Black Friday? Cyber Monday? A blowout Christmas for UK retailers?
Bah, humbug!
We all know that Christmas has become a time for profligate spending, and Christmas gifts a byword for overpriced and unnecessary tat.
Yet we never read about Broke Boxing Day or Get Into Debt December.
I blame Charles Dickens.
Successful Mr Scrooge
If you ask me, Ebenezer Scrooge – the miserly anti-hero of Charles Dickens’ A Christmas Carol – got a bad rap.
Sure, he’s not the world’s most loveable guy…
Clearly, he’s taken saving and investing to an unhealthy extreme…
And maybe he should have accepted that Christmas dinner invitation (free food, after all)…
Also, while Dickens never lets us see the state of Mr Scrooge’s household finances in detail, you do get the strong impression that he could have spared a lump or two of coal.
However, The Motley Fool is all about saving and investing for a prosperous future – and through that lens, you might argue that Scrooge has it made.
After all, he overcame a difficult and lonely childhood to become a successful businessman.
And whereas everyone else in the novel seems to be living hand to mouth, Scrooge is secure and financially independent.
Of course, the traditional reading of A Christmas Carol is that Scrooge prevailed because he paid his staff a pittance and skimped on candles and weddings.
But there’s another weapon in his armoury that really explains his good financial fortune.
In debt to an iPad
I’m talking about compound interest – the ability of modest and regular savings to snowball, thanks to interest on interest, into surprisingly meaningful sums.
We’ve probably all toyed with compound interest calculators, and realised that if we skipped our daily cappuccinos and annual holidays then, with reasonable luck in the stock market, we could retire as millionaires.
But Scrooge goes one step further.
You see, Ebenezer is a moneylender, and hence he exploits compound interest even as most of those around him – especially his customers – suffer from its wealth-sapping dark side as it compounds their debts.
Consumers overextending themselves to buy two new widescreen TVs and an extra iPad in the pre-Christmas shopping frenzy are the modern equivalents.
If you’re paying interest on your debts while someone else is making money from them, then you’re on the path to begging for coal at Christmas, while fattening the bank balance of some far-flung Mr Scrooge.
Search for the Scrooge inside yourself
To be fair, I suspect most TMF readers are not in Bob Cratchit category of living on their last pay cheque.
While some may go a little overdrawn at Christmas, you’ve mostly got good jobs, investments in ISAs, and an appreciating house to set against your mortgage.
So I am surely preaching to the converted.
However, are you really saving as much as you could, for you and your family’s future?
Have you tried pushing the compound interest calculator to Scrooge-like settings?
The ghost of pensions to come
Let’s say you usually spend £250 on presents for each of your children at Christmas.
That might seem high, but it’s just a bike, or half a new PlayStation or iPad.
What if you only spent £50, and invested the other £200 into a Junior ISA on their behalf?
Let’s say you did this from the day they were born, and you achieved average returns from the stock market.
I’ll guesstimate these returns at 5% per annum after inflation, so we can think of all these numbers in today’s money.
How much would £200 a year have added up to by 18?
Just shy of £6,000!
That’s quite a handy sum for a young person facing university debts or high house prices.
But let’s go further. What if you had so thoroughly indoctrinated your offspring with your Scrooge-esque thinking that at 18 they decided to keep their money invested until they retired at 70?
At that point they’d have £72,000 in their pension.
That’s in terms of today’s money, without them having ever added a single penny to their savings themselves.
Considering the average pension pot in the UK is about £30,000, that’s not bad for absolutely zero effort on their behalf.
Balance your saving / spending books
Now, I know what you’re thinking.
Mr Scrooge was the villain of the piece. And yes, it took supernatural intervention for him to see the error of his ways.
I do understand that hoarding all your money is not a path to happiness, especially if – as with Mr Scrooge – this attitude screws up your personal life, too.
So sure, buy some Christmas presents…
Get an extra box of mince pies…
Enjoy life!
All I’m saying is remember there’s a continuum from Victorian workhouse at one extreme to Mr Scrooge sitting atop a pile of loot at the other, and that many of us could take a step – just a step! – in Scrooge’s direction, by cutting back, saving more, and enabling the stock market to do the heavy lifting for us over the long term.
Charles Dickens wasn’t writing for a financial publication, of course.
Most of his readers probably had a hated Mr Scrooge in their lives, and he had every reason to paint him as evil incarnate.
From his other writings we know that Dickens was acutely aware of the truly miserable impact of not being able to pay your way in the world.
But Dickens played up to his audience, and I’m doing the same.
So Merry Christmas, Mr Scrooge!
