Bloomberg Audio Studios, Podcasts, radio news. Welcome to Meren Talks Your Money, the personal finance edition of Meron Talks Money and these bonus podcasts. We talk about the best strategies for making the most of your money. Ameren Tum's that Web and with Me Senior Avoord and Money Just sled all for John Steffeck Hi John Hi mel Now, I guess everyone's talking about personal finance this week. I'm a bit nervous about the budget. You're nerves about the budget?
Or are you more nervous or more looking forward to being entertained? Which way does it work for you?
Ah? We see this is one of those work life balanced dichotomies. For work it's immensely entertained, and for life is absolutely gram And the half of me's hiding behind the sofa and the other half is like a child before Christmas.
The other half is deaf brilly going laf a curve, laf a curve, laver curve.
You'll haveving a laugh of cove.
They won't be having many laughs afterwards. They don't think they come for the laughs, don't they. Right? This week we've got a persent from someone who you know well. I think also be watching their budget very very carefully. Hugo. The question is from Hugo. Hugo wrote quite a brief email. Actually, he's asking for advice for twenty somethings. You've got more than fifty pounds in student debt. What should they be doing with the money they're earning? Should they pay off
that loan the extent it's a real loan. Should they get on the housing ladder? Or should they buy stocks and shares? So lots of things to think about here. You know, we're quite please that Hugo is earning good money. I'm thrilled by that. But what we don't know is what student loan plan he's on, because there are so many, and if he's in his twenties, I think that puts him on Did that put him on two?
Probably because that's if you start to just course between September twenty twelve and July twenty twenty, So yeah, almost it does. That would be what he's doing.
Well plan to But the essence of all the student loans are roughly the same. After a certain threshold, you pay nine percent of your income towards your loan, regardless of how much you are earning, it remains the same, So the essence is the same. A large percentage of your income will go in what they call loan repayments, but you and I really think of as a tax, and you can make that tax go away by paying off the loan. And the extent of whether it's worth
it or not is just about maths, isn't it. Yeah?
And the maths bet is that that makes it difficult. I guess it's about maths, But it's also about have any make assumptions, which is the checky bet, having.
Made assumptions about your future earnings. For example, I mean, what if? What if? Sacred argument? Hugo, who's earning very nicely at the moment. Let's say that Hugo meets the lover's life, gets married, has two kids. Hugo's the one that gives up work to look after the kids. Get on your Hugo because his wife's a higher owner, etcetera. Tuesdays at work, Suddenly he's earning nothing and he may never again get above the thresholder you know, Welcome, Welcome
to the ladies world, Hugo. Sometimes you never make back up to your old income after your maternity lives, paternity lives in your case.
I mean, Shugo. If I was you, I would make that your plenty. Mary Rach marry out. Yeah softly, let's go with the pop.
If only it was so easy anyway. So that's the point that you are making all these assumptions about your future once you start talking about overpaying the loan or paying back the loan, and that makes it incredibly difficult because obviously, even predictive AI can't tell you how much you're going to be earning in a decade or fifteen years, can't tell you who you're going to meet, where you're going to live, how you want to live, what kind of house you want to live in, how many children
are going to have, etc. No one can tell you that. So all you can do is make some rough guesses about your earning power, and some rough guess is about any capital you might or not received during your life. Now, I think probably the first place to start is should you pay off your loan rather than saving to buy a house. And John, I think you would say, I want to put words into your mouth there. I think you would say saved to buy the house.
Yeah, because I think it's reasonably straightforward this question, because if you've decided that it's time to buy a house and like it or not, you know, and I'm not, you know, completely a fan of this, but buying a house is like a life stage for almost everyone in this country, and so if that's what you need to do, then you need to save the money towards it. The one thing I understand about this is that the student loan, its impact on your ability to borrow, is only and
as much as it reduces your monthly income. So the fact that you've got fifty grand a day, it doesn't matter, that doesn't count towards it mortgage. It's just in as much as it takes nine percent of your monthly salary. So from that point of view, you don't need to worry about it in terms of getting the mortgage. So yeah, save up for the house to posit if that's what your goal is. I don't really see any exclusion to that.
