youthmoney

Interesting infographic from the Consumer Credit Counselling Service. According to the service’s statistics, reported debt increases with age until people reach their early 40s. More at the CCCS website.

Provided by cccs.co.uk

“I would miss a payment on an excisting financial commitment if it meant I caould have what I wanted now”

No evidence of much proofreading in that sentence. Hasn’t been produced with care and attention. Sloppy, you might say. Rushed, and thoughtless.

Which is odd, because it comes from a lavishly-illustrated, high-profile report produced by the media department of Barclays bank. Normally such a financial institution would have the highest standards for its printed materials. It can afford to.

Unfortunately this is the publication, Building money management skills in young people, which marks the long-awaited launch of Barclays’ financial education partnership with three youth charities.

Several similar proofreading errors can be found in the 16-page report. The first chart, showing young people’s attitudes to money based on research commissioned by Barclays, duplicates one statement with different data. Sentences are garbled and incoherent.

The research itself is unimpressive – a hastily commissioned survey carried out by pollsters. It was done in January this year, well after the detail of the partnerships were devised. Which doesn’t suggest that they’re planning to base the project on any quality research. Reference to any independent high-quality research on young people’s financial capability from recent years is lacking.

Why is it so shoddy? That is genuinely surprising, given the press reports that claim Barclays is intending to spend £15 million over three years on this new financial skills programme.

Perhaps the whole thing is merely a promotion for Barclays. The final paragraph of the report, which mentions Barclays four times in three sentences, suggests so. (And they never spelt it Bracalys once):

Barclays Money Skills is specifically tailored to respond to the diverse needs of this age group. The involvement of Barclays partner charities is central to the Barclays Money Skills programme’s ongoing success. By harnessing a range of learning strategies, including peer-to-peer mentoring, Barclays Money Skills will be able to equip generations of young people with the skills they need in the years ahead.

Well maybe. But if they are serious about providing quality learning opportunities they will have to raise their game considerably. This is a badly produced report with poor content.

Do not become  distracted when using an ATM machine. That’s just the kind of sound advice people pass on to young people. But exactly how difficult that can be is shown in this video released by Essex police. The whole video is just 11 seconds long, and it takes a fraction of that for £350 to be snatched from the unwary bank customer—who never even notices.

The man who does the distracting is using a  £10 note, flicking it with his foot near the victim before tapping him on the shoulder  to say he had dropped the cash.

As the victim bends to pick up the note the second man grabs  £350 from the machine and walks away. Meanwhile a third member of the gang started chatting with a woman waiting to use the machine to prevent her seeing what was happening.

Usual advice is to use machines inside bank buildings wherever possible. Avoid using a machine where people are hanging around suspiciously, and never respond to anyone trying to get your attention.

Another thought would be to get young people practising. How easy is it to focus on the task, always keeping sight of the card and the money and the machine, and refusing to be diverted? Enterprising groups could test each other’s resolve with jostles and distractions. It’s a lot harder than it first seems—especially when faced with accomplished thieves.

Essex police are asking for information on this crime that took place in High Road, Loughton last August.

A senior judge has been telling the Times that unmarried couples should get new rights to share property and money when they split.

It’s a useful reminder that, at the moment, couples who live together do not have any financial protection in law if the relationship ends.

This can be a big shock to people. Married couples share the assets of the marriage. Unmarried couples don’t. Anyone familiar with means-tested benefit rules about cohabiting – where living together as husband and wife is effectively the same as being married – can easily assume the same applies to other aspects of shared finance. It doesn’t.

One practical implication of this is that young people living together should think carefully about how they manage their money and share their resources. This is particularly important for the more financially vulnerable partner, who might find financial inequalities reinforced.

Is today the worst day in the year for money troubles? Debt advice charity CCCS thinks so.  The third Monday of January last year saw over 2,000 calls to their helpline from people seeking debt advice.  They expect today to be the busiest day of the year, as households around the country begin to realise that  the bills have stacked up and the full extent of their debt reveals itself.

In an interesting experiment, the charity plans to  show a snapshot of the debt reported to them by tweeting results as the calls come in. It could be a gimmick. But if it causes people to think about the extent of anxiety and misery that debt can bring, it could be no bad thing.

