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IVA.CO.UK DEBT EVENING 02/08/07 - TRANSCRIPT |
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> Transcript of the Debt Evening organised by IVA.co.uk on 02/08/07 |
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Speakers: AD: Andy Davie
JB: James Bellini (Chairman)
MA: Mark Allen
RL: Rachel Lacey
AK: Anne Kiem
JF: James Falla
AR: Andy Reeve
RA: Rachel Horigan
TA: Tony Ash
JU: Joan Udin
SH: Sean Cribson
AC: Alison Cohen
JB: Jeannette Brown
KS: Kevin Still
TL: Tony Lee
JH: Jo Hankie
PE: Penelope
AB: Anna Bussell
SL: Simon Leadbeater
NT: Nick Truly
AM: Alan Marsland
EM: Unidentified English male
AD: Good afternoon. I’m Andy Davie, site manager and spokesperson for IVA.co.uk. I have to say it’s a role that I’ve thoroughly enjoyed for nearly a year now. I’d like to welcome you all to the IVA.co.uk debt education debate, and it’s great to see such a large and diverse audience. We have credit professionals, insolvency practitioners, press, and those generally concerned with the future of debt education in Britain. Today is the latest in a very successful year of events for IVA.co.uk. Our focus on debt education reflects a growing interest within the credit industry for policy changes at a very grassroots level. This has been a year of huge change, both in the debt industry and in the way that debt is perceived, from the increased awareness of UK personal debt, to student top-up fees, through to the sub prime lending issues that have affected creditors, such as Northern Rock. This year has seen the world of debts make front page news, so it seems right for our final debate of the year to focus on the future.
Today, we will discuss how to prevent Britain’s youth from making bad financial choices, how to educate today’s debtors to rise out of their money difficulties, and whose responsibility is it to do the educating. As someone who has experienced debt first hand, and been through a successful IVA, I know too well the difference that a comprehensive programme of debt education could make. IVA.co.uk have started the ball rolling, joining with James Falla, M.D. of Thomas Charles, to produce free, downloadable financial education plans for parents. Furthermore, James has been visiting schools to introduce these plans, and we’re excited by the difference that they are already making. After the debate, there will be an opportunity to mingle and enjoy a little food and drink, and I look forward to meeting more of you personally. Finally, I’d like to thank our panel, who’ve given their time and expertise to this event. I’d also like to thank our media partners, and our sponsor, Tuxedo Money Solutions, for making this event possible. I will now hand you over to our Chair for the afternoon, James Bellini, who will introduce you to our panel. Thank you very much.
JB: Thanks Andy, and I don’t know the significance of the music you chose for bringing us into this event, Amy Winehouse, and Rehab, there might be a message there for some of you, anyway. As you heard, I’m James Bellini, and in my day job, I’m the broadcaster and increasingly a futurist, and I’ve kept quite a strong eye on the debt industry as well, over the past nine months to a year. It tells us a lot, I think, about where our economy might be going in the future. I think it’s very fitting though that we gather here in Brown’s courtrooms and its pseudo legal setting, because I think the question we might need to ask ourselves, panel, in the next 50 minutes or so, is, is Britain’s debt hangover really putting the lending industry in the dock, or is it the good citizens of this great kingdom, who are to blame for running up, what is it now? £1.3 trillion, a bit more actually. Every day, it adds a bit more. Just to put it in perspective, £1.3 trillion debt of personal debt is bigger than the entire British economy, in terms of annual output, so I thought I’d share with you, before we kick off a couple of simple figures, which to me, I think, bring it home in a very illuminating way. Currently, this debt figure, £1.3 trillion or so is growing by about £315 million a day. That’s about £1 million extra pounds every four minutes, in personal debt, and today, not this particular day, but any day of this year, on average 77 properties will be repossessed, 317 people will be declared insolvent or bankrupt, and more than 7,700 loan repayments will go unpaid, so something’s going on out there, and we may have a binge drinking problem in this country, but we’ve certainly got a binge borrowing one as well, and it’s really not just us oldies, you know? It’s the teenagers as well, and I hope there are one or two in the room here, and we hope to hear from them in the course of this debate as well, about how they look at this particular issue. Anyway, my job today, briefly is to make sure all of you get the most out of this, get the most out of our panel, and have a chance to put your points, your comments, your questions and your ideas to keep our panel on their toes.
JB: Saying that, I will introduce our expert panel. At the far end there is Mark Allen. Welcome again, Mark. He’s a partner at Grant Thornton. It’s a firm whose motto, I gather, is, quote, a passion for the business of accounting. That should tell you something. Mark runs their IVA service line and is a chartered accountant by training. On his right, Rachel Lacey is editor of Moneywise, that’s Britain’s best-selling personal finance magazine. In the middle is James Falla, who is a debt author, with over ten years’ experience as a managing director of a debt consultancy. You can check out his latest book. It’s called IVA Bankruptcy and Other Debt Solutions. I’m sure it’s got a lot of ideas, actually very pertinent for this afternoon’s discussion. On his right is Anne Kiem, who is head of external affairs at the IFS School of Finance. You’re very welcome, Anne, and on my immediate left here, Andy Reeve, head of business studies at King’s School, Macclesfield and a columnist with Economics Today. So, very huge breadth of expertise and experience there. This is how we’re going to run this debate. We’ve chosen five topics. We’re going to give ten minutes. Time is of the essence, obviously. So, do try and be as succinct as you can. When you do take a microphone, please tell us who you are, and if you’re with an organisation. I will keep it rushing along. Final, quick point. All the panellists will be on hand for a little while at the end, if there are any media or other people who want to get an opinion or a quote off them, and a final business point is that video and transcripts of the proceedings will be available from the 25th October, which is tomorrow, and that will be available on the website, IVA.co.uk/events. So, down to business, the first question for you panellists, and then to you on the floor, is really a grandiose one. The sort of things that journalists on the telly ask, macro questions, to get the ball rolling, if you like, and it is really this, is Britain in the middle of a personal debt crisis? Now, having said there’s £1.3 trillion out there, you might think, well, why is he asking that? But, a lot of people don’t think there is, actually. James Falla, can I come to you? Have we got a personal debt crisis?