Yeah, And I think it's also worth saying that again, you know, the interest rates on student learns whack all over the place, but the majority of the time it's probably true that the interest rate on your loan, which is not real interest of course, but the technical interest rate on your loan is going to be lower than the interest rate on a mortgage, right, So if you're going to hold onto one kind of debt, it might as well be that. Yeah.
But also if you think of it as a tax rather than a loan, then the idea of haven't you keep the loan at a certain level is less of an issue because you know, I mean especially the other thing is she goes on if you go isn't planned to, and I guess he must be, or almost certainly must be. That's going to get right and off thirty years after he could situated anyway, so he will get that weight clean before he's a patientage. So that's the other thing.
I mean, some of the later loans are going to have less for the problems.
Horrible that the new ones are the poor people who started in twenty twenty three. That loan sticks with them for forty years, so that I mean that really is a tax. You can stop all the arguments, but it is a loan r a tax. By that that is definitely a taxes with you for forty years, and it takes your marginal rate of tax for high end as well well over fifty percent of the scandal. So I
don't know why we put up with it. Young people do something process well, protest, get on the streets, vote, vote for someone who's going to make your tertiary education more efficient for you financially. But come back to that in another podcast. So most likely, although there's not financial advice, it's just what would most likely be the better thing to do for most people. Save up for your house as opposed to paying off your paying off your student
loan in any kind of lump somewhat over payment. That's an INEFFICI into use of money. But when it comes to anything else, now I think we would both agree, I'm not even sure we have to talk through this one. We would both agree that you should definitely continue to contribute to your pension through order enrollment rather than pay off your student them. That's that's a given.
Right absolutely, And just in case you don't know, because that is because it's part of your overall compensation, your employer has to contribute to it. If you don't join nod to enrollment, your sacrifice and X amount of your salary for absolutely noughtiesn't at all.
Yeah, So don't do that. So that's clear the other bit, Would it be a better idea to instead invest into stocks and shares? Do you know what I'd like to run a little campaign. Join me in this campaign. I would like to stop saying stocks and shares. Yes, nobody knows what that means. What does that mean? It means shares and shares, equity, equities and equities, stocks and shares? It is it because it brings in debt as well? Are we talking about? What? What? I remember?
Try to look this up at one point and it it really it's yet another one of those things like bulls and bears that is not entirely clear at all what the definition ever was or where it's originated. And I totally agree. It's like stocks and shares are the same thing now. They're both equities as far as we're concerned. So either change it to binds and shares or just chairs invest.
Or why didn't we just say invest it? Would it be a better idea to instead invest? That's how it we're changing the question removing stocks and shares? Would it be a better idea to invest? Is it a better idea, John to invest than to overpay on your loan?
I mean, that's a good question. And this is where all of the assumption stuff kind of comes in because hmm, well.
Yeah, you're you're running through so many different scenarios in your no no idea, What is happening in anyone's into it. It's so difficult to say what the right thing to do is. I think what I would say, but the starting point would be, do you have savings and let's put the saving for a house deposit to one side for a moment. You shouldn't ever pay down any debt
until you have a certain amount of savings. It's never a given you'll be able to get out new debt when you need it, So, particularly if you've got cheap debt, seems a good idea to make sure that before you even look at that, you've got your two, three, four, five, six months worth of savings or freedom money as we like to call it, sitting in a bank account. Only then can you start saying, well, hang on, now, I
want to make a choice between my student loan and investing. Now, if you're young, and we're assuming that Hugo is in his twenties, he's going to be investing for the long term, or I hope Hugo will be investing for the long term, so we should assume that he will get a better return over forty years or thirty years of investing in the equity market than his loan is costing him.
