Some say inflation is good. The capital of your mortgage breaks down as the price of your home rises for example! This is an argument for the interest-only mortgage, which advisers do not recommend. Repayments are much less if no capital is repaid. Take an extreme example – 35 years ago I arranged a mortgage for a lady to buy a house on End Terrace, she paid 8 8,995 for it and wanted a 95% ,5 8,545 mortgage with a 450 450 deposit. Today the house is worth 160 160,000 and she would still have 8 8,545 mortgage if it had been just Interest. People get more than that for car finance today!
100 years of inflation has caused the annual salary of teachers to increase from 6 176 per year to 30,889 without average. Gold was 93 18.93 an ounce, now over 600 per ounce and rising.
In 1971 the UK came out with the Decimal – this was a good excuse to set prices, which many people fear will happen even if we join the Euro. Inflation can be judged by Mars Bars, which are often mentioned in price comparison charts. In 1982 a Mars Bar cost 0.16p, now over 0.45p. Allowing this price increase, let us use March Bare quantities to compare inflation: –
items – Bars of March 1982 – Mars Bar 2007
House – 147,775 – 474,053
Porsche 911 – 104,500 – 170,000
Aga Gas Double Furnace – 6,218 – 15,121
Washing machine – 1,875 – 560
Gallon Petrol – 10 – 11
Beer Pint – 4 – 7
Frozen chicken – 4 – 10
Now let’s look at pensions. If you received a personal pension, as I did, and paid 100 100 a month from the age of 30, you are projected to receive a pension of around 12 12,000 a year or 6,250 March Bars per month at the age of 65. In fact now at age 55, with declining returns and paying for 25 years, the forecast has dropped to ,000 3,000 a year or 555 March bars a month!
So it can be said that ‘One Mars a Day – Helps You Work, Rest and Pay’!