The House Magazine asked me if I’d like to write an opinion piece for its personal finance special. It’s the trade magazine for the political classes (politicians, their advisers, teams and lobbyists) and is apparently read by up to 70% of MPs. Therefore I wanted to make sure I got the message across correctly. Of course I picked debt – the most serious issue we face in personal finance.
Sadly my initial draft was 1,100 words, far too long, so many suggestions needed to come out (and I still sent it a little long). I thought you may be interested in the final draft (with the House Mag’s kind permission, it appears in this week’s edition out on 16 October).
“Of course there’s a debt crisis! We only help people once they’re screwed!
Want one-on-one advice on how to borrow? Don’t try the bank, it’ll simply flog you its own products and hope you’ll borrow more. Don’t try an IFA; credit cards and loans aren’t their bag. As for the non-profit debt counselling agencies, they’re there for when it’s all gone wrong.
In fact there simply isn’t anyone to ask. No surprise then that we’re the debt sick man of Europe; after all, we wait until people are already screwed before offering real help.
When I listen to politicians’ and regulators’ clarion calls, the phrases that jump out are “more transparency??? and “responsible lending??? – great aims, but in practice nonsense.
Thanks to transparency, credit card adverts now include a ‘summary box’ of product details; such as the foreign exchange loading, repayment priority schedule, interest-free period (which of course is completely different to interest free intro offers). Yet we live in an almost debt illiterate nation. How many high-end readers of this august publication actually understand the above terms, never mind everyone else? Information without understanding is pointless, it may as well be written in binary.
The real answer, of course, is education; we need to break the cycle of debt. Yet look at our student population; we educate them into debt, but never about debt. During a recent interview, a BBC reporter asked me, “What advice do you have to stop students going into debt???? It’s a stupid question. You can’t stop students borrowing, it’s virtually enforced.
While students must take on debt, we don’t give them the tools to understand it. Is it any surprise students correctly start with official Student Loans, move onto student account 0% overdrafts but end up with high interest rate commercial borrowing – often without truly appreciating the differences; leaving them mired with financial problems and a debt culture at the start of their working life? And that’s the cream of our society – what about the rest?
We’ve got rid of the stigma of borrowing. That’s a good thing. Debt isn’t bad. Governments borrow, companies borrow, so why shouldn’t consumers? Yet bad debt is bad; borrowing that isn’t planned, affordable, budgeted and cheap can be a life constricting nightmare, even leading to suicide. We still need a stigma against over-borrowing, but we’ve got rid of that too.
We must start teaching our kids how to live in this modern consumer culture; and this leads me to the other supposed solution, responsible lending.
Why on earth do we allow the opposition – for that’s what banks and the financial services industry should be seen as – to be the ones responsible for our personal borrowing? I’m not saying banks are bad, but we live in an adversarial consumer society; a bank’s job is to make money from us, plain and simple, they’re commercial organisations; our job, as consumers, is to look after ourselves.
So why do we assign banks the responsibility? We don’t blame a retailer when we overspend, so why a bank when we over borrow? While they may be culpable, they shouldn’t be responsible for us. People need to learn that because a bank sends them a ‘pre-approved loan for £10,000’ it doesn’t mean they can afford it or it’s a good thing. Even the head of the British Bankers’ Association uses the term ‘debt junkies’, meaning we’re giving control, via self-regulation, to the ‘pushers’.
And with this in mind, perhaps you’ll see why we need more than just education, education, education… I welcome money education’s flirt with the curriculum, but more important is what we teach. Let’s tell younger children, “supermarkets put sweets at check-outs to encourage you to buy them, so they can make more money, that’s their job.??? And as they get older, teach about how credit cards really work, what repaying interest can mean, how to decide the amount to borrow, to shop around, research a product, and that ‘you can’t have it all now’ and to ask ‘do I need it?, can I afford it?, is it worth it?, can I find it cheaper elsewhere?’”