Two Pennies Worth

Inflation is a bruising bully make no mistake

 
Sam Dunn, freelance money writer for Confused.com and national newspapers, shares his views on inflation and how you don’t have to let it get the better of you.

When the price of everyday goods rises faster than income or savings interest can grow, it can have a drastic effect on your personal finances. In particular, it can wallop the retired, who rely on a fixed monthly pension and - since they’re no longer working - can’t try to lick it by earning more.

Many struggling families and workers will also have groaned at last week’s revelation that the Consumer Price Index (CPI) cost of living edged up from 3.7 per cent to 4 per cent in January - the highest annual inflation rate in more than two years and double the target in the Bank of England crosshairs.

It’s easy to see why: petrol is now at £1.27 a litre (a record high); car insurance is up by 29 per cent over the past 12 months; transport costs have risen by 7.7 per cent; food and non-alcoholic drink have gone up 6.3 per cent (soft drinks bubbling up a startling 12.1 per cent); and bills for dining out or hotel visits are up 4.5 per cent.This general picture of a national average is invaluable to all manner of policymakers, investors, savers and speculators – yet its relevance to great chunks of the population is harder to pin down.

We all live very different lives, buying goods and paying for services that suit our own lifestyles, income and tastes – and for many the national average may as well be from a different country.

The statisticians calculate inflation using a “basket of goods” that regularly changes content as it tries to reflect our national spending habits. Its considerable size helps it cover plenty of all-encompassing factors – food, travel, fuel bills, alcohol etc – as well as a cornucopia of other, less commonly bought, items to create a decent overall picture.

From the price of a small pet hamster (classified under “recreational items”) to the cost of getting your busted home PC repaired (audio-visual), charge for home removals (transport) and night-club admission (cultural services), the detail is mind-boggling.

To move with the times, contemporary items recently introduced for price comparison include Blu-ray movie discs, bottles of mineral water, powdered baby formula and cereal bars. Of course, not everything is afforded the same space in the basket: an appropriate weighting is calculated and then fed into the inflation machine to spit out the monthly update. However, the upshot is that inflation is a hideously complex beast – and the 4 per cent CPI figure is, for millions, either a basic guide at best or, at worst, hopelessly off course.

There will be plenty who cycle instead of use a car, rarely use public transport, hardly ever eat out and would shudder at the idea of chugging fizzy drinks – their own inflation rate is likely to be considerably lower than that of fellow Britons who do the opposite.

Similarly, older Britons and the retired will be hit by 1.4 per cent fuel price inflation but less likely to be clobbered by the 3.5 per cent in mobile phone costs; ditto students noticing 6.7 per cent alcohol and ciggy (I generalise horribly) inflation won’t largely feel the huge 29 per cent motor insurance and 3 per cent new car inflation.

For many, the solution is to use the national average as a prompt to instead take control – where you can – of your own inflation.

First, try a personal inflation calculator by filling in your spending details at either the official ONS site and try the Confused.com cost of living calculator with tips on keeping your spend down. Be prepared for a shock; you could find it may be much worse than the national 4 per cent.

More importantly, though, you can then put one over on CPI by ensuring you bag the cheapest prices on as much of your daily spend as possible. Keep a lid on your own inflation by outsmarting retailers and services at every turn, whether for example it’s “downshifting” a supermarket shop; using price comparison sites and haggling for car/home/travel insurance; switching to online gas/electricity tariffs; or picking a bundled TV/landline/broadband deal instead of separates.

When you're in charge of keeping a lid on price rises, inflation doesn't have to be such a thug.

Financial advice in banks is a misnomer

 
 

Sam Dunn is a blogger for Confused.com and writes regularly for national newspapers. See what he has to say about 'financial advice’ offered by banks.

Job cuts are never pleasant – yet a recent axe to two separate free financial-advice services left an unusually bittersweet taste in the mouth.

The first revelation was truly sour as it emerged the government is to shortly stem the cashflow to its Financial Inclusion Fund debt-advice service.

This critical annual £30m lifeline has paid for the training of hundreds of men and women to offer debt advice to hard-up borrowers struggling to sort their finances, including help at Citizens Advice, Sure Start centres, housing associations and even doctors’ practices. 

Without such support, the financially vulnerable risk falling further into debilitating debt and face greater exposure to loan sharks and others keen to exploit someone in financial freefall. 

Worse, it comes as councils nationwide start their own squeeze on local debt advice funding and scale back grants to staff and services. Reducing such services just as demand begins to soar will hardly soothe the pain.

Less bitter, however, was a report that Barclays bank is to close its branch-based financial planning and advice service (a growing trend to manage investments online was to blame, it said). Although the fate of the 1,000 staff affected remains unclear – and it’s to be hoped most if not all will be allocated new positions elsewhere – the decision to bin its high-street advice service is welcome.

Make no bones about it, financial advice in banks is usually a misnomer of epic proportions.

Its real name is product-sales advice, and staff engaged in it are driven by one thing and one thing only: commission.

To be fair, the advice isn’t always poor, and not every employee is out to peddle you a pup, but the lure of bonus payments can severely cloud any adviser’s impartiality.

Only last month, Barclays itself was fined £7.7 million – a record for a retail failure –  by City regulator the Financial Services Authority (FSA) for flogging investments to customers that were completely unsuitable.

In a nutshell, customers bought into funds whose names were packed with reassuring words like “cautious” and “balanced” but were in fact exposed to risky shares.

The bank didn’t have much wriggle room on the hook either: in its verdict, the FSA said it had failed to give staff training to adequately explain the risks; failed to ensure suitable funds were sold; and failed to put together brochures that actually explained the risks.

All this from so-called “financial advisers” inside a trusted bank – so I make no apology for my spirits being lifted by a move to close down such an ill-starred outfit.

Yet it’s saddening that the general public’s appetite for genuinely helpful and impartial advice on all aspects of our finances – from debt to investment, spending to saving – isn’t being sated.

While there’s plenty we can do on our own, there’s always a need for help with more complex decisions – and being able to count on the person doling it out is crucial.

Whether it’s a question on how to avoid serious defaults and hang on to your home or how best to invest £10,000, it’s not too much to expect an honest response. What a shame that decent answers are increasingly likely to be in short supply.