JF: Well, in my opinion we have got a serious amount of people in difficulty with their debts and with taking credit. There are a large number of people who are struggling with the borrowing that they’ve taken. I think that also, over the coming few years, we’re going to see a lot more people struggling, particularly with the so-called credit crunch, with people struggling to refinance their properties. What we’ve seen over the last five to ten years is people really sweeping their debt under the carpet, because they’ve spent on credit cards, on personal loans and then they’ve remortgaged their properties, and just consolidated that debt away, and as far as they’re concerned, it’s disappeared and not a problem, but what they haven’t done is change their living standards. They haven’t changed what they’re doing and what they’re spending, so I think definitely we’ve got a problem at the moment, and it’s just going to get worse.
JB: Okay, Rachel Lacey, from the point of view of a magazine that’s read by loads and loads of people interested in these issues, do you get the impression that your readers think there is a massive crisis on?
RL: I think crisis is sometimes the wrong word. I think we need to think about the amount of people, as James says, that are actually struggling with their debts, on a day to day basis. Obviously, we’ve had five interest rate rises in recent months, and that is all having an impact. Obviously gas and electricity prices have come up. Their household costs are going up and up and up, and they’re having less spare income at the end of the month, so that means they’re borrowing more, and the problem is that their disposable spending isn’t being adjusted in any way, so that means there’s obviously more reliance on credit cards and personal loans, and I think there’s a lot of people that could be coping reasonably well now, but it’s just going to take one, little thing, like another interest rate rise, maybe they get sick, maybe they lose a job, they’re in an incredibly vulnerable position.
JB: Yeah, Mark Allen, your IVA service line. That’s obviously an interesting temperature taker, isn’t it? What sort of feel do you get, in the course of a week or a month?
MA: I think, first of all, thanks for inviting me along as a teenager here, to explain this from my background. We’ll probably talk about that later, but certainly there is. It’s this thing, crisis. If you’re in debt, it’s a crisis for you. I think sometimes people look at it and go, well, 60% of the people pay back their credit cards on time, so therefore we’re okay. What about the 40% that don’t? There are 1.7 million people that had gone to see the Citizen’s Advice this year with debt problems. That’s a huge proportion of the population, so it is increasing at the edges. So, overall the government are probably thinking, overall, we need a little bit of debt, that’s good for the economy, but at the edges it is definitely growing, and it is becoming a problem, and the concern that I have is people on fixed rate mortgages, coming out now, trying to get a higher mortgage. There is 162 lenders in the country. There ain’t 162 today. There were 162 about three months ago. So, the lenders are withdrawing, because of what’s happened with the credit crunch. The mortgage rates, if you look at banks and where they make their money, they didn’t make the biggest proportion of their money from mortgages. They’re being cut now because of the wholesale markets, and I think banks will probably be pushing up the margins that they make on the mortgages, going forward, and obviously the consumer’s going to pay for that, so I am concerned that there’s going to be a lot more problems. If you look at the repayment, people are now paying more than 10% on repaying their loans, and that’s only the interest, not the capital on the loans, so I think there’s a problem waiting to happen, and it is going to grow. How you define a crisis is more than 20% of the people fall off the cliff, or 10%, or 30%, is open to debate?
JB: Okay, I’m going to open it up to you people in a moment. Anne Kiem, somebody involved with the school of finance, looking at education, how big, in your view, is the idea of debt education? Is it something missing in the way we approach life’s tools?
AK: I would say yes, although the government at this point would say, well, they’ve covered it now, because they’ve introduced financial education into a subject called PSHE, which is personal, social and health education. They’ve added on another topic at the end, which is economic wellbeing. That’s a huge subject. It’s not compulsory, it’s not taught in every school, and in a lot of schools where it is taught, its one lesson a week. So, you’re not going to get an awful lot of finance education into something like that, so I’d say there is a great need for financial education. What the government have come up with at the moment, we believe, is just not enough.
JB: Okay, who wants to come up first? What we’re talking about here is really twofold, is there a debt crisis? Some of you may have been suffering from that in your personal lives, but if you feel it’s something that’s got at by the press and not for news, but secondly, is it something that we should be teaching ourselves at all stages of our lives, but certainly in our younger years of the educational cycle? Anyone want to come in on that?
RA: I’m a student, and my name’s Rachel. I was wondering, when do you think education concerning debt should be implemented, considering that compulsory education ends at 16?
JB: Who wants to take that, Anne?
AK: I think that it’s not just about debt education, because debt is part of managing your finances. So, I think that you need to look at managing your finances from a very young age, perhaps primary school age even, and building up. Now, the important thing to do is to make sure that the education that’s being delivered is appropriate to the age group. So, trying to teach 14, 15-year-olds about mortgages and saving for a pension. Yes, they’re important things to mention, they need to know about them, but why not talk about their mobile phone tariffs, things that matter to them, and that they’re doing now, so I think that there needs to be an element of financial education from a very young age. We would advocate that in fact there should be a stand-alone qualification at GCSE level, so that everyone will have left school with some form of financial education, and of course then it builds from there.
JB: Andy Reeves, you’re head of business studies at King’s School, is it in your curriculum?
