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Dumb and dumber

I have a confession to make and would be grateful if readers would keep it a secret from my employer and my wife. As someone who has been reputed to know a reasonable amount (for a journalist) about personal finance, the information contained here could be highly damaging to that reputation.

And my wife might be annoyed to learn that I am squandering our hard-earned financial resources.

I have several thousand pounds on deposit with HSBC. It earns interest of less than 0.5 per cent a year before tax. If that fails to shock you, it does not stop there. I also have a Mastercard, which charges interest well into double figures. I sometimes fail to pay it off at the end of the month, even though I have the means to do so sitting there on deposit, earning a terrible rate of interest.

This is fundamentally stupid behaviour. Should anyone be taken seriously who claims to know about money and makes all these moronic financial moves? Would you trust a doctor who smoked?

I am not blaming HSBC for my sins. For a giant corporation, it provides surprisingly attentive customer service. The fact that it offers a rotten interest rate on this particular deposit account is mitigated by the fact that I accept it willingly. I should move my money but for some daft reason I do not.

Enough flagellation. No one needs to feel any shame about acting stupidly with their money because almost everyone does it. What would be the height of stupidity? Perhaps where someone offered you free cash – with no premium-rate numbers to call and no strings attached – and you turned it down.

Exactly that is happening all over the country right now. At the last count, barely a third of parents who had received the 250-plus handed out to them by the Government under the child trust fund had done anything with it.

How many families, having been given 250 cash for free, would simply leave it lying around the house? Yet close to one million families with children under three are doing that at this moment.

One of the Treasury’s flag- ship policies, which entails giving away free money, is mysteriously failing to ignite enthusiasm, so much so that the Government is planning to spend 2m pounds on an advertising campaign to raise awareness of this freebie.

Those parents who have done something about the child trust fund have overwhelmingly put the money not in shares but on deposit. They think they are playing safe. Are they? Or are they dumbly guaranteeing that their child will end up with less money than they might?

Part of the rationale behind the child trust fund was to give children a good reason to take an interest in money matters when they are growing up. If children know they have some money to invest, so the argument goes, they will take an interest in the world of personal finance. One of the first facts on the curriculum should be this one – in the last century, there was only one 18-year period (between 1913 and 1931) where you would have earned a better return by leaving your money on deposit than investing in shares.

Children might return home from school only to berate their parents for stupidly putting their savings on deposit, leaving them hundreds of pounds worse off. Ironically, the negligent parents who have done nothing about the child trust fund could end up doing their children a favour. If they fail to invest their voucher by the end of the year, it goes by default into a stakeholder account which will invest in shares, not cash deposits. Benefiting from superior returns, their children are almost certain to end up better off by 8 than their peers, whose parents thought they were being clever.

It is not a healthy message to teach the kids. But being daft about money can sometimes – only sometimes – make you richer.


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