Follow the tweets on the Moneyaware twitter channel. Watch out for the hashtag #debtday.

CCCS cautions that whatever the number of callers and the extent of the debt, it will be only a sample of those who have debt problems. Only one in six people with money troubles seek advice, it says.

Young people should be forewarned to expect a determined sales spiel for phone insurance when they buy a new mobile phone.

Sales staff are persistent. They don’t make saying no easy. Declining politely is something young people could be helped to practise.
Even older, experienced consumers don’t find it easy to stop the sales talk. Seamus McCauley of virtualeconomics website says he knows how the process goes, having bought about 20 phones in his life:

So buying a new phone earlier today from Carphone Warehouse, it went normally and unproblematically until we came to the part of the sale where the sales guy tries to sell me insurance I don’t need and I stop him as quickly as I am politely able. It’s not a big deal; he’s been told to sell it to me, there’s no chance of me buying it, we just need to get through a few seconds of it so he can tell his boss he tried.

Today though, a new and exciting twist. As he started the usual pitch and I stopped him, he said “FSA regulations require me to tell you this”.

Now, here’s a thing. That simply isn’t true. There’s no FSA regulation that requires a mobile phone customer to hear a pitch for insurance.

I pointed this out twice and he continued to claim it, until finally I told him I wanted to record him saying that FSA regulations required me to hear an insurance sales pitch and got my (old) phone out ready to do just that.

Threatening to record a sales assistant may be a bit on the confrontational side. But Seamus McCauley’s certainly right on the facts. Claiming that the financial regulator requires the spiel is not new, though. Nor is it only a mobile phone problem. The same baloney was exposed in the Guardian money pages three years ago in the selling of motor insurance.

It’s also worth letting young people know of the unauthorised companies who try to sell insurance or warranties by cold-calling purchasers of new phones. This, as the FSA makes clear, is likely to be an illegal scam.

This week Tim Harford, a lively writer on economics for the Financial Times, has been pushing round a question from a financial literacy test that a US professor uses to gauge how well people understand underlying principles. It’s a muddleheaded and unhelpful test. Which I will explain later. I’ll also reveal something far more interesting and insightful from Tim Harford. First the little test.

You buy a new £1,000 computer, but you need to take on some debt to finance it. You have two options: pay in 12 instalments, £100 a month for a year; or borrow at an interest rate of 20 per cent and pay back £1,200 at the end of the year. Which is the better offer? Or are they both the same?

Relax. If you’re flummoxed or guess wrongly, you have plenty of company. Annamaria Lusardi, an economics professor based at Dartmouth College in the United States, has been asking a lot of people this question. Only seven per cent of people in the US get the answer right apparently.

The answer is that it is better to pay at the end of the year. The amount you pay is the same – it totals £1,200 whichever way you look at it. But if you pay in instalments you start paying straightaway. You are reducing the debt every month. Despite that, you pay the same £200 in total. That means that the notional interest rate is a fair bit higher than 20 per cent. Well over 30 per cent in fact. If you don’t follow this reasoning, think about the point half way through the year. If you pay monthly, you’ve already paid half of the debt. You’re clear of £500 of what you borrowed for the computer. But you end up paying the same amount of interest as the person who hasn’t yet repaid a penny. That’s why it is notionally more expensive.

If you don’t understand that, don’t worry. Just read why I say this test is muddleheaded and unhelpful:

• It is entirely unrealistic. You don’t have those options in real life.
• If advertised APRs work the way they are meant to, such complexities get factored in. You need only look at the comparison rate – not do the maths behind it.
• It ignores far more significant factors about your psychology and the way you handle money. If you’re the kind of person who prefers to see a debt being whittled away, if you are nervous about your ability to find the money at the end of the year, if you don’t trust yourself to save it, you might sensibly go for the other option. And don’t let anyone tell you you are financially illiterate.
• It focuses on a sophisticated point that a lot of people don’t get. (There’s confusion and bewilderment in the comments on Tim Harford’s blog, even after the answer is supplied.) This alienates people, makes them feel useless with money and causes them to give up. That’s unhelpful.
• People need encouragement, not disparagement. They don’t need to be caught out with cheap tricks, or confused with hard calculations. They need genuine help.

