Sunday, March 20, 2011

OVER-OPTIMISTIC?

I was reading this article in the Independent today. (Skip down to The seven ages of debt if you are in a rush). I am sure it is meant to shock you into thinking how awful John's future is, but to be honest I think it is over-optimistic.
For starters let's look at points one and two. I have a better degree than John and went straight into Publishing after university. Let me tell you now - no one starts in a publishing house on £30K outside London, and if John's rented flat has two bedrooms and currently costs him £800 a month, he's living too far from London to be working there!
My next quibble with point two is John getting a £170K mortgage. Five years ago John may have got a six times salary mortgage but he wouldn't today, so I can only assume Chloe is earning about the same as John, no less the £25K anyway. If her starter salary is £25K, chances are she too went to uni, so why is her student debt not factored in?
Next, I have an issue with John getting £25K from his parents. Given his parents are possibly around 60, they may indeed have £25K, maybe in equity, to lend him, but pensioners are having interest on savings issues these days, and if they are still working, chances are they will have been made redundant in their late 50s so be less than happy to dish out £25K after doubtlessly helping John through uni. Also, it mentions later in the article that John is one of four. Did Mr and Mrs Skint the elder really have a spare £100K to lend all four for housing? So in my model, John would have a lower salary, Chloe would have a debt and the Senior Skints would not be lending him as much as £25K.
Let's move on to point three... John is 37 and earning £45K. Again unless he's in London, he's got to be a director to earn £45K in a publishing house. He may very well be, but given only one or two in a department of forty or fifty are directors then using the one who made it, rather than Mr Average is misleading. I also believe from the tone of the article that we are meant to believe he is Mr Average. Assuming 37 year old John is Mr Average Middle-Management and has been employed by this publishing house for 16 years then the chances are he will be made redundant between 35 and 45 (and again his salary is too high). My experience says middle management are first to go round after round and rounds happen every two to three years. Also the longer you have been employed, the more likely you are to go so the company can change its pension policies. On average, people in most industries, but definitely this one, do not stay in the same job any more for 16 years without being made redundant. So their average guy isn't following an average pattern.
Also £20K for a wedding, honeymoon and redecoration of a house seems a little optimistic to me. Even your bargain basement wedding and honeymoon would be £10K, leaving £10K for wallpaper, a kitchen, a bathroom, flooring etcetc... unlikely.
Point four is amongst the most ridiculous. He still hasn't been made redundant after 28 years and he is now on £55K in publishing! So if he still isn't in London, he is the MD of the company on that salary. This is highly unlikely in that industry. But better still, after 12 years at home baking cakes and wiping bums Chloe lands a 3 day a week job earning £27K with no current experience. That's a pro rata salary of £45K. Give me strength - cloud cuckoo land, I'm afraid. If you take 12 years out, you go back three days a week as a school secretary or you work in a supermarket or whatever on minimum wage not on £45K, sorry, this is totally unrealistic! And given what I believe John and Chloe would actually be earning, there's no way he'd have paid off his debt in his forties.
Another thing I find hard to believe in this article, call me a cynic, is that if John and Chloe have been together twenty years under quite a financial strain then the chances are John and Chloe would end up divorcing like Mr and Mrs Average in the UK. The divorce rate is over 50% now so to factor a divorce in would make the figures very interesting. Add in the £10K the divorce would cost to fight through the courts, add in buying each other out of the house, add in paying each other their pension entitlements upfront, add in child maintenance, add in perhaps a second family for John when he remarries in his forties, add in starting a new 25 year mortgage at that point and you get something closer to Mr Skint's future.
By point five I am still worried about John representing an average graduate. Aren't two kids more normal than four? And if so John should be paying double for his mother's care home because he should be splitting the costs with just one, not three siblings, more than likely.
Point six - finally he's made redundant after only changing job once in 56 years - sorry this is true of today's over 70s but even my father's generation had stopped getting jobs for life, so I don't buy this.
And finally does Mr Average's mother really not die till he is 75? Wow, interesting. I guess it may be possible by then but we'll have to wait and see.
All in all, if I set out John's life, I have to conclude it looks far, far bleaker than this rose-tinted version from the Independent, I'm afraid!

1 comment:

Thomas W said...

I think they should have tried to compare him with an equivalent person from an earlier generation, step by step, so show why the people who're about to enter uni now are likely to be much worse off than previous generations.