What would living on £140 a week feel like? Miserable, according to some young volunteers who agreed to try it for a trial period in a Department for Work and Pensions experiment. They found themselves eating 9p curry noodles for lunch and staying in while their friends were out socialising because their budget wouldn't stretch to much else. And it's little wonder, because this level of income is equivalent to what you'd take home on a salary of just £7,500 a year, which is around three times lower than the average graduate salary.
But this figure is the equivalent of what we can all expect to earn in our old age if we rely on the state pension, which the government recently set at a flat rate of £140 a week. That quest for a graduate job might feel like climbing Mount Everest, but the reality is that even those who get one still have a long and arduous journey ahead of them.
So how do people typically save for their future once they get into the workplace? Pensions have had a somewhat bad reputation as investments over the past few years, but in reality these are the most tax-efficient savings vehicles out there. And compound interest means that money invested in long-term investments like these will grow quicker than you might think. Workplace pensions often come with a nice bonus - free money. Signing up to one is like signing up for a pay rise because your employer will tuck away an extra percentage of your annual salary with your personal contribution. You can even choose how the money is invested and track how the investments are doing, though most of the investment growth comes many years down the line, towards the end of the investment lifecycle. The downside of pensions is that you can't touch the money you put into them until you retire.
Many employees also use Individual Savings Accounts (ISAs) which, like pensions, allow you to pay less tax than other savings vehicles and therefore increase your returns. The tax savings to be made dwarf any interest paid by other kinds of savings accounts - we're talking 20 per cent returns for basic-rate tax payers and 40 per cent or more for higher-rate payers. And you can get your hands on your money whenever you want it, rather than waiting 40 years or so, as you would with a pension. But there's a limit on how much you can invest in ISAs. Currently it's £11,280 - up to £5,640 in cash, and the rest must be put into shares, that is, into pooled investments which a fund manager uses to buy a selection of them, with any returns being largely protected from tax.
But how much do you actually need to put away in pensions or ISAs to avoid those noodles? Finance experts tend to recommend we save around a quarter of our incomes, splitting it between short, medium and long-term goals. And the younger you start saving, the less you'll have to put away when you're older, because of the way interest works. My advice is to plan to start as soon as you get a job, because you then won't feel the pain - you won't miss a part of your income you never got used to having in the first place! And as you dream about all the money you'll be earning when you snag that perfect graduate job, try not to see saving some of it as a chore, but as a way to get the things you really want in the future. How else are you going to pay for a car, a flat, or that long and luxurious retirement?