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Is it age or a different generation that makes older people more trusting?

Is it age or a different generation that makes older people more trusting?

Is it age or a different generation that makes older people more trusting?

I was mulling today about my grandmother who is now in her early 90s. A few years ago, before her dementia sadly progressed so far as to make this issue redundant, she would constantly call me after a salesman had come to her door, asking me if she should switch to their product.

When I asked her why, the answer was always the same, "because the salesman told me it was cheaper". I always replied, "Grandma, you know what I do for a job, I promise I have made sure you are on the very cheapest possible tariff."

Yet, for her, the simple fact someone had told her it was cheaper meant they had to be telling the truth. She spoke of coming from a trusting world – my explaining this was just a commission-based seller using it as an opening line didn’t cut any mustard.

I hear similar tales repeated by many people about their parents as they delve further into old age. 

Now, of course there is no universality here. There are many extremely savvy people out there far older than my grandmother. Yet, it certainly does seem, anecdotally at least, that there is a trend of our older generation being more trusting.

What I am interested to know is, is this an age thing or a generational thing? 

Do we tend to become more trusting as we get older or is this about the ‘war generation’? This generation lived through a time when everyone in the country had to pull together and look after each other to enable them to survive, a better mannered time – is it because of this they have a greater belief that most people are honest and trustworthy? My suspicion is that it probably is. 

That’s not to say that younger generations aren’t trusting, but in a different way. In general I am a great believer that most people are good. 

If you ask somebody to do something for you they will generally do it well, even a stranger, without stealing your stuff or letting you down.  I’ve written before of my joy at seeing the person ahead of me in an ATM queue chase after the person in front of them as they’d walked away with their card but left the cash dangling.

However, when it comes to business and the corporate world I believe we live in an adversarial consumer society. A company’s job is to make money, our job is to stop them. Companies will tweak every possible profit-making nipple and at the sales end of it, if that includes manipulating the facts and using sales techniques to create openings, then they will.

I’d love your thoughts – are the older generation usually more trusting? And if so, why do you think that is… (and to know your age too would be interesting in this).

Don’t shorten your mortgage term if you can overpay

Don't shorten your mortgage term if you can overpay

Don't shorten your mortgage term if you can overpay

This morning a nice lady approached me to ask a quick question about her mortgage. She said that thankfully, her finances were in a good state and she had a cheap variable rate mortgage, so she was considering cutting her mortgage term to be able to clear the mortgage much more quickly.

On the surface this is eminently sensible. Decreasing the term means you pay it off more quickly, which means there is less time for interest to accrue, so you pay less overall.

However, while it is sensible, my question to her was: "I presume you can’t overpay the mortgage?"

She told me she could – in fact she had a mortgage with fully flexible features that allowed her to overpay and even borrow back if she wanted to without penalties.

Overpaying has the same impact as shortening the term

This left me slightly stumped because overpaying has exactly the same impact as shortening the mortgage term, but with the great advantage that you can stop doing it if you want or need to.

Here are some example numbers to prove the point…

  • A 25 year 3% interest repayment mortgage on £200,000
    Monthly cost: £948 | Annual cost £11,380 | Total interest over 25 years: £84,530
  • Shorten that to 20 years
  • Monthly cost: £1,109 | Annual cost £13,310 | Total interest over 20 years: £66,210

As you can see, shortening the term increases the monthly cost, but cuts the total interest by £18,000 – a monumental saving.

Yet she would end up with a very similar result – both in cost and in the time it takes to clear the debt – by overpaying by £160 a month or a lump sum of £2,000 each year – the difference between the cost of each mortgage. (I say similar and not exactly the same as timing issues, and when the interest is calculated, can have a small impact).

If you can overpay your mortgage (and by that I mean choose to pay a variable amount more on top of your set repayments without penalties – rather than formally changing the amount you pay), it’s worth playing with our Mortgage Overpayment Calculator, which shows the impact of single or regular overpayments.

Overpaying is far more flexible

The real key here though is that she said her mortgage is at a variable rate. That means if interest rates rise, as many predict they will, her monthly costs will increase anyway. That could make the payments of the shortened term unaffordable – and there is no guarantee if you shorten your mortgage that your provider will allow you to increase it again (this can be much more difficult to do).

This could mean mortgage arrears because of the inability to pay over the shortened period.

Yet with overpaying, you could simply stop doing so by the same amount, giving you the freedom to control payments.

Overpaying isn’t for everyone

Before you start overpaying – assuming there are no penalties (or shortening your term as the impact is similar) there are a couple of things you need to think through. The first is contrasting the benefit of it against straight savings.

The simple rule of thumb is if your mortgage rate is higher than the after tax rate you can earn on savings, it generally pays, if not – for example, for someone on a very cheap legacy mortgage – you are likely to be better off saving rather than overpaying (best tactic is to put the cash aside ready to overpay in case/when rates rise).