AR: It is. We do the BHSE course, but again, as Anna said, we only do that in one lesson a week, so one hour a week, and it’s delivered by a teacher who is also having to talk about careers education and sex education, the whole range of different issues. So, it does need to be delivered in an appropriate manner to the student.
JB: That makes sense to you?
RA: Yeah.
JB: Let’s move onto the second one, because they’re all seamlessly linked, really. The second issue is, whose job is it to stop people getting into debt in the first place? I mean, personally, as an avid TV watcher, I’m constantly struck by the number of loan companies who are on television. They all seem to be there to create a lifestyle that maybe is often beyond their means. Does anyone share that view, by the way. Anyone want to come on in that? Yes, sir?
TA: My name’s Tony Ash. I’m a credit consultant. Yes, I think the lenders play an important part here. When I think back to my early days, my late teens, early twenties, when I was looking for a mortgage, you could get two times your salary. Now, you can get three, four, five times your salary. When you have a credit card, and you have a credit limit, as soon as you hit that limit, you think, thank God, I can’t use it again, but you get a letter in the post saying, oh, your limit’s been increased to another £4,000 more, enabling you to spend more and get further into debt, and I think that’s where a lot of the problem lies, particularly with the young people who haven’t been educated into looking after their finances.
JB: Yeah, let’s put that to our panel then. Anne, you were telling me, before we kicked off that there’s often a cultural thing here, that young people are dragged into the world of debt almost because they think there are no traps or difficult areas ahead of them?
AK: Indeed, I think one of the issues for young people is that they’re never asked to actually look at the lifestyle they want to lead, and the things that they want to have, and the amount of money they’re likely to earn. So, one of the first things that we do in the course that we offer is a qualification in schools, is to say, right, tell us what you want to do in your life? How much do you think it’s going to cost? Then, what sort of job do you think you’re going to have, and how much do you think you’re going to earn? For the first time ever, they’re going, they don’t match up. I want a million pound lifestyle, and I’m going to earn £20,000 a year. It doesn’t work. That’s not their fault. It’s because we’ve become such a consumerist society that we believe that we have a right to these things, and you’re talking there about credit cards and loan companies, offering things on the television, but it’s also the other advertising who say, you’re worth it. Who is going to say, I’m not worth that? So, I think there’s a lot of pressure, because we’re such a consumerist society.
JB: Exactly, and I said earlier, I’m a futurist in my day job, and one of the big debates in the futurist community now is that we are shifting from a work ethic to a consumer ethic, and that’s totally different from what we had in our particular generation, and generations before that. So, Rachel Lacey, over a given year, does your magazine reflect this sort of world that Anne’s talking about, where people think they have a right to the million pound lifestyle?
RL: I think absolutely they do. We were discussing before how people have expectations of what they deserve in life, that they deserve to upgrade their car every couple of years, get to go on holiday or go abroad two or three times a year, and what we’re constantly trying to say to our readers is, stand back, can they afford that? What are the consequences of having that lifestyle?
JB: So, in fact, this debate goes further than just the creditors and the lenders, does it not? It’s the creation of a particular kind of lifestyle culture, that’s going to be putting more and more people into debt.
RL: Borrowing is ingrained in our culture now, that’s the problem. It’s got no stigma attached to it, which is used to have a generation or so ago. It’s just, if you want something, you no longer have to save. You just borrow the money, and you can have it that day. It’s instant gratification.
JB: Yeah, James, from your standpoint, running a consultancy, you see it from a slightly different angle?
JF: I was just thinking there that you could say though that people don’t learn until they experience things for themselves, and so I’ve spoken to schools, and I’ve seen quite a few schoolchildren, and I can see, when I talk about credit and credit cards to them, if they’re 16 or 17, they have never had a credit card, it’s going in one ear and out the other. So, you could argue that taking credit and people getting into credit is not a bad thing, and we need to accept that that’s what is going to happen. We accept that we are in a world now, where credit, credit cards are available. I don’t think we are going to be able to change a changing culture that has happened over the last 20 years in five minutes, so I think we embrace the fact that people are going to take credit, but then educate them post the event, during the event, not trying to perhaps worry them or stop them moving into borrowing money.
JB: The people who pass through your door, looking for advice and so on, typically, are they what we would call irresponsible, silly people, or are they people who have been trapped by the system?
JF: Typically, the people we see are not people who regard themselves as anymore stupid than anybody else. I think that what they’ve done is they’ve got themselves into a trap, where they haven’t saved for a rainy day. So, people really in society now are not thinking about what might happen, what could go wrong, they’re looking to everything will go right, so generally the people we see, things have gone wrong, and they’ve not had anything to fall back on. So, I don’t think they’re any worse at managing their money, potentially, although obviously money management has not been high on their agenda, but what they’ve not done is had a cushion, so that when things do go wrong, and it’s surprising how, when everything’s rosy in life, a little thing goes wrong, you just ride it easily, but if everything is quite tough, and then something else goes wrong, that can really start the ball rolling to a downward spiral.
JB: Mark and Andy, I put this to you as well, stopping people getting into debt in the first place. We used to call it social engineering. It’s very difficult to have a cigarette these days, we’re told constantly we’re drinking too much and we’re going to put stuff on the bottle, the packaging and all the rest of it to stop us doing it. There’s nothing in this industry, is there, here have a loan?
