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Unbelievable! A news presenter just admitted on air ‘I don’t understand a thing about politics!’

Unbelievable! A news presenter just admitted on air ‘I don’t understand a thing about politics!’

I was just listening to the radio. A news presenter had just had a point about economics explained (rather well) by the in-house correspondent. Yet he replied, with an almost audible shrug of his shoulders and a laughing lilt in his voice, by saying: "I don’t understand a thing about finance." 

Now, apologies for deliberately mistitling this blog. But had I headlined it with "finance" instead of "politics", would it still have piqued your interest? That’s the problem! No presenter would ever say that about a politics or crime story, so why is it acceptable even for the supposed bastions of incisive journalism to joke about their own financial illiteracy?

This has happened to me a good number of times in my career. I’ve had interviewers look down the camera, in a way seemingly complicit with the viewer, and say: "I hope you understood that, as I never really got ISAs." Now apart from the professional discourtesy of this – saying that in effect my explanation didn’t make sense – it plays into the hands of the idea that the world of money is some type of ghetto that "normal people" don’t get. What rubbish.

If you don’t get ISAs, then learn! As a news presenter it’s your job to at least understand the basics of consumer finance, business and economics. If you’re not capable of it, perhaps look for a different profession.

In fact, invariably the reason the presenter doesn’t understand is because they haven’t listened – they’ve zoned out, or someone has spoken to them in their ear piece and they cover it with a gag about their lack of money interest. Yet again I ask – would they make the same gag about politics?

It’s time this changed. Perhaps the last great taboo in the UK is to talk about money – let alone show any interest in it. Those of us who do are mocked as "knowing the price of everything and the value of nothing" as if being educated and interested in money matters means you can’t have an emotional IQ as well.

Pah!

PS: I’ve changed a few of the words and facts here to keep it anonymised as my aim in writing this blog isn’t to shame an individual, but rather to expose a common attitude.

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An open letter to the energy select committee about comparison sites

An open letter to the energy select committee about comparison sites

This week the energy select committee took evidence from five comparison sites about energy switching, and in plain parlance, they gave them a kicking.

While it made interesting watching on the BBC Parliament channel, I’m slightly concerned that it may unwittingly end up doing more harm than good – as you’ll see explained in my letter below.

Go to an energy provider, and if you’re lucky and you ask about the price, it may switch you to its best tariff. Go to a comparison site and it should tell you about the whole of the market tariffs – yet even those who gemmy at the edges are still better than energy providers. And the best ones are actually a very strong service. I know how many of you have saved via our Cheap Energy Club.

So here’s the letter I’m sending to the chair of the committee.

Tim Yeo MP
Chairman of the Energy and Climate Change Committee
House of Commons
14 Tothill Street
London
SW1H 9NB

6 February 2015

Dear Mr Yeo,

After watching the evidence session on energy price comparison websites earlier this week, I am writing to express my concern. I am the Editor-in-Chief of the UK’s biggest consumer help site, MoneySavingExpert.com, which has 14 million users a month and 1.4 million members of its Cheap Energy Club, which incorporates a price comparison service.

I fully support the work of the committee to look at the role of energy price comparison websites and how they operate. The points made by the committee about practices which are against consumers’ interests are valid and valuable. Yet many of the statements by members made blanket remarks about ‘comparison services’ – it is crucial to remember the comparison sites interviewed were specifically selected because they were those whose default setting is not to show all tariffs.

To tar all with the same brush is unfair and risks creating a misleading impression. Our service is transparent…

  • We have always defaulted to a whole of market comparison.
  • We openly and prominently explain when we are paid and when not.
  • We give users links to providers who don’t pay us.
  • We explain the amount we are paid and give £30 of it (dual fuel) to consumers as cashback, meaning they get a better deal than going direct to the energy firms.

The understandably robust adversarial nature of the questioning meant many key points about the sector were missed and I am concerned members may infer the wrong conclusions about what changes are needed, and the potential value of these services as a result.

We would ask that evidence is taken on the positive aspects of comparison services in order to encourage switching – which is much needed – and that it be given equal prominence to the session earlier this week via an oral evidence session. My concern is that by not doing so, we risk disincentivising people from switching and playing into the energy firms’ hands.

Yours sincerely

Martin Lewis
Founder and editor, MoneySavingExpert.com

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Labour’s plan to cut tuition fees to £6,000 is a financially illiterate policy

graduates

Labour needs to rethink its plan to cut tuition fees

Labour has long touted that it may cut English tuition fees to £6,000 if elected. Today university chiefs wrote a letter about the proposal that made the front pages, saying that they’d struggle to survive on such a drop of income. Yet as I explained a year ago when it was first mooted, the biggest problem with cutting tuition fees is that it helps exactly the wrong people – only affluent graduates will gain.