I’d also suggest that before dunking the cash into your mortgage, you consider building up a cash emergency fund of six months worth of bills. This way if something happens you’ve got the cash put aside – rather than locked away in a mortgage (and the fact you’ve overpaid won’t stop them putting you in arrears). For far more on this and much more help see the Should I overpay my mortgage guide.

Thoughts below please.

PS. Having read some of the feedback, it seems after overpaying, some lenders automatically decrease your normal payments. Of course this can help some with cashflow but it doesn’t have the interest and term reduction effect that this blog is about. So when you overpay, ask them to ensure your standard repayments remain the same.

Other ‘interesting’ mortgage stuff I think you may like…

Foodbank financial triage – an update

Foodbank financial triage – an update

Foodbank financial triage – an update

In August I blogged that I was going to fund a radical pilot scheme to get financial triage into foodbanks with the Trussell Trust.

The idea is that when people are asking for food, it’s a great time to try and help them manage their money and see what help is available – so hopefully the trip to a foodbank (to which people are often referred by a health or social agency) will be a one off.

For full details on the scheme and my involvement read my I’m excited to be involved in financial triage at foodbanks blog post.

The Trussell Trust has just sent its first progress report to me, so I thought I’d share it, as I know many of you were interested.

"Six food banks have been lined up to participate in the pilot. They are:

  • Hammersmith and Fulham
  • Stroud
  • Coventry
  • Cardiff
  • Durham
  • Dundee

Plus Tower Hamlets which we will wind into the pilot as they have already implemented a programme which is still running. No money will go to them directly, however we will include their results.

We have lined up and have spoken to all initial Partners: CAP, Turn2us, CMA, Money Advice Trust, CAB.

Following all press including Martin‘s interview, the Trussell Trust received 57 enquiries from potential partners wishing to participate in the pilot. Whilst the above listed have been chosen to participate, the others are being managed until such a time it is appropriate to proceed with them.

Computers have been organised for all trial Partners (at nil cost to the project, sourced through Avios air miles promotion by being their charity partner).

David has visited Northern Ireland where he has put the wheels in motion as follows:

  • Set up and agree terms for NI ( Northern Ireland) using Advice NI.
  • Advertised for a Project Coordinator. Interviews will be held on 13th October."

So we’re about to be up and running. It’s great to see so many people engaging with this.

Ad watch – NatWest’s 0%uch ad is dangerously misleading

Ad watch – NatWest's 0%uch ad is dangerously misleading

Ad watch – NatWest's 0%uch ad is dangerously misleading

The semi-publicly owned bank has funded a huge ad campaign to declare to people the danger of 0% cards. From full page newspaper ads to viral videos, it’s trying to persuade people its stance is in their favour. So I wanted to bash out a quick blog to put that to the test.

Its newspaper ad screams out at you…

"No to 0% credit card deals because they have rates that jump up and sting you once the rates end".

It then goes on to promote its deals…

"We offer credit cards with no sting in the tail. They’re fair. They’re transparent."

And it even has a propaganda video:

So let’s compare NatWest’s self-vaunted fair offering with what the nasty, boo-hiss 0% stingy cards are offering.

What the NatWest credit cards offers

Its big deal is its NatWest Clear Rate card, a simple low rate card of 6.9% annual interest on all balance transfers and purchases. All sounds nice but as its ads are very concerned about ‘stings in the tail’, I thought I should warn you of, yes you guessed it, a couple of stings in the tail.

  • There’s a £24 annual fee. This is thankfully a rarity for mainstream non-rewards credit cards. Incorporate this into its interest rate and it’s 11.1% representative APR.
  • You may be accepted but pay a higher rate. As NatWest is campaigning for transparency, let’s be very clear. The fact this is a ‘representative’ APR means it, like almost every card, only needs to give 51% of accepted customers the advertised rate. The rest can be charged more.

There are better stable rate cards than NatWest’s

NatWest’s offering isn’t an awful deal, there are far worse on the market. Yet there are certainly far better cards with similar non-0% deals.

As a straight comparison my top pick, similar, stable rate card is the MBNA Low Rate which is 6.6% representative APR – so lower than NatWest – and crucially no annual fee. Overall that’s a big saving.

How does NatWest compare to those 0%uch cards?