Which brings up Tim Harford’s far more interesting insight. It is based on research conducted with entrepreneurs in the Dominican Republic. Economists gave small business owners different classes in how to manage their business cash flow.

Four hundred business owners were given a brief but comprehensive course in business accounting; another 400 received no training at all; the final 400 were given a course consisting of rules of thumb. These quick tips were intended to show how to keep business cash and personal cash separate, and how to use simple reckoners to figure out how profitable a business is.

The results were a triumph for rules of thumb. The business owners taught these simple maxims had better control of their accounts, saved more and seemed to manage cash flow better in hard times. The accounting training, by contrast, didn’t help at all.

That just has to be the answer. We need to develop rules of thumb, basic bits of commonsense, memorable guides, and disseminate them widely. It may not be easy, and it won’t be difficult to invent exceptions. But it’s much better than exposing people’s ignorance with tricky tests.

She used to be head of PR at the Scout Association. Now she’s battling to protect vulnerable borrowers from the excessive charges of licensed money lenders. Stella Creasy, recently elected Labour MP for Walthamstow, is arguing for a legal cap on the total amount that lenders can charge for short-term loans, including late payment & default charges. So does Compass, the group behind the end legal loan sharking campaign, which is supporting her as she pushes her Consumer Credit (Regulation and Advice) Bill through parliament.

She calls the licensed lenders “legal loan sharks”. It’s a bit of a terminology problem. To many people loan sharks refers to illegal lenders – the unlicensed money lenders who are the scourge of estates and who exploit, bully and intimidate those who get involved with them. Stella Creasy’s background briefing includes references to doorstep lender Provident and BrightHouse, the very pricey weekly repayment hire purchase store.

Behind that choice of terms lurks a more substantial controversy. The counter argument is that interest rate caps risk making the problem worse by driving borrowers who cannot access mainstream credit into the arms of illegal lenders. If you limit their returns, licensed lenders won’t offer the hire purchase, payday and doorstep lending services that many people rely on. If those lenders withdraw from the market, the gap will be filled by criminals.

This is the argument used by the then Department of Trade and Industry back in 2004 when it last looked at the issue.

Stella Creasy is presumably aware of the risks, and so is also pushing the government to widen access to affordable credit, for instance by enabling the Post Office to link with credit union services.

Another way that young people lost out in yesterday’s spending review was the proposed abolition of education maintenance allowance (EMA).

Here’s an MP speaking out against it. Why is she worth listening to? Because Bridget Phillipson, Labour member for Houghton and Sunderland South, was part of the initial pilot for  EMAs. She  knows first-hand what a massive difference it makes to young people.

There’s more heartfelt argument for helping young people from low-income households get to college at the EMA campaign website.

One of the bitterly felt injustices of being young is the fact that while your costs are, generally speaking, the same as anyone else’s, you tend to receive lower state benefits. Just because you are young.

The rules about housing benefit are particularly unfair. Ever since the single room rent limits were introduced in 1996, single young people under 25 have suffered a blanket and discriminatory restriction on the housing benefit they can receive. It is limited not to what they actually have to pay for accommodation but to what is assessed as the average local rent for shared accommodation. In practice, this means a single young person living in a self-contained bedsit or one-bedroomed flat will find a significant gap between their rent and the help they get in benefit.

Since there is a shortage of accommodation that fits the single room rent limits, young people face financial hardship and increased risk of social exclusion. Charities working with homeless young people find it very difficult to move them onto appropriate, safe accommodation.

In today’s spending review, chancellor George Osborne turned his attention to the single room rent restrictions.

Did he do what charities and voluntary organisations working in the sector have been asking for for years – and abolish the discriminatory rule?

No.

He raised the age threshold by ten years. Now anyone under-35 will be caught by this controversial and counter-productive rule.

The saving to government finances are estimated at £130 million in 2012-13, rising to £215 million in 2014-15. The impact on vulnerable young people does not appear in the spending review document.