Are you guilty of these money misconceptions?
Survey reveals wild guesses about the cost of raising a family and how much tax the biggest earners pay.
Do you think you know how much it costs to raise a family, pay for university or whether the national debt is rising or falling? The chances are your estimates are way off the mark.
New research has found that most of us significantly underestimate life’s major costs.
The cost of a family
When surveyed, the average guess for the cost of raising a child to the age of 21 was £50,000. In reality the figure is much higher at £229,000. The research also found that these wildly inaccurate guesses weren’t a result of inexperience - the average guess among those living with children was just £40,000.
However, when it comes to childcare, we tend to think it is a lot more expensive than it actually is. Most people thought the average cost for 25 hours of nursery care for a child under two is £200. The actual figure is almost half that at £115.45.
When it is time for your children to head off to university, most of us will be in for a shock when the bills come in. On average we believe children will graduate with £21,000 of debt, including tuition fees. The reality is more than double that, with student debt adding up to £44,000. Interestingly, younger people had a better idea of the cost than their parents - the average guess of people aged between 16-24 was £30,000.
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Public finance confusion
When it comes to public finances there were mixed results. Almost half of us knew that the Bank of England Base Rate is currently 0.5%. That is hardly surprising given that it has sat at that rate for six years.
But it has coloured our view of historic interest rates, with the majority of us thinking that the average Base Rate over the past 40 years has been 4%. The true figure is much higher at 7%.
The survey revealed we all have a good idea about the average wage, estimating it at £25,000 when the true figure is only slightly higher at £27,200. But when it comes to the nation’s rich, the majority of us have a vastly disproportionate idea of how many people are raking in the cash. The majority of us believe that 10% of the population are earning more than £150,000 a year. In reality just 1% do.
As a nation we also think the rich pay a lot less tax. When told that only 1% earn more than £150,000 a year, the survey then asked people to estimate how much Income Tax that 1% pays. On average we thought they paid 10% of the total Income Tax collected, when in fact that 1% contributes 28% of all Income Tax paid.
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Deficit and debt
When asked about the national deficit and public debt the nation’s confusion was revealed. Only 42% of people knew that the deficit has decreased since 2010 - 32% thought it had increased and 26% had no idea whether it had gone up or down.
Similarly, 47% of those surveyed knew that the national debt had gone up, but 26% thought it had fallen and 25% didn’t know.
The research found that our understanding of the national deficit and debt was directly linked to our political leanings. Conservative voters were more likely to believe that both the deficit and the debt had fallen – 63% said the deficit had decreased and 45% said the same of the national debt. In contrast, only 35% of Labour voters thought the deficit had reduced and only 22% that the national debt had fallen.
The price of milk
It’s a question that is regularly put to politicians in an attempt to show how out of touch they are, but many of us are a bit shaky on the actual price of a pint of milk too. While the average guess was 50p - almost bang on the actual price of 49p - 10% of us thought a pint cost 29p or less, while 6% thought it was over £1.
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