MA: There is not, and I just don’t think there’s likely to be. I think the genie’s out of the bottle. As soon as the cavemen wanted bigger walls and a bigger roof, you wanted to match your neighbour, and the bottom line, consumerism and consumption is all good for economies, the government will give it a certain amount of lip service in relation to it, but it’s a double-edged sword. Most Western societies want people to consume, it’s actually good, because you can balance the things when you want things, rather than when you can afford to pay for them, for the guy who’s making the goods to keep on making them on a regular basis, so it’s actually quite good. It’s when the debt at the end gets bigger and bigger, that it becomes a problem. At this stage here, if you have got one person going into some debt problem out of 1,000 people in the UK, it’s not really a big issue at a government. They’ll not come out and say that, because it’s not a political vote winner, but the truth is, it’s good for economies, so rather than try to address it beforehand, I think what we need to be doing as a society is looking at the options when people get into debt. You’re not going to stop them. I don’t want to cut this presentation short by saying education is not really going to make any big difference. I think at the edges it will be, but I think the danger is if you teach somebody how to do an advanced driving test, they think they can drive a little bit faster because they’re a better driver than you or I. Now, if you teach them about debt, does that mean they’ll take on more debt, because they can handle debt now, they understand about it?
JB: There are two people at this table who are both educationalists, who seem to disagree. Andy, first?
AR: I think, responsibility for debt education starts in the home, and at quite an early age, in terms of giving children pocket money, and once they’ve spent that pocket money, they can’t have anything else, and that’s perhaps an old fashioned view, but it’s one which I believe is very important, and seeing how parents operate and react themselves is important. A child will respond accordingly, and if a parent is spending and over spending on a regular basis, then how can we expect the child, when they grow out, to understand budgeting, and then schools have a vital role to play in teaching responsibility to the individual students. We expect to teach students on a whole variety of things, and money management is no different.
JB: Anne, you were suggesting earlier that it’s not just the creditor side, the financial industry but people are constantly being told, particularly women, that they’re worth it. They read about the jewel encrusted Blackberry that Naomi Campbell throws at her maids, they want one of those, they want an i-pod, they want all the gear with the logos on it and so on. It’s nothing to do with finance at all, is it?
AK: Well, on one level, no, it isn’t. It is a lifestyle thing, but of course it does have financial implications, and I think that that’s where…part of the problem we have at the moment is that there are a lot of people out there who are frightened of finance, either because they think it’s very complicated, or because they think it’s terribly dull, and it doesn’t really relate to them. We know from the courses we offer in schools that actually young people are quite interested in learning how to manage their finances, because it’s about them, it’s about something they can use the minute they walk out the school gates, and I have to disagree, saying that we need to educate people not before but after they’re in debt. It’s wrong. You don’t buy someone a car, to use the car analogy, sit them in it, turn the engine on and let them drive down the motorway, and then say, right, now I’m going to teach you how to use it. It’s a terrifying thought, and finance is the same, and there are elements of it that you can teach well in advance, and we actually have evidence to show that financial education at 14 to 19 level actually changes young people’s financial behaviour, we’ve got proof of that. It works.
JB: Okay. So, madam first?
JU: Good evening. My name is Joan Udin. I’m a credit management consultant. My question is, how do the people who want the million salary lifestyle on a £20,000 salary actually persuade people to lend them the money? What do they do? Do they lie on their application forms, or don’t the lenders check before they actually advance the money?
JB: Right, stick your hand up if you want to answer that one. Go on, James, you’re a writer, a creative type?
JF: I’m not a lender, so I can’t speak for lenders about how they decide who they’re going to lend to, but what I do know is that if you come across somebody who is in serious debt, what you tend to find is that only very recently have they defaulted on a payment. So, you may have somebody who has managed to get a credit card, and because they’re using it and paying it back properly, then they’re able to get another credit card, and because they’re using that and paying that back properly, then they’re able to get another one, and another one, and it’s quite common for people with serious debt to have ten to fifteen credit cards, which they’re using one to pay another.
JU: [inaudible] worth of debt on credit cards and bank loans.
RL: Another thing we were talking about earlier was that it doesn’t help that on a teenager’s 18th birthday, they’re getting a letter through the post, saying that they’ve been pre-approved for a loan, or that they’ve got a credit card with an automatic £5,000 limit on it. It’s like money’s being offered to them on a plate, and at that age, they don’t understand that it’s money that they have to pay back. They don’t understand what happens if they can’t pay it back. They just don’t think about how they will pay it back, full stop, and all of a sudden, they’re thinking about how they can go shopping, and what they’re going to spend the money on.
JF: You can’t just say, why don’t the banks stop lending money? You could equally say, why don’t people take control of their own lives, and stop spending money?
JU: That’s a very good point, yes.
: Okay.
: There’s little information being shared between the banks, so whenever you went in for a loan with the bank, to borrow £10,000, that bank didn’t have a full picture of your other indebtedness. That’s improved now, because in the past, banks were only sharing negative information. So, as James said, unless you have a lot of defaults, when you went to bank B, they may not have known the full picture. They’re starting to share positive information now, so in theory, the banks should have more information of that person to say, listen, he’s already got £100,000, so in theory there shouldn’t be more.
: Yes?
: My name’s Sean, and I’m a student. I’d really like to back up the people talking about education, because it’s not just about credit cards. It’s everything for us, we’re told to want, and all the loans, they make it sound so good and just so easy. I feel like we have to be taught, and someone can decide not to spend so much money, but when it’s all there in front of you, when everyone else is telling you to spend it, and when you’ve been raised to trust people, there’s no way you can stop yourself.
JB: This is obviously very interesting to the delegates, keep on that. Down here?
EM: It’s more of a question for the panel. UK government likes entrepreneurs, and a lot of them that I meet tend to be quite blasé about money. If you can educating them too much, would you be educating the entrepreneurship out of them?
