasing at their fastest since 1993, according to the ONS, with a 6% climb in the past year. And petrol prices leaped by 2.4% in October alone, as the soaring cost of oil, up over 15% in sterling terms since August 1st, filtered through to filling station forecourts.

Incidentally, household bills provided the biggest downward impact, with gas and electricity prices falling by an annualised 4%. Though the old style RPI (Retail Price Index), on which many wage deals are based, also rose more than expected, up 4.2% year-on-year.

And it's not that Britain stands alone here. October inflation in the ‘Eurozone' hit a two-year high at 2.6%, again more than most forecasts.

Future Shock

So much for recent history.

Alarming for future inflation prospects was yesterday's news that British manufacturers are upping prices by an annualised 3.8%, the fastest rise in 12 years, as businesses are passing on their extra costs to their customers.

The ONS also revised up the previous month's output price index, suggesting the build-up in cost pressures had been longer than previously thought. And the input measure, a barometer of raw material expenses, rose 8.5% in the twelve months to October, the fastest in more than a year.

The fear now is that over the coming months, UK retailers try to raise their own prices in response.

So the rate setters at the BoE have a big problem.

The economy is losing steam. As credit crunch concerns began to mount, Britain's company directors have become ‘less confident' even faster than in the aftermath of 7/11, according to the Institute of Directors (IOD).

15% of directors surveyed by the latest IOD report said they believed the financial crisis had already hurt their company sales. So with service sector growth slackening, particularly in the City, and the housing market looking set for a sharp slowdown, lower loan costs should be possible.

But the Bank doesn't want to fall into the same hole as the US Federal Reserve, whose benchmark rate cuts have helped turn the greenback into a basket case. Which in turn has produced more American price pressures.

Whilst the ‘factory gate' figures don't automatically mean higher prices in the shops, the trends in oil and food are major worry.

With a whiff of stagflation (economic stagnation + inflation = very nasty!) in the air, the Bank needs to negotiate a very narrow tightrope.

Tomorrow's quarterly Inflation Report from the Monetary Policy Committee should be an interesting read.

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10 Reasons You Aren't Rich

The reason why you aren't a millionaire (or on your way to becoming one) is really quite simple. You probably assume it's because you aren't earning enough money, but the truth is that for most people, whether or not you become a millionaire has very little to do with the amount of money you make. It's the way that you treat money in your daily life.

Here are 10 possible reasons you aren't a millionaire:

1. You Care What Your Neighbours Think:
If you're competing against them and their material possessions, you're wasting your hard-earned money on toys to impress them instead of building your wealth.

2. You Aren't Patient:
Until the era of credit cards, it was difficult to spend more than you had. That is not the case today. If you have credit card debt because you couldn't wait until you had enough money to purchase something in cash, you are making others wealthy while keeping yourself in debt.

3. You Have Bad Habits:
Whether it's smoking, drinking, gambling or some other bad habit, the habit is using up a lot of money that could go toward building wealth. Most people don't realize that the cost of their bad habits extends far beyond the immediate cost. Take smoking, for example: It costs a lot more than the pack of cigarettes purchased. It also negatively affects your wealth in the form of higher insurance rates and decreased value of your home.

4. You Have No Goals:
It's difficult to build wealth if you haven't taken the time to know what you want. If you haven't set wealth goals, you aren't likely to attain them. You need to do more than state, "I want to be a millionaire." You need to take the time to set saving and investing goals on a yearly basis and come up with a plan for how to achieve those goals.

5. You Haven't Prepared:
Bad things happen to the best of people from time to time, and if you haven't prepared for such a thing to happen to you through insurance, any wealth that you might have built can be gone in an instant.

6. You Try to Make a Quick Buck:
For the vast majority of us, wealth doesn't come instantly. You may believe that people winning the lottery are a dime a dozen, but the truth is you're far more likely to get struck by lightning than win the lottery. This desire to get rich quickly likely extends into the way you invest, with similar results.

7. You Rely on Others to Take Care of Your Money:
You believe that others have more knowledge about money matters, and you rely exclusively on their judgment when deciding where you should invest your money. Unfortunately, most people want to make money themselves, and this is their primary objective when they tell you how to invest your money. Listen to other people's advice to get new ideas, but in the end you should know enough to make your own investing decisions.

8. You Invest in Things You Don't Understand:
Your hear that Bob has made a lot of money doing it, and you want to get in on the gravy train. If Bob really did make money, he did so because he understood how the investment worked. Throwing in your money because someone else has made money without fully understanding how the investment works will keep you from being wealthy.

