As mortgage rates rise, is money to be made in renting?
For the past decade or so, I’ve been lucky enough to have almost interest-free mortgage payments....
I won’t lie. Working from home whilst simultaneously trying to home school two children hasn’t been easy during lockdown. We’ve managed it, but there will be a collective sigh of relief in our household this afternoon when the school holidays start.
We’ll all still be in the house together, but at least some of the pressure is off. No more having to break from a Zoom meeting to explain frontal adverbials or work out long division…
In an attempt to make lessons a bit more interactive (and I’ll admit, focus on things I already knew about and didn’t have to Google) I decided to add a money lesson into our timetable each week.
Here is a round-up of our successes and our failures and what I learned about my children in the process:
My first money lesson was making a tuckshop – putting up a poster with a list of snacks and a price against each. The healthier the snack, the cheaper it was. I then gave them £1 each day to spend.
On the first day, my daughter (Ana aged 5) spent the whole £1 all at once – panic buying before her brother made his choices. My son (Alex aged 9) asked if he had to spend it all at once. I said no. He had two trips to the snack shop that day.
By day five they had both learnt to spread the purchases out and, on rare occasions, would treat their sibling if they had cash left over. In week two, Ana started negotiating: she asked to have £1.50 instead of £1. I said she could borrow the extra money, but she could only have 50p the following day. The next day was long, as she winged constantly about not having enough money… She returned to £1 after that.
This is quite a famous test (you can find it on YouTube). Basically, I put 10 small marshmallows in front of the children and said they could eat all ten now – or resist them and have 20 in 15 minutes time. It’s supposed to teach you about instant gratification versus delayed, but greater rewards: spending today or saving up for the future.
Alex ate his immediately and went off to play Xbox. There was no turning my gamer into an investor that day… Ana managed to resist – but the battle against the temptation was a joy to watch.
To teach them about inflation, I put up the prices up in the tuckshop. Ana was not impressed and refused to join in the lesson. But Alex sat and worked out how much more expensive each item was. For example, Mini cheddars were 40p and rose to 60p. A satsuma was 10p and rose to 30p. He knew both had risen by 20p, but then we worked out the percentage increases and he could see the satsumas had risen the most. He described it as ‘like a balloon inflating.”
When I recorded a podcast with Dr Niall O’Connor, manager of Brooks MacDonald Defensive Capital, Alex also eave-dropped and heard Niall’s thoughts on how a haircut and airplane tickets could get more expensive. Niall’s daughter was also in the background absorbing investment information!
Then I tried telling Alex about compound interest. There was a flicker of interest when I said Albert Einstein described it as the eighth wonder of the world, but soon he was spinning on his chair, saying he was bored. He did learn enough to comment: “so that’s why you pay your credit card each month – so you don’t owe more money”.
In an attempt to bring some fun back into lessons, we played the risk/reward game. But when Ana asked me: “what is risk?“, I realised I’d need to go back to basics first!
The aim of the game was to guess the number on the dice, but you had to ‘bet’ marshmallows in order to win more. You could have multiple guesses per game, but the fewer you had, the more marshmallows you could win – or lose.
We played ten rounds. Ana was far more risk averse – she just wanted to make sure she won a few marshmallows rather than losing them. She liked the rush of winning though and was tempted to take fewer guesses – especially when her brother won more marshmallows than she did – but she always erred on the side of caution in the end.
Alex took more risk, but when he was reduced to eight marshmallows, he panicked for a couple of rounds and scaled it back. At the end he went all in… and went bust – he had no marshmallows left to eat at all, while Ana had 26.
I valiantly tried again to explain compound interest. This time giving them each £10 to borrow. I told them they could keep it and use to go mad on snacks.
They were delighted until I told them I was going to charge them 20% interest a day – so if they didn’t pay me back that evening, they would owe me £12 the next day and £20.74 by the end of the week. They both gave the money back immediately. The game ended early, but I suppose I should be happy with that attitude!
Giving Ana the day off from this lesson as she was a bit too young, I showed Alex the most recent statement from his Junior ISA. He could see that his pot of money was worth just over £11,000 and invested in Rathbone Global Opportunities and Scottish Mortgage Investment Trust.
He liked this. James Thomson, manager of the Rathbone fund, was holding a webinar that morning, so Alex listened with me, to better understand how James was making his money grow.
Alex had recorded a video on bonds with M&G Global Macro Bond manager, Jim Leaviss, a couple of years before, so he knew a little about what to expect.
One of the slides in James’ presentation was a line chart of the global stock market year to date. He noticed it went down a lot but also asked about the few bumps where it had gone up a bit too. James also talked about some companies he held that might benefit from lockdown – like Costco, Netflix and Ocado. Alex enjoyed this bit.
I explained the earnings of a company to Alex and he described profits and reinvesting as “like a flower that has seeds that then grow too.” – he suggested I try to explain it like a flower to Ana as she “might find that more interesting”. He summed it up as “a bit more interesting than that compound interest thing.” Damned by faint praise….
This task involved setting up our own menu of favourite things to eat in a restaurant and then making a list of ingredients and comparing how much it would cost us to make the same meal at home.
A popular hangout for the family pre-COVID was Frankie & Benny’s, who’s owner Restaurant Group* is a holding in ES R&M UK Recovery – as is Tesco*. So, we were able to use both stocks to compare.
Alex and Ana discovered that menu favourites Mac ‘N’ Cheese and pepperoni pizza, followed by mint choc-chip ice cream and New York cheesecake would cost a total of £28.96 at the restaurant, but we could create the same meals at home for the whole family for less than £6.50.
If only my cooking was a bit better, we could save a small fortune…
*Source: River and Mercantile, 30 June 2020