AC: Alison Cohen, University of Southampton. We’re obviously dealing with a lot of students who are either about to get into debt, or already in debt. We recently carried out a questionnaire on a cross-section of our students, and I think there were three things that came across. One of them was, no, we’re fine. We don’t need advice. We might actually like to have advice, but, no, we don’t want to bother to attend a workshop, and we have found that when we’ve tried to run workshops and education for students, nobody turns up. So, how do you get around that? I think we should be getting them earlier, but bear in mind, we’ve got these students now, how do we get their attention?
JF: One thing about young people is they’re optimistic, and long may that last. It’s very important that people continue to be optimistic. The only way therefore you can encourage somebody to have an education about looking after their own money is to make it compulsory within schools. It’s the only way that you can do it, and then try to introduce that learning and education in a really interesting way. Somebody going in and standing in front of them for an hour, preaching to them about looking after their own money is never going to work. You’ve got to engage them.
JB: It’s probably quite an interesting subject to follow up. Madam?
JB: Thank you very much. My name’s Jeannette Brown. I’m a chartered accountant and insolvency practitioner as well. I haven’t got any answers or questions, just a couple of observations. We take on people straight from school at 16, and we asked a young lady in our support department, a couple of months ago, can you get that mortgage statement from the client please? And, she said, what’s a mortgage. Now, somebody takes those people at 16, and by the time she’s 21 and she’s got ten credit cards and a mortgage nine times her income, so somebody’s got to do the educating. I think, as a shopper, I am a shopaholic, that’s it’s the shoppers that should do the educating. Hold up the bag, like Anne says, how much do you need to earn to get this. The shoppers have to do the educating, not the boring, dull accountants like myself. Like the lady said before, we offered our local college a debt day, come in students, talk to us, couldn’t get it off the ground at all, and I think that’s really quite disappointing. I’d like to take the educators back to the most useful subject that I ever did at school. I didn’t go to an excellent comprehensive. Although Latin wasn’t available, but CSE commerce was. The five badges of trade, and I have written them down. What’s the difference between a statement and an invoice? How to calculate interest on a loan, absolutely invaluable. I swore I’d never say this, but go back to that kind of subject, and Anne wants to ban the statement, you are worth it. I want to ban the statements, life’s too short. I’m sorry, it isn’t. Life can be very long.
JB: Thank you for that. Sir?
KS Kevin Stole. I used to be a former director of Equifax and now director of Eurodebt Financial Services. I’d like to pick up on Mark’s point earlier on. Frankly, the data has been there since the year dot with regards to making better lending decisions, and in the days that James and I worked together, we were promoting responsible lending then. Now, I’m in the debt management world. Now, we’ve taken a view that we would go back and have a look at somebody’s credit card twelve months before they come to see us, and it’s amazing how many of them have an impaired credit file at that stage. So, the writing was on the wall well before they took the £25,000 consolidation loan out. A lot of this comes back to not just education of the individual, but also, when they are in financial difficulty, they start making stupid decisions. They need to borrow, for the next month, for the next three months. So, where they may start off well intended, and everything was structured, what you tend to find it they’re not helped in a situation where the information is readily available, and I do welcome now the agencies that are making all their information available to the public, and they should be taking it up, right from the age of your students, but this applies educationally, to everybody to the point of retirement.
JB: I’ll take two last ones on this issue. Madam? This subject seems to be very popular, what do you read into that?
RL: I think it’s just because it spreads out into so many different areas of life. Learning about money is learning how to manage your life. It’s what mobile phone you buy. It’s whether you can go on holiday each year. People think about personal finance as being a quite dull, dry subject, but it’s getting to grips with your money better, allowing you to live the life that you want to have.
JB: Absolutely.
TL: Tony Lee, from Equifax. I would like to make two comments, relating to what James has said, and what Kevin has just said. Firstly, Equifax have recently launched an insolvency scoring predicting model. As part of the analysis that was done, we found that 52%, over half of all people who, one year later were insolvent, at that point in time, they were 0 periods in arrears, with all of their credit agreements. It means that today, someone could be 100% up to date with all their credit agreements, and in a year’s time, they could be insolvent. It does look as if a significant proportion of people who go for IVAs or go bankrupt were actually managing their account, and just fall off a cliff.
JB: So, often there’s no early marker?
TL: In the majority of cases, there is no early marker, twelve months in advance. Not as we would traditionally understand it, in terms of falling one or two periods in arrears. They’re juggling their money, but they are keeping their heads above water.
MA: When the people come in to see us, they could have been through five years of hell, borrowing from Peter to pay Paul, so it’s not a case of everything’s fine and then they fall off the cliff.
TL: I’m talking about in terms of making the payments. I’m not saying that they are not under severe stress, and there are indicators which we can pick up and predict, but to make a slightly different point, we are focusing very much here on educating the young, and from Equifax’ point of view we know that there are significant debt problems in the 20s to 30-year-olds, but I’ve seen figures earlier this year in the increasing amount of debt in their parents and their grandparents ages, and we’re getting now generations of people who have slowly got into debt, increasingly during their working lives, and they are falling foul in their 50s and 60s. We can look at the children and educate them, and that will help them over the next 30, 40 years, but what about the older generation, and what should we be doing to educate them?
JB: Thank you for that, Andy?
AD: I wanted to agree with the last speaker there, as someone from personal experience. I was right up to date with all my payments before I went insolvent, but those payments were being made by credit, and the thing that kept me going was automatic credit card increases. We must put a stop to this. We must have credit card invitations to increase, with an affordability test, because at the moment the bank doesn’t know if you can afford it or not. The fact that you’re paying credit with credit to the bank, you’re all up to date, but the reality is, as Mark just said, for the past year, you’ve been juggling your finances.