9. You're Financially Afraid:
You are so scared of risk that you keep all your money in a savings account that is actually losing money when inflation is put into the equation, yet you refuse to move it to a place where higher rates of return are possible because you're afraid that you will lose money.

10. You Ignore Your Finances:
You take the attitude that if you make enough, the finances will take care of themselves. If you currently have debt, it will somehow resolve itself in the future. Unfortunately, it takes planning to become wealthy. It doesn't magically happen to the vast majority of people.

In reality, it is probably not just one of the above bad habits that has kept you from becoming a millionaire, but a combination of a few of them. Take a hard look at the list, and do some reflecting. If you want to be a millionaire, it's well within your power, but you'll have to face the issues that are currently keeping you from creating that wealth before you will have a chance to call yourself one.

90% of People Believe Personal Finance Should be Taught in School

Thanks to a recent poll on Saving Without A Budget, it appears that I’m not alone in the belief that personal finance should be incorporated into the core curriculum of America’s schools.

According to the poll, 89% of respondents stated that they believed that personal finance should be a required part of every child’s education.

The logic behind teaching children and teenagers about personal finance is pretty obvious. Just think of all of the finance cliches that you’ve heard: start investing as early as you can, the most important factor in investing is time, don’t get into credit card debt, etc. - all things that are best to learn sooner rather than later.

And because many basic aspects of personal finance currently aren’t taught in school and are left to be learned at home, this current system seems to nurture the fact that wealthy people tend to stay wealthy and poor people tend to stay poor. I don’t think it takes a giant leap of faith to see the possible correlation.

And probably the most ironic part of this is, the results of the Saving Without A Budget poll come on the heels of a recent report that shows nearly half of all people in the workforce have less than $25,000 in savings for retirement.

Again, it doesn’t take an MBA to see that this number would probably be a lot less if all of us had been exposed to some basic personal finance lessons as we were growing up.

10 Investment Tips

Safety net
Look to have a safety net behind you.
Ideally aim for three to six months salary in cash before you make any other investments. This provides an emergency fund should you be made redundant or the roof blows off the house.

Stress test products
Before committing yourself to any financial product, including a mortgage, stress test it. In other words don't merely look at the best scenario, look at the worst. So if you are taking out a large mortgage, look at what you might have to pay back if rates were 3% or 4% higher. Don't believe anyone who says it might never happen. The fact is it usually does!

Set a budget
Set yourself a budget. Know how much money you have coming in but, more importantly, check how much money is going out.
One way to do this is to note down over a period of four or five weeks every bit of your expenditure.This can identify spending that is going out of control, and is a useful way of identifying where you can make savings.
For example, not buying a coffee at Starbucks every week will save you £500 a year.

Risk and your age
Don't be afraid when you are younger to take on more investment risk.
For instance, if you are thirty years away from retirement the need for diversification is generally unnecessary.Diversification is far more important when you have accumulated money not when you first start.

Learn about investing
Learn something new every day about investing - just one thing - but don't think you have to learn about everything at the same time.
Pick one investment subject or aspect about investing and make it your own, become a specialist.

Stick to familiar names
Don't invest in companies you have never heard of. Learn as much as you can about them: How long have they been going? What levels of profit are they making? What do they intend to do going forward? Who runs the company? And if there is something you want to know about it, ring up and ask.

Be realistic
Be realistic in your expectations - generating a return greater than the 4.75% you might get at the bank is your aim. If you want to get rich quick, do the lottery - the stock market is generally for people with patience. Many an investor went bust chasing the pot of gold at the end of the rainbow. There are plenty of shares to choose from which offer growth or yield potential, or both.

Run with winners
Run with your winners and cut your losers - psychologically, investors hate taking a loss, but as the old saying goes, 'the first cut is the deepest'.



Go for gold
Do, though, look for opportunities to take profits. No investor ever went bust taking a profit.

How to make the most from your investments

Before investing in equities, make sure you have enough money in cash for emergencies and everyday needs. If you don't, you could be forced to encash your longer-term investments when share prices are low rather than retain the freedom to pick the best moment.


Consider your financial needs. Do you need an income now? Can you wait for capital growth? Or - as is commonly the case - would you benefit from a mixture of both? Older people tend to have a greater need for investment income, for instance.

Ask yourself over what timescale are you prepared to invest - five, 10, 15, 20 or more years? First-time equity investors should start with a collective fund - probably a unit trust - with a medium to low-risk profile. Only after that should you consider the more risky, racier funds such as smaller companies or specialist trusts.

