The Christmas spending hangover has turned into a continuing headache for thousands of consumers. More people last year turned to paying for their Christmas presents by credit card, probably in part because of increased unemployment and reduced income because of the recession. Many now even pay their mortgages by credit card.
Those credit card bills will now be dropping through the letter boxes. Spending by plastic rose to a record high at Christmas. While the official figures are not yet published, the UK Payments Authority believes that credit card spending might have risen to £11bn in the run-up to Christmas. But borrowed money has to be repaid and could be expensive in the coming months.
Even worse than the credit card debts, some people in trouble went to loan sharks for emergency finance. One just published study found that over 100,000 people in the UK borrowed £82m from loan sharks over the Christmas period. With the extortionate rates charged by loan sharks, that could require borrowers to repay up to the ten times’ the amount they borrowed.
Not surprisingly, a report from the Nationwide Building Society also found a significant fall in the amount people saved in recent weeks.
These factors point to a worsening financial situation for a large number of households – and the need for more discipline and understanding by consumers in how to manage their finances. Here there is some hope, with a new financial education scheme being launched by Nationwide and Citizens’ Advice.
Nationwide is paying Citizens’ Advice £105,000 to run a three year programme of financial education in Northern Ireland. Citizens’ Advice volunteers will be trained so they can teach people in the poorest neighbourhoods how to improve their financial wellbeing. The programme is part of a UK-wide scheme, to which Nationwide is donating £3m.
Some 66 volunteers here are to be taught, who are expected to go on to train at least 4,000 people over the three years. The focus will be on people most likely to end up in severe debt, working through local community centres, mother and toddler groups and youth groups.
“It is preventative work, not just helping people in debt,” explains Siobhan Gough-Duffin, who is overseeing the scheme in Northern Ireland. “It is to help people manage their money, teaching them how to budget, how they can save in practical terms, giving people the basic skills in managing money. So that people have conversations with each other about how to avoid getting into debt.”
But another element of the programme will be to point people to support if they do enter financial crisis. Citizens’ Advice is acutely aware of the need for practical assistance, having seen a 11% increase last year in people seeking debt advice during the recession. On average those seeking help will have debts of £16,971 each, which would take 93 years to pay-off on an affordable basis.
Moving into the classroom
Others share the Citizens’ Advice aspiration to encourage people from getting into serious debt in the first place, with many arguing this should start in the classroom. Nationwide is itself supporting a programme to teach children from ages 4 to 16 to manage their finances and publishes the Teenagers’ Guide to Money.
IFS School of Finance is a charity seeking to improving the teaching of personal financial management in schools: it offers personal finance qualifications to 14 to 19 year olds in Northern Ireland, England and Wales.
Anne Kiem, the IFS vice principal, says: “There is no doubt that mismanagement of personal finances contributes to rising debt, poverty and social exclusion. As a result, the IFS feel passionately that we should better educate young people about personal finance issues so that they have the necessary skills and knowledge to avoid such problems. This can be addressed by giving personal finance education a higher profile in the school curriculum, particularly in secondary schools.”
Kiem adds: “Avoiding debt and being able to distinguish between different types of financial products and their implications is a key life skill. Financial education can make a real difference in helping young people be better prepared and more able to make informed decisions about their personal finances. Giving young people a concrete opportunity to understand how personal finance products work will prove invaluable throughout their adult lives and arm them with the skills and knowledge to help them take better control of their finances.”
Education will not provide a total solution to the financial crisis affecting too many people: but it is a very good place to begin.
Q. I am still awaiting my latest interest payment on National Savings’ Income Bonds, due at the beginning of the year. What is going on?
A. About 3,000 holders of NS&I Income Bonds did not receive their first interest payments of the year, due on 5 January. NS&I promises that everyone due an interest payment on 5 February will be paid on schedule. Most people who did not receive their January payment will receive a two months’ payment in February. Some people, whose missed payments were substantial, have been sent urgent cheques for their January interest. NS&I says that most of the missed payments were for less than £10, but for about 7% the missed payments were in excess of £100. Any customers who incur bank charges because of the delay can reclaim these from NS&I, which has promised to refund them in full. NS&I customers can obtain further information by phoning 0500 500 000.