JB: Okay. I know there are a lot of hands going up, and I’ll come to you, but I think we’ll actually bring them into the third issue, because they’re probably very connected, as you say. This third issue is, who’s responsibility is it to educate those people, the ones that are already there, up to their armpits in personal debt? Mark, do you want to kick that off? Is IVA the answer?
MA: No, which is strange coming from an IP, but I think the figure’s going to be 1.4 by Christmas as well, but I believe that it’s parents. You have to take a certain amount of responsibility yourself, and most people that I see coming through our doors for an IPA, they do not put the responsibility onto banks. They say the money is easy to get, but they actually say, I did take it. I think government have a big part to play. I was doing a bit of research when I was asked to do this, and I picked out this, a Credit Today thing, this is about an investigation into existing money education. In my opinion, there’s just so much but nobody knows where to go to. Even if you look at the government, there’s about six different government departments, all doing something. Some are talking to each other, and some aren’t. So, it needs to be coordinated through a channel, and government have to be a large part of that, but as I said earlier on, I don’t know whether government are going to do an awful lot, other than pay a little bit of lip service, and we don’t believe our parents, seemingly. This isn’t a personal experience, but just looking at the data, 47% of people say if their parents do A, they’ll do B, so I’m not sure how much parents are going to have influence. Parents don’t bring up children, I’m told, other kids bring up your kids, so there may be other people in debt. Whenever Andy speaks, he sticks in my head, because he’s been there. He’s done it. To other people who have been through the experience, you actually do listen, and I think people like Andy going around and giving his personal experience means ten times more than somebody like me or an academic talking about the consequences.
JB: James, your latest book is on debt solutions, so do you agree with Mark, there’s a bit of anarchy and chaos out there. We need a more refined system for helping somebody already in the pan?
JF: I think the difficulty is convincing people that they need help, and that they should take help. So, if you’re talking about people in their 30s, 40s, 50s, so they’re outside of the education system, you need to make something meaningful, exciting, I don’t know, and whose responsibility is it to educate people? I think that is wide-ranging, responsibilities lie all over the place, but perhaps a more pertinent question is how is the best way to do it, and in that sense, perhaps more use of the Internet. We see things like Facebook, and these different operations, and they’re saying, in the first six months, 200,000 people signed up to Facebook, so can we use those mediums to put up education packages, to encourage people to look at how to be responsible with their money? How can we get people to talk to other people about what’s happened.
JB: Andy, is it something that’s just not fashionable, to be worried about your debts?
AR: Absolutely, as I said earlier, students are generally optimistic, but going back to Mark’s point, within the PSHE course in a school I taught at, previous to the one I do now, we had a former drug addict, who came in to talk about the issues regarding that, and that was so much more engaging than a teacher, or a health professional standing up, and so getting individuals who have been in debt and have worked through that into schools, I see is a very good thing.
JB: Anne, when I was at university, we were quite a small percentage. Now, a lot of people go to college, graduate and they will graduate with debts, so they enter adult working life in a debt culture, do they not? That’s different, isn’t it?
AK: Absolutely, and there’s in fact a lot that is different now to when our parents were growing up. You just have to look at the pension system, when most of our parents would have been in a final salary pension scheme. They didn’t have to worry about it. We’re now having to take far more responsibility for our own finances, and at the same time, the financial products on offer are far more complicated. It’s no wonder that we’re in a bit of a mess, if we’ve had no education to go alongside of that. I think that some very important points have come out, and one of them is, should it be parents teaching people? Yes, if they know. As we know, it’s not just young people who are having difficulties with debt and managing their finances, so there have to be solutions for adults as well, and one of the areas that I think can be picked up here and used, is financial education in the work place, because we firmly believe that there are a lot of people who are so stressed about their financial situation that they’re perhaps not operating as well as they could be in the office, or in the work place, and therefore, it would be beneficial for companies to also offer some form of financial education.
JB: One of the big twists on this, surely, is that many people in debt are younger people, but older people in this country, over the age of 50, own all the money. Over 55, your old people in this country own and control 80% of the financial assets in the economy. Often the debts and the problems are earlier on. So, open it up, madam?
JH: Jo Hankie, from the Bankruptcy Advisory Service. Three things, one, what’s the classification of people managing their finances? I don’t think they’re managing their finances if they’re paying the minimum payment each month, and credit is increasing. Secondly, we see instances regularly of people that are in a debt management plan, who are still being offered more credit, and the third thing, how do we educate people once they’ve already got problems? There’s more people than ever going into bankruptcy. The bankruptcy term was reduced in 2004. It’s now in and out in twelve months. A huge proportion are in and out in seven or eight months. Maybe one of the things that we could have done, just like drink driving, is if you want to be discharged early, then you go into some kind of financial rehabilitation course. Instead of which, they’re discharged from bankruptcy, and there are lenders, and a lot of lenders out there who will immediately give them more credit.
JB: Debt rehab, good idea. Sir?
EM: I think there’s an aspirational issue, particularly with regards to students.
JB: Are you in the advisory business?
EM: I work for an insolvency practitioner. Now, when I say the old days, when I was at school, the TSB came around on a Wednesday, and you put your two pence or your five pence under the book. Now, when you’re at 18, you’re being given a student loan, and you’ve never had the two pence in their TSB book. You’re being told that you must go to university, you must get a degree. There’s far too many students doing far too many useless degrees.
JB: What would you say is a useless degree, by the way?