Of course, what NatWest’s campaign is all about is bad mouthing 0% deals that sting you by bolting up the rate at the end of the deal. So let’s see how it actually compares. Three housekeeping notes before I do that…

  • I’m comparing it to the best cards on the market. Of course there are poor 0% cards too, but as it’s attacking the entire concept, this seems fair to me.
  • I’m assuming you don’t do the right thing and tart. The best way to use 0% cards is disloyally shift from 0% card to 0% card as soon as one deals ends. That irrefutably cuts card debt far better than any other method; and smashes NatWest. Yet to be generous, I’m going to assume people use 0% cards and don’t shift once the 0% ends.
  • This all depends on acceptance. Of course the calculations are moot if you get rejected. To see which cards you’re most likely to get use the free eligibility checker tool.
  • These are spreadsheet calculations. Interest calculations vary between card providers, so treat these as good back-of-the-envelope calculations rather than exact.

FIGHT 1: NatWest v 0% balance transfers

Let’s start with what 0%’s are famous for – debt shifting balance transfer cards. Here the big beast on the market is Barclaycard’s current offering. It allows you to shift debt at a huge 33 months 0% with a one-off fee of 2.99% followed by 18.9% representative APR afterwards. For more options and info see Top Balance Transfers.

Debt remaining on £3,000 shifted, repaying fixed £100 a month
After 1 year After 2 years After 3 years After 4 years After 5 years After 6 years After 7 years After 8 years After 9 years After 10 years
Barclaycard £1,890 £690 - - - - - - - -
NatWest £1,994 £919 - - - - - - - -
Debt remaining on £3,000 shifted, repaying MIN REPAYMENTS
Barclaycard £2,347 £1,786 £1,412 £1,252 £1,110 £983 £872 £773 £685 £607
NatWest £2,658 £2,354 £2,085 £1,847 £1,636 £1,448 £1,282 £1,135 £1,005 £889

So here Barclaycard smashes NatWest.

  • Repaying £100 a month, Barclaycard is £229 cheaper.

    With Barclaycard, you’d clear the £3,000 in 31 months and the only cost would be the £90 transfer fee. With NatWest, it’d take 34 months and you’d pay £298 in interest and £48 in annual fees.

  • Repaying just the minimum repayments, Barclaycard’s 0% still wins.

    Barclaycard is far cheaper in the first three years (when it’s mostly at 0%) and by that point, you’’ have cleared £600+ more debt; meaning you’’e less debt to accrue interest. Of course the best practice at that point is to shift the debt again to another 0% deal (see Cheap balance transfers).

    But even if you don’t, the fact that during the 0% period so much of your cash has gone to clearing the debt not serving the interest, means that while NatWest has a lower interest rate – even if you left it hanging for 10 years, you’d still owe Barclaycard less than NatWest.

    However it’s worth noting Barclaycard does have a slightly higher minimum payment at the start, which impacts this too. If you look at the amount you’ve paid as well, then after about nine years NatWest does become a slightly better deal than Barclaycard in this.

FIGHT 2: NatWest v 0% borrowing cards (ie, new spending on the card)

If you were planning to use the card to spend on, the top new cardholder 0% deal is Tesco 19 months 0% with no fees followed by 18.9% representative APR after. More options and full help in Top 0% cards.

I went for two variants here, the first, a planned one off big purchase (£1,500) the second, regular monthly spending on the card (a very dangerous thing to do that I’d strongly caution anyone against – using credit cards to fill the gap in your income is never good).

Debt remaining on £1,500 spending repaying fixed £75 a month
After 1 year After 2 years After 3 years After 4 years After 5 years After 6 years After 7 years After 8 years After 9 years After 10 years
Tesco card £600 0 0 0 0 0 0 0 0 0
NatWest £700 0 0 0 0 0 0 0 0 0
£100 spending a month, making only minimum repayments
Tesco card debt left £900 £1,840 £2,756 £3,567 £4,287 £4,924 £5,490 £5,991 £6,435 £6,828
Tesco amount paid £300 £689 £1,381 £2,335 £3,515 £4,896 £6,455 £8,172 £10,028 £12,009
NatWest debt left £1,101 £2,099 £2,984 £3,768 £4,463 £5,080 £5,626 £6,110 £6,539 £6,920
NatWest amount paid £134 £477 £991 £1,661 £2,470 £3,402 £4,443 £5,581 £6,804 £8,103

The results here are split.

  • Tesco smashes NatWest for the one-off £1,500 spend.

    The Tesco card is paid off after 20 months and no interest is paid (as the 20th month is the first one you’re charged interest, but you’re clearing the balance in full so you don’t pay it). The NatWest card is paid off after 22 months. During that time you’ve paid £48 in annual fees and £98 interest, so a total of £146.

  • On £100 a month, NatWest wins in time.

    This is a relatively false scenario as you’d need a huge credit limit; but even so let’s look at it. Tesco is far cheaper in the first 19 months, but even after that NatWest’s minimum repayments are lower than Tesco so even after 10 years you’d have less debt on it.

    That’s why I’ve also added in an ‘amount paid’ row too. When that’s factored in (ie, add debt left to amount paid), NatWest starts to be cheaper after three years.