This all stems from an illiteracy about how student finance works. People worry about “how much I borrow” whereas what really counts instead is “how much I repay”, and changing the level of tuition fees doesn’t do much to change that. So I wanted to bash out a blog to explain.

PS: Before anyone thinks I’m taking a political side, that isn’t it, only a few weeks ago I attacked the Government for its student finance policy (see my I’ll organise mass protest if you change the system blog).


How much will you repay?

The amount that you pay on tuition fees isn’t dictated purely by what tuition fees are set at but more by what you earn after you leave university.

After leaving, students repay 9% of everything they earn above a £21,000 a year threshold. And this threshold is set to rise with average earnings from 2017 (see my ‘don’t change the threshold blog’ for more on that).

A graduate would then continue to repay until they had cleared what they had borrowed plus interest, or until 30 years had elapsed since the April after they graduated – whichever comes first (for a more detailed explanation see my 20 student loan mythbusters guide).

In practice, of the graduates who earn enough to repay – which is most of them – all but the highest-earning after university will be repaying for the whole of the 30 years.

Reduce tuition fees to £6,000 and only high earners gain

So let’s examine the real impact of this policy. The only people who would gain from it are those who would clear their entire loan for tuition fees plus any loans for living costs, plus the interest, within the 30 years. To do this you’d need to be a high earner.

To see the exact amount, go to my student finance calculator and play about with different scenarios – watching the impact of reducing tuition fees. It shows that only those with a STARTING SALARY of at least £35,000 – and then rising by above inflation each year after – would pay less if you cut tuition fees (we have assumed the student also takes out £5,555 in maintenance loans per year).

That’s a very high amount, mainly only City law firms, accountancy firms and investment banks pay that much as starting salaries. Is that really who Labour wants to target with this plan? Worse still, by cutting tuition fees it will reduce the bursaries that universities can give to attract poor students.

Thus, while it seems counter logical, cutting tuition fees this way risks being a regressive rather than a progressive policy – in other words it benefits those with more rather than those with less. I suspect if any other party had a policy which in tabloid terms meant “student from poor backgrounds would subsidise City Bankers” – Labour would be up in arms.

NB. The student finance calculator makes some assumptions over future rates of inflation and average earnings growth, changing those changes the answers – which the calculator allows you to do. Yet I’m using some pretty standard assumptions here.

There is a psychological gain to cutting tuition fees

The one positive of this plan is that cutting tuition fees is likely to reduce fear among those who don’t understand the system. Yet instead of spending billions to do this, why not spend £100 million on financial education for potential students and their parents to fight unfounded fears?

This is something I did with the Independent Taskforce for Student Finance Information, which I chaired, and we achieved fantastic results explaining the system with less than £100,000, never mind £100 million.

If I were in charge I’d up the repayment threshold and change the name

Much of this whole issue centres around the confusion over who is “rich”. Who is more/less deserving of help: a student from a wealthy background with a low income after university, or a student from a poor background with a high income after university?

We should ensure those from non-traditional university backgrounds aren’t unnecessarily put off university by the fear of debt. Yet we shouldn’t be doing that by pumping in extra cash to hugely affluent graduates.

If you want a more progressive system – and to stop the marketisation of universities (ie, different courses, different prices) – then make them all £9,000 but increase the repayment threshold, for example to 12% of everything earned above £30,000 (that’s a rough example, not a fully worked figure). Though of course that’d cost the Exchequer billions too…

And just as importantly to fight off fear – change the name! Student loans are as much a tax as a loan, in fact they’re somewhere between the two, and as I’ve said before (see student loans aren’t a debt – change the name to avoid a national tragedy), calling it a graduate contribution would both be more accurate and promote better understanding.

Labour isn’t the only one who gets this wrong

Labour isn’t the first one to be financially illiterate over the tuition fee issue. The Coalition itself did it when it set up the new 2012 system. Not just because it fundamentally miscalculated how much people would repay, but also because it allowed universities to offer some poorer students a choice between a fee waiver and cash as a bursary.

Yet, for the same reasons as above, a fee waiver did little to help, only very high earning graduates afterwards would have gained from it, so in truth I was out there shouting vociferously: “Make sure you take the cash.”

I’d love your thoughts below

Past student finance blogs

 

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What happened to the £10m I promised to donate to charity?

In 2010 I pledged to give £10 million to charity

In June 2012 I pledged, as part of the announcement that MSE was joining the MSM group, that charities would receive £10 million. So for transparency’s sake I want to knock out an updated quick blog explaining what’s happened and what will happen with this donation.

How much will go to charity?

At the time of the announcement I said I wanted charities to get £10 million (a mix of cash and shares from the deal proceeds). My plan was for them to get £4.5 million in cash and £5.5 million in MoneySupermarket shares (which, as they were worth £1.16 at signing, meant giving away 4.75 million shares).