EM: I’ll give you an example. I have a client who owes thirty grand, and he’s got a degree in theatre studies, and he sells popcorn. Now, that’s what his degree got. That may be a case that a lot of other people would get out of, but there’s something like four times as many people doing photography degrees in the UK than the whole of Europe needs. So, people are being told, do a degree, you’ll get fifty grand a year when you come out, and they’re not working through the summer, Christmas, doing part time jobs, which people in our generations did, and they didn’t accrue the same level of credit. The banks maybe give you a £500 overdraft. The government helped you out. It gave you a grand, paid your fees, so when you actually came out of university, you had a manageable level of debt, and I’d agree that that may have actually been of some use. Now, you’re coming out with an unmanageable level of debt and a degree that’s useless in a lot of cases.
JB: Okay. Any of you younger people? Are you at college? Maybe you can come in on this as well, that you’re being brought into a system where you’re going to end up with debts, whether you like it or not, which wasn’t true in earlier generations?
AK: Just to back up the theory of useless degrees, I don’t think that Bachelor’s are useless degrees necessarily, but it is proved that a number of employees are now looking for Master’s qualifications. So, student are going into post graduate education as well, and the average debt now, a student can take out a £3,000 tuition fee loan, to pay for their tuition fees. They also can take out a £4,500 maintenance loan, to pay for their living costs, so that’s £7,500 per year that they’re having to take out in lending.
JB: Okay. Yeah? Do you recognise yourself as being a debt laden person now, at your age?
RA: Me? No. I’m not at college, I’m sixteen, so I’m doing my A levels, so I don’t have any debt at the moment, but I agree with the point that people go into university and are forced into it, thinking they are going to have loads of money if they have a degree, but I disagree with the fact that people back in your day worked in pubs and stuff like that to make their financial situation better, because I believe that people at my age work really hard on other stuff as well, but still can’t cope with the money that they have to pay back, and so they start life with a massive debt anyway. So, there has to be some balance in there, and it’s not getting better at the moment.
JB: Can you pass it along? For someone like myself, who has a daughter in her third year at university, they work hard.
PE: I’m Penelope and I’m at the same school as her. I just wanted to ask what the ideas of the education are for people like our age, at about 16, because some of the things that you were talking about may be educating us about mobile phones and so on, is something that I wouldn’t find that useful. What I want to know is the stuff that, when we’re going up into uni, the language. I don’t understand that, and that’s some of the issues.
JB: The language of money?
PE: Yeah, I have no idea, and that’s what worrisome.
JB: Good point. Who’s to blame there? Anne?
AK: Even at school, I think it’s a very valid point, that a lot of people are turned off by the jargon, and by the terms that are used, and it’s an important part of any education programme, to include that sort of thing, and at every level, so that people at least can speak the language, because if you go along, even if you decide you need to go on and get some financial advice, you need to know what questions to ask, and how to interpret the answers you’re getting.
JB: Rachel, it’s a part of us journalists to help explain complicated things in an easier way? Do you find yourself in the magazine constantly explaining?
RL: Exactly, because you can never make people read small print. Obviously for legal reasons, that small print has to be there, but who reads all the documentation that comes with your credit card, or your insurance policy? People just don’t read it, so that’s what we’re spending a lot of our time doing, is actually pointing out the common pitfalls that people will be experiencing. Things they need to know about their credit card, but they might not be aware of.
JB: Okay, I’m trying to get new voices here, madam? I don’t think people understand a basic thing, like compound interest, either, that it really can creep up on you.
AB: Hi, I’m Anna Bussell from R3, which is the Trade and Association for Insolvency Practitioners. A quick point about student debt, we’ve just done a debt index recently that showed that 50% of 18 to 24-year-olds had some kind of student debt, and around 20% of 25 to 34-year-olds had student debt, and even the 55 plus had some student debt. I just wanted the panel to know we’re talking about who should be educating young people. Surely if we’re saying that it’s okay to come out of university with thirty grand’s worth of debt, that’s some kind of miseducation somewhere?
JB: Okay. Let’s go onto the fourth area, and then bring questions in on that, and as we’ve seen, I think they’re quite often the same types of questions as well. The fourth area I’m asking the panel to address briefly is, what major hurdles surround successful implementation of debt education? Is it the fact that if you’ve got a student loan, you can go bankrupt and it will all disappear in a year, and you won’t have to worry about it? Mark?
MA: Again, I think education is good, because people need to have a grounding of some of the issues, but coming back to talk about mobile phones. If somebody asked me about the tariffs on mobile phones, I would have difficulty understanding it, because the bottom line is, the more complex you make your prices, the more money you make, and it’s a service industry, so to not to be able to compare things as easily, and again, with education, I’m just wondering, it’s great in theory and it needs to be done, but how much difference will it make? Will a person still want the car before they can afford it. They may know that it’s going to cost, and they know the APR is this or that, but once it’s out there and people are willing to give you goods and you don’t have to pay for it up front, my gut tells me that people will only look for education when it’s too late. I’m not interested in hearing about something that I don’t think is going to affect me at this minute.
JB: Anne, a crunch question, surely has to be, should the lending industry be involved in education? There’s a colossal conflict there, and a problem of trust?
AK: Absolutely, I think that’s a very important point. Whilst it is very good to have industry people coming in and talking about their industry, because you get the real life experience, I think that’s an important part of any education programme, you can’t rely on the financial services industry to be responsible for the whole thing, because there is a huge conflict of interest, but there is also this lack of trust. For numerous reasons, the financial services industry doesn’t have the best reputation amongst most consumers, and I don’t think that people will take it well if they think that it’s the financial services industry then trying to effectively teach them how to buy their products. It’s a tough one. I think there’s a lot that the industry can do to support the education, but it’s got to come from some sort of independent source, where there is no axe to grind. Again, I think that’s why it comes down to starting in schools, but has to be available on a wide level, so whether or not it’s in the work place? I think one of the biggest difficulties we have is getting enough space in the curriculum, at school level, and once people are in debt, what they’re not looking for is education, they’re looking for advice, and that’s got to be the first step, when people are in debt, trying to help them out of it. Then, go onto the education.
