Brits are getting it wrong when it comes to the true cost of living

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How much do you think it costs to raise a family?

Chances are, it’s a lot more than you think.

Research released this week highlighted the misconceptions about public and personal finances in the UK.

The study, by Ipsos Mori and Kings College London, found a series of widespread errors in the perception of monetary burdens.

Among the 1,100 people aged 16 to 75 who were interviewed, the average guess for the cost of raising a family was £50,000.

The true cost is estimated at more than four times that, at £229,000.

While many parents may complain children weigh heavily on the purse strings, researchers found those living with children underestimated even further, suggested a total cost of just £40,000.

It is one of the startling incongruities raised by the study.

Bobby Duffy, managing director of Ipsos MORI Social Research Institute, said people get a number of crucial things wrong when it comes to personal and national funds.

He said: “In particular we hugely underestimate the real financial implications of big life events and decisions – particularly having a family, going to university and retiring.”

When it comes to university, the public think today’s students leave further education with £21,000 of debt, including tuition fees.

But with fees of up to £9,000 a year at some institutions, students are left £44,000 in the red – more than double the average estimated costs.

Unsurprisingly, younger people tend to be more accurate on this question, with 16 to 24-year-olds giving an average guess of £30,000. However, this is still £14,000 under current estimated costs.

The cost of a pension is another major life decision that is seriously misjudged by Brits.

People think £124,000 paid into a private pension will provide an annual income of £25,000, if they receive the state pension on top of savings.

In reality, pension calculators say people would need to put £300,000 away.

Age again comes into play when talking about pension costs, with people aged under 35 predicting they need less than £100,000. This would only provide income of £12,000, including state pension.

While we underestimate how much we need to save, we also overestimate how many are not putting money away.

The public thinks more than two-thirds of Brits are not saving sufficiently for retirement, when the official estimate of “under-savers” is 43 per cent.

Mr Duffy said it is concerning under-saving for retirement is thought to be a “wide-spread cultural norm”.

He said: “That’s not really the case. This is important – we know that our perceptions of what normal behaviour is can be a strong effect on our own behaviour.”

The public is more likely to get things right when it comes to house prices, interest rates and average wages – things regularly reported in the news, Mr Duffy said.

The average cost of a house was given as £190,000, close to the true UK average cost of £194,166. Half (49 per cent) of respondents correctly quoted the Bank of England base interest rate at 0.5 per cent. Similarly, the average full-time salary was guessed as £25,000, compared to the actual average of £27,000.

However, people perceive the average house deposit to be £20,000 when it is actually £72,000. When it comes to high-earners, the public think one in 10 earns more than £150,000 a year, when it is actually one per cent.

Professor Denise Lievesley, dean of faculty of social science and public policy at King’s College London, said it is “vital” the public understands the real costs of life events.

She said: “The average cost of a home deposit, the cost of raising children and level of pension contributions are all issues that, with a sound understanding, can help people plan securely for their future.”