By the time the deal completed in September and I received the proceeds, the MoneySupermarket share price had increased, but I felt it right not to reduce the number of shares – so effectively the total donation was around £11.1 million (£4.5 million cash and £6.6 million in shares).

Since then the share price has increased rapidly and in total the donation is now worth more than £17 million. The shares can’t be sold until October 2015 at the earliest, so there is always the risk the price could move the other way, yet all dividends that have been paid out meanwhile also go to charity.

Donations so far

On the day of announcement, I pledged £1 million direct to the Citizens Advice Bureau (CAB). I did this as I wanted the donation to have an immediate impact – and the CAB is an outstanding organisation that I’ve long supported and believe in – so there was no place better. Plus I wanted to use the opportunity while I had the media focus to say:

1. It’s a disgrace that this brilliant organisation has had its debt counselling funding cut by the Government at such a crucial time. It should not be for private individuals to make up this gap – and it’s a tragedy as it’s needed.

2. Few people realise the CAB is a charity, even those who avail of its services. So many who’ve been helped don’t consider giving back when things are better. This needs to change as the organisation is really struggling.

That money was donated in 2012 as follows:

As shares need managing, it made sense to keep these in one tranche.

Since then I have also made a number of other donations, the main ones being:

What about the rest of the cash?

That of course, leaves a very large amount. I am naturally cautious to get this right and don’t want to make a knee jerk decision – I want to ensure these funds have real impact.

Therefore in 2012 I donated the money into a Charities Aid Foundation (CAF) account. For those unfamiliar with the CAF, while a charity itself, it is effectively a charity bank account as once donated, the money is no longer mine – I can never personally get it back – though I retain the ability to direct its use towards any registered charitable organisations.

If you give to charity regularly, with £100 initially or £10/month, you can open a CAF account. The donation is made with Gift Aid and you then get a cheque book you can use for any charity. See the Charity Giving guide for more.

All the donations above have come from this fund. Yet even after that there is still currently £4,030,000 cash and 4.53 million shares (so a total value at today’s share opening share price of £2.64 of more than £12 million). So even though I have made donations, at nearly £16 million the amount is far more than I put in – the cash total includes the interest and dividends earnt meanwhile.

I should note before anyone says it, for this volume of cash it may have been a tiny bit cheaper to set up my own charitable trust. I didn’t do that, as I support the CAF and therefore wanted to put my money with it for a time and help the work it does.

What’s the rest of the donation to be used on?

This money is a legacy from the success of MoneySavingExpert.com so it seems right to me that a good chunk of the proceeds are to be used for consumer and financial empowerment and education.

As such, my aim with a good chunk of the rest of the resources was to help with financial education (which, thankfully we’ve now succeeded in getting on to the curriculum) and to try and provide solutions to the marriage made in hell that is mental health and debt problems (see the Mental Health & Debt Guide).

Yet with such a sizeable fund, I’d like the money to work on bespoke projects (done with charities), rather than just donate cash to go into a charity’s pot.

This is a long-term aim – not something I want to rush. I’ve always said that this will be one of my focuses after my contract with MoneySavingExpert is up, which is in September this year (don’t read that as meaning I’m leaving though, I don’t intend to and the site is very important to me – just that after then I intend to gradually move away from being full-time to free up some time for other interests, including these charities).

I am still working on and coming up with ideas on how to do this over the next few years, especially as I want the money to actually have a hardcore impact, not just to cover admin costs.

As a side note, unsurprisingly, I’ve had many charities approach me since the donation was announced, a few rather aggressively. I would continue to ask for some patience and to allow me to work through the priorities.

There will be some, still substantial, money available from within the CAF funds to be donated to specific charity projects outside of the two areas above, but ensuring much of the money makes an impact and ‘does good’ rather than go into a generalised charity pot, is important to me.

PS. Just to clarify, the donations above are separate to the MSE Charity Fund and the MSE Charity.

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Top 10 blogs 2014 – from a ‘Zara trick’ to ‘My five rules for a happy relationship’ and ‘Erudio sell out’

Here are my top 10 blogs by numbers of readers from 2014

No spiel, no chatter – just in true nerd style a list. Here are my top 10 blogs by numbers of readers from 2014. 

1. Does the Santander 123 3% interest beat the top cash ISA?

2. Buy Zara clothes at a fraction of the cost, and get a flight thrown in

3. The trick to access every network’s signal from your mobile

4. The UK’s mortgage ticking time bomb… Mr Osborne will you help?

5. Get 5% interest on your ISA money

6. Don’t shorten your mortgage term if you can overpay

7. My five rules for a happy relationship

8. The Chancellor’s pension changes are both wonderful and horrid

9. The Government has sold people out over Erudio student loans

10. The real reason why companies offer ‘a month’s free trial’

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