Yeah, that sounds fair.
Well, I guess again slightly repoinds which scheme he's on. But if he's on this game we think he is, then that works. Yeah.
It is one of those things where the way to think about it is to look at how much is the debt course in versus what is my likely return in the stock market, And from that point of view, as you say, then all else being equal, then it probably does make sense to invest, especially I suppose, because again, if he's on the thirty year one, then by the time he's company to take his pension out, then if there is stuff left, then it will get written off.
I think the other thing says that what might happen to Hugo. Hugo's doing very while well done Hugo, as we don't know how well he goes doing. I keep looking at the fifty thousand pounds in student debt and thinking that Hugo is making fifty thousand pounds, he might not be well.
But if he's in his early twenties and he's making enough to start paying off the loan. Then he's not doing like two bads because he must be, and then at least a high twenties.
So maybe they'll come a point when he's earning two hundred and fifty pounds three hundred thousand pounds and this whole problem just goes away. That's great for Hugo.
It would be that would almost be as good as the direct partner scenario.
I wish I'd never put the thought in your head. This is that feminist backlash we've got on the very show. So he needs to hope, he needs to hope that this budget really does bring growth and productivity as promised, so that his income goes up very sharply and this problem disappears by itself. Yeah, the other thing we should say, there's a lot of emotion in here, isn't there? You know? How can how do you cope with that? How do
you feel about debt? How how troublesome is it? Do you feel this is hanging over you or do you never think about it? How do you feel about it? Because that matters, you know, we can we can talk about all these numbers. I'm most people not doing very well because we can't come up with any specific numbers because of everyone different situations. But when you really come down to it, it's it's about money, but it's also
about living standards, life satisfaction where you head it. If this debt is a real problem for you emotionally, then you might need to take a different approach. Am I veering away from what this podcast is supposed to be about.
I mean, Haughy investment is about psychology, and although one reason for understanding these kinds of things is so that you can override when your brain is telling you to do something daft, you know. So if you are in that issue where you just can't handle the existence of this debt, then perhaps try and offset that with putting a little bit more to it than you need to, but perhaps not as much as you're you're wanting to, because in most cases it probably will be better to
put it somewhere else. And actually, the other thing is that we hadn't mentioned, and I've just remembered it's political as well. Right now, nobody's really talking about student loan forgiveness in the UK. I mean, it's happening in the US.
You don't know what's going to happen over the next thirty years, and it's possible that at some point there would maybe be a debt jubilee where they say, actually, we're going to scrap the student loans, or you know, future government might decide that a whole host of people were just absolutely missold the whole idea of university education. That's just one small thing to factor into the mix.
Probably this step won't be canceled, but there's a chance that it might be at some point in the future in a way that your mortgage is never getting canceled or you know, your your your pension isn't going to magically, you know, appear by itself.
Yeah, yeah, it does make sense. And I think we've pretty much ended up with a general view that once you've got your student debt, you might as well just.
But if no one else is paying it off for you, because you know, you're you know, if your parents aren't don't have the money you kind of have taken it away in the first place, then yeah, you're you're just kind of stuck with it, and it feels like a low priority thing rather than a high priority.
And if your parents were to give you a lump sum. Now your grandparents were to give you a lump sum. Now you'd be better off buying a house.
Yeah, actually, yeah you would probably. Yeah.
Okay, Well I think that's settled then, Although of course that was not financial advice. It was simply a ramble through the possibilities, and I hope HUGO that it was helpful. I rather suspect it wasn't, but I really hope it was.
Thanks John, Thanks.
Bill, Thanks for listening to this week's Maren Talks Money. If you like our show, rate review, and subscribe wherever you listen to your podcasts. Also, have you follow me in John on x or Twitter at marinas w and John underscore Steppe. This episode was produced by Summersidi, Production support and sound designed by Moses And Questions and comments on this show and all our shows always welcome. Our show email is Meren Money at Bloomberg dot net