    Of course you’d be far better off to take Tesco for 19 months then shift the debt to a 0% balance transfer card and get another 0% purchase deal – and better still, not to do it. Yet this does show if you’re going to continually borrow and not pay it off and not manage the cash, NatWest can beat a 0% card.

I did also compare NatWest to the Top all-rounder cards, which give 0% on both purchases and balance transfers. The results there were roughly similar to spending cards – in other words if all the borrowing is upfront with decent repayments NatWest loses, but if you have minimum repayments and keep spending on the card, NatWest over time wins.

The summary

I think NatWest’s adverts are disingenuous and dangerous. The concept would’ve worked five years ago when 0% deals were far shorter than they are now. But certainly with 33 months 0% on balance transfers these are no longer just short-term propositions. To use an advert to mis-portray them as a dangerous product is simply wrong.

That doesn’t mean they always win, it just means there is a choice and different things suit different people. For those who just want to shift the debt, spend and then forget about it without doing anything, stable rate cards have a strong place – and that’s something I’ve always championed. Yet if you are going to do it, NatWest’s card with its annual fee, certainly isn’t the one I’d use.

Do let me know your views below…

I’m excited to be involved in a radical financial triage foodbanks programme

I’m excited to be involved in a radical financial triage at foodbanks programme

I’m excited to be involved in a radical financial triage at foodbanks programme

A radical experiment is about to start involving the Trussell Trust and I’m delighted to be playing a part. Rather than regurgitating, here is the charity’s press release which tells you all…

"FOODBANKS TO LAUNCH RADICAL ‘FINANCIAL TRIAGE’ PROGRAMME"

Foodbank charity the Trussell Trust is to launch pilot funded by a 6-figure personal donation from Money Saving Expert Martin Lewis.

This pioneering idea is a response to the alarming increase in people being referred to foodbanks in severe financial difficulty. The scheme could revolutionise how the UK’s leading foodbank charity works and will see foodbanks partner with debt and money-management charities to provide instant financial help to people in foodbanks at the point of crisis.

The pilot is announced as new research shows that more than one in ten UK families have taken out a pay day loan to make ends meet in the last year (12%) and a quarter (24%) of UK families have fallen into debt to be able to provide for the family. Over 900,000 people received three days’ emergency food from Trussell Trust foodbanks in 2013/14 financial year, 163% more than the previous year.

David McAuley, Trussell Trust Chief Executive says: "It’s deeply concerning that the basics of dignified life in modern Britain – food, heat and electricity – can fall out of reach for so many. High prices, static incomes, problems with benefits and harsh welfare sanctioning are forcing people into extreme financial difficulty.

"When you’re facing stark choices between eviction or feeding the family, debt and high interest loans can seem to offer a short term solution, the reality is that this often forces finances to spiral out of control.

"By introducing a ‘financial triage’ service in foodbanks, where clients are able to connect with free financial and debt advice, people will be given professional help to manage tight finances, avoid pay day lenders and structure debt to prevent the situation from getting worse and to help people break out of crisis much faster."

Martin Lewis’ donation, to be supplemented by additional funds from the Trussell Trust, will enable the charity to develop the first stage of a transformative ‘more than food’ approach to foodbanks, where foodbanks in the pilot project become a ‘hub’ of local service provision.

People in need will be able to access a range of support including emergency food, debt advice and money management all in one location, removing access barriers and cutting down waiting times.

Connecting people with financial support at the point of crisis will also help reduce the workloads of already over-stretched debt and money-management charities by helping to decrease the number of people developing complex and entrenched financial problems.

Despite the evidence of economic recovery, the benefits are not yet filtering down to people living on the breadline. Life is not likely to get easier for the poorest anytime soon which is why finding innovative ways to help people living on low-incomes is urgent.

Martin Lewis says: "The hope is that this scheme will provide a financial equivalent of ‘give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime’. I’ve been campaigning for financial education in schools for years, finally that starts on the curriculum in September, but that still leaves great swathes of our society, especially some of the most needy struggling with even the basics of money management.

"Those who go to foodbanks are already open to asking for help. They’ve rightly prioritised the urgent need to feed themselves and their children. Yet if we can intervene at that point to start to get their financial lives back on track, by approachable, non-judgemental help, it will hopefully cut down the number of return visits."

The Trussell Trust runs a network of over 400 foodbanks across the UK that give emergency food and support to people in crisis and, if the pilot is successful, this could be rolled out across the UK in 2015/16.

The pilot scheme will initially be launched in six Trussell Trust foodbanks in different regions of the UK, aiming to improve the financial standing of foodbank users and to improve their household budgetary skills. The scheme will partner with national UK debt charities to offer professional debt counselling services for up to 20 hours a week per centre in each region.

The pilot will start in September 2014.

Related past blogs