Spread your money between several fund management groups and avoid fashionable areas that are being touted by all and sundry.

Do not be swayed by brand names. Smaller, lesser-known management groups often do better than household names.

Treat performance rankings with care. If a fund has gone up 200 per cent in one year, ask yourself whether it is likely to achieve anything like that in the next.

Check under the bonnet of the fund. There are 2,000-odd funds, all of which have different aims and objectives. Some will be aggressively managed, investing in a smaller concentration of stocks. Others will aim for more of a spread. The more specialist funds will be prone to big performance swings - a winner one year, a loser the next.

Attend organised financial seminars in Cities where can learn more about the investment market.


Investing in art offers a great alternative to placing money in traditional investment opportunities, but there are some handy tips to follow. According to investinart.net, there is no substitute for taste when dealing with the art market. This means investing in good quality art that not only is worth money but also enhances your living space or working environment.

It is important to purchase what fits in your home or life style, because many pieces take time (a few decades) for them to increase in value. Also buying limited edition prints and not posters increases resale value, as first and last editions attract higher prices than other prints.

There are also tax breaks associated with art investment, with the UK offering breaks if pieces are allocated into a pension. Opportunities for purchases are abundant, although auction houses such as Christie's, Sotheby's or Bonhams & Brooks stock high quality pieces, with genuine descriptions and valuations.

Investing in bonds

If you are looking for income from your investments or want to build a balanced portfolio, bonds may be an area worth considering.

Bonds are effectively 'IOUs'. You lend a company or government money for a set period in return for a fixed income, known as the coupon. This set income means bonds are often called ‘fixed interest’ investments. When the bond matures, you should get your original investment back.

Bonds are not designed to produce capital growth, although they can generate a little, so these investments are not really suitable for investors seeking high returns. But they do provide investors with greater protection than shares as bondholders are above shareholders in the pecking order if the company goes bust.

This gives them great value as ‘safe haven’ investments during economic downturns and the income they pay makes them very attractive to people looking for income from their investments.


How bonds work

Very few investors hold bonds until maturity and instead trade them like shares. So, although they have a fixed price when they are issued, demand from investors can push the price above and below this level. This effectively increases or decreases the income you earn.

Bonds are issued in bundles of £100 so if, for example, a company agrees to pay bondholders a set amount of £10, the yield is 10%. If the bond is then traded in the open market and is sold for £110, the income is still £10 but the yield has dropped to 9%. If, however, demand for the bond is low and the price falls to £90, the yield rises to 11%



What influences bond prices

Bond prices are influenced by the yield they pay and the rate of interest investors can earn elsewhere. If interest rates are high, savings accounts will pay more and bonds, therefore, become less attractive.

But this does not mean it is easy to decide when to buy and sell. Bonds are traded by professional investors who try to second-guess future demand for bonds by monitoring economic conditions and anticipating interest rises and falls. This makes them a good barometer of what experts think will happen to the economy. If bond prices rise, experts believe economic conditions are deteriorating and if they fall, it usually means the economy is improving.

Bond prices are also influenced by the strength of the individual company - if the company is weak it is more likely to default on its interest payments. The strength of companies issuing bonds is monitored by agencies and they give bonds ratings with AAA being the highest and C being the lowest. If a company’s rating changes, it will usually have an impact on its bond price.



Different types of bonds

There are a number of different types of bonds and demand for each type is different depending on market conditions.

Many bonds are issued by governments and are known as ‘sovereign’ debt. These bonds are usually rated more highly than bonds issued by companies. This is simply because governments are less likely to default on their debt than companies, although this may not be the case with some emerging markets.

Government bonds are often given different names – UK government bonds are known as ‘Gilts’, German government bonds are called ‘Bunds’, while US government bonds are known as ‘Treasuries’.

Governments also issue index-linked stocks. Instead of paying a fixed income like most bonds, index-linked stocks pay an income that rises in line with inflation. The maturity value is also increased in the same way. This means that investors’ capital is protected against the ravages of inflation and makes the bonds very attractive when inflation is expected to rise.

Corporate bonds are issued by companies but they are split into different types depending on the credit rating they achieve. Companies that have high ratings are known as investment grade bonds while companies with low ratings are known as high yield bonds because they have to promise higher income payouts to attract investors. Companies that do not achieve ratings are known as ‘junk’ bonds.