JB: Clear difference between advice and education?
AK: Absolutely.
JB: Quick remark from you, and then we’ll put it to the delegates.
JF: I think there’s a huge opportunity out there regarding debt education with the reforms to the national curriculum, which were announced by the government in July, and are going to be implemented from September, and this idea of economic well-being and financial capability, getting into the maths and the ITT curriculum. It gives us a huge opportunity.
SL: Simon Leadbeater, no particular affiliation. I’d just like to back up what the lady in front of me said. I don’t see how you can send a student through three years of education, primarily based on debt. Your message that debt is at all a bad thing is not going to get through, when your primary state sponsored means of going through university is debt. Secondly, is this a game of two halves, in the sense that on education, you’ve got a hard side and a soft side? Your soft side is people might remember these television programmes? I think there was one called Beat the Bailiff, and another one called Slap my Wrist, I’m in Debt, where an errant elder child would be put right by their parents, in the old fashioned way, and then about two to three minutes at the end of the programme is dealing with how they actually got out of the debt. So, do you educate people about money management and not getting into debt, and then, when do you educate them about what happens if you do get into debt, and you need to get out of it.
JB: Thank you.
NT: Nick Truly, from the Debt Advice Board. Talking about educating older people, or those who have left university, surely their first port of call is either a financial advisor or a mortgage broker, if they’re looking to buy their first house, at that point brokers at the moment and mortgage intermediaries are seeing their client list shrink, because of the changing market, is that the brokers in that particular field should potentially be looking at clients on a long term basis, and giving them advice to start with managing their debt, instead of taking on further loans, so that they can resell to them in two or three years’ time, when they’re more financially stable?
JB: Any thoughts?
AK: They don’t have the skills to do that, unfortunately. That’s the problem we have, most mortgage brokers are only really skilled to advise on selling mortgages. You need more holistic financial advice, and it’s very difficult to provide that at low cost.
JB: It is to do with the lifestyle, which one sees, but these IFAs and other advisors don’t necessarily. They want to flog the product.
AK: Exactly.
MA: One point on education. In Canada a number of years ago now, they brought out a scheme for people who were bankrupt, had them put through an education, reengineering programme before they got out the other end. There was a survey carried out last year. The rate of people going into second bankruptcy has increased.
JB: Oh really?
AK: We have had some longitudinal studies done on students who’ve taken out qualifications in schools on what difference it’s made to their financial behaviour, 85% of the students changed the way they saved or spent money as a result, and that’s over a long period of time.
JB: Good. One final new face here. You can buttonhole the panel, they will stay around for a bit afterwards.
AM: I’m Alan Marsland. I’m actually in an IVA, so I’ve got quite a lot of up front knowledge. I think education is a great thing, but the industry itself needs to be put in hand, because they make it too cool to have debt. I read in the paper the other day that one million people a year are paying for their rent and for their mortgages on credit cards. I also feel that when people go to a debt agency, to consolidate, that the information that goes to the consolidator should be given to the finance companies and also to the credit card companies, that when you pay off a credit card as part of a debt consolidation, that credit card is taken off you, because I’ve been through that, and it’s all too easy. It’s like robbing the bank and leaving some money in. You’ll go back again, because you know it’s there for you, and these are the sort of things that you should be talking to younger people about, the pitfalls, and I agree with the gentleman on the far side, it’s very easy at this time in schools to put this into maths. Why talk about algebra and other things that we never use in our lives? Why not do something that is practical, to help people out when they leave school?
JB: Thanks very much for that final point there, I think you’re absolutely right. So, I’m going to close off now, with a quick point from our panellists. Recommendations moving forward really? What are you professional recommendations for debt education, as we look into the future, and secondly, are we actually making too much of this? Is debt really actually quite good for the economy? Andy?
AR: I’d like to see people who have got into debt already coming into schools and working with the profession to try to educate our youngsters.
JB: Anne?
AK: I’d like to see financial education as a stand-alone subject within the school curriculum, examinable at GCSE level at least, and further in the schools. Is it really a problem? For some people, not it isn’t. I think that if the economy gets worse, we’re going to see it have more of an impact, and we know that whilst the average household debt in the UK is just under £9,000, if you actually strip that out of the people who have no household debt, the average is closer to £21,000. That’s a big problem for those people.
JB: James?
JF: I would probably round off by saying that anyone who thinks that the debt problems are going to magically go away or aren’t very big is deluding themselves. Debt in this country is going to be a big thing, and increasingly an important thing in the years to come, but I think that we need to somehow get through to people that they need to take some personal responsibility for their own lives, and look at dealing with their own financial situation better than they have been.
JB: Rachel?
RL: I think first and foremost, I agree with Anne, we need to get personal finance education into schools. No child should leave school without knowing how to manage their money, budget, what a credit card is, how it works, how you repay them, that should just be a standard. You need to be teaching children life skills. Banks need to act more responsibly. It’s all very well saying about personal responsibility, but that takes a lot of willpower, and that’s very hard for a lot of people who’ve come so far down the line. They need to take more action in finding out how people can repay their loans. We hear so much today about people on state benefits, or unemployed being offered loans. We need to stop this happening.
JB: Mark?
MA: I think all the things the panel have said, I don’t disagree with, but I still think at the end of the day, you’re always going to have 5% of the people with debt problems, it doesn’t matter what we do with education, because debt is good for society. Every Western society that’s got debt has improved it’s standard of living, so we need to put the mechanisms in also to how we deal with that 5% in relation to getting them back into dealing with their debt in a structured way, which maximises, gives something