Why savers are losers!
This is a quote from Robert Kiyosaki and I must admit I was shocked when I first read this. I was brought up to save money, and to be frugal. I always had savings – even a small amount for a rainy day. So to hear the words that I was a loser because I was a saver, was quite distressing! I wondered what on earth he could possibly mean. After all, we all know that savings give us a back-up should the need arise. An unexpected car repair or a higher than average utility bill, or another new pair of sports shoes for your child who’s growing like a beanpole, means that savings are a very good idea! Surely, having some money in savings makes sense?
Well, I think that the answer has to be yes, as long as you understand the terrible downside to cash savings. Savings are inert, and in today’s economy are actually costing you money.
Take £1000 for example. If you put this in a higher rate savings account (not your bog standard current account, it has to be the highest rate available), the most you will probably receive in interest is about 1.5%. After a year you’ll have the princely sum of £1015. You will have made £15 in interest. £15!
Not only are interest rates depressingly low, but the other fact that we have to face is the effect of inflation. The government assesses the rate of inflation each quarter. Inflation basically erodes money as it describes prices going up, and therefore how much reduced is your money purchase power. Currently, the UKs stated rate of annual inflation is about 1.5%. Ironic that it matches the interest rate, isn’t it?!
Which means that just as you make £15 in your bank account, the £1015 also loses 1.5% in value over that year.
This equates to £15.22.
So in fact, your money which has been in a HIGH RATE savings account all year, is now worth £999.78
Yes it’s only 22p. Nothing too frightening…yet. Multiply that by many thousands of pounds sitting right now in other people’s bank accounts and you can see why Kiyosaki was right – savers ARE losers.
And this is before we see inflation rising and interest rates in bank accounts dropping.
So what’s the answer? That’s where financial education comes in. What other medium you choose to invest in is down to individual choice, personal belief and how you educate yourself. For me, I choose an asset class whose value increases as inflation grows; pays me in cash regularly; and has some utilitarian benefit to the wider world.