Companies also issue different types of bonds. Debenture stocks, for example, are secured against specific company assets while unsecured loan stocks pay higher yields but are not secured against the company’s assets. Companies also issue convertible bonds that give holders the right to convert them into shares under certain circumstances.



Buying bonds

You can buy gilts simply through the post office or a stockbroker. Corporate bonds can only be bought through a stockbroker.

If you don’t want to buy bonds directly, you can choose from a variety of bond funds run by investment companies. These funds pool your money with those of other investors and invest in a number of bonds. A professional money manager is appointed to manage the fund, for which you pay a fee.

You can buy bond funds investing in different types of bonds, including investment grade, high yield and overseas bonds. Some funds also specialise in investing in emerging market bonds.

Why invest in shares?

Whether its retiring early, saving for the childrens’ education or paying off the mortgage, everyone has dreams they can achieve by saving.

What are shares?

There are a number of different shares you can buy, including preference shares, bonds, and gilts but the most popular type is the ordinary share. Ordinary shares simply represent ownership of a company.

So, when you buy shares, also known as equities or stocks, you literally become a part-owner of that business. If, for example, a ABC Plc has 100,000 shares worth £1 each and you buy £1,000 of shares, you own 1% of the company.

Companies do not have to list on the stock market to issue shares. Many businesses start life with friends and family as shareholders. These businesses are called unlisted firms and their shares are often referred to as ‘unquoted’.

There are more than 2300 shares listed on the main UK market and 700 on AIM, from big household names such as Marks & Spencer and Tesco to smaller businesses such as Eidos, the technology company.

As a shareholder you have a say in the company’s affairs by voting at company meetings and, of course, the ability to share in its fortunes. If the company does well, the value of your investment should rise but if it does badly, you could see your shares fall in value.


What are the benefits of share ownership?

There are two ways you can benefit from owning shares. The first way is through the growth of the company. Say, for example, ABC Plc earns revenue of £100,000 in one year. After deducting its costs, it has £50,000 left – its profit.

It then reinvests this money in the business, perhaps by investing in better technology, which enables it to cut costs and, therefore, make a bigger profit the following year. If it can continue to improve its profits, demand for its shares will grow and the share price will rise. This type of company, known as a growth stock, is popular with investors who do not need income from their investments.

Many companies also pay a dividend. Say, for example, XYZ Plc earns revenue of £100,000. After deducting its costs and reinvesting in the business it has £10,000 left over. It decides to return this money to shareholders by paying a dividend. If the company has 100,000 shareholders, each share will get a dividend of 10p per share. So, if you own 100 shares, your total dividend will be £10.

Shares that pay dividends are generally known as ‘Income’ stocks. Companies can return money to shareholders in other ways too such as buying back their shares. This increases the value of those shares still in circulation.

By investing in shares you are also linking your financial wealth to the health of the UK and overseas economies. The proportion of goods and services sold in the UK and abroad typically rises when economies are growing and falls when in recession, thus affecting profits.

The fact economies spend longer in a growth period than in recession has helped shares produce better returns than other assets and, crucially, beat the effects of inflation. If you left £10,000 under your mattress, for example, it would be worth just £9,750 a year later, assuming inflation had increased the cost of goods and services by 2.5% that year. After five years it would have fallen to just £8,810.

Savings accounts do little to protect your money from inflation as your real rate of return is small, averaging 1.8% a year after inflation according to Credit Suisse First Boston’s Equity Gilt Study 2003. Shares, on the other hand, do have the ability to produce better gains, averaging 6.8% a year after inflation.

But, as investors who had money in the stock market between 2000 and 2003 will testify, share ownership is not without its risks.


The risks of investing

Inflation may eat away at your savings over the long term but if share prices fall, you run the risk of losing money. If a company you invest in goes bankrupt, your shares could become worthless.

But companies do not have to go under for you to lose money. Other investors may simply decide that the company is not worth as much as when you paid for it, perhaps because it is losing market share, and if enough of them think that, your investment will fall in value. Shares also tend to fall when the economy is deteriorating as investors recognise profits will be lower.

These are not, however, reasons for you to stay out of the stock market. But they should help you recognise the importance of building a broad portfolio with shares in different companies, industries and, even, countries. A good way for a beginner to do this is to invest in a fund, which spreads your money across 50-100 companies.

It is also worth noting that apart from those companies that go bust, shares that have fallen in value can recover in time. Sometimes if a share has fallen in value it can be worth holding on until it recovers but at other times it may be better to cut your losses and invest in a company that has better prospects. The option you choose will depend on the company you are invested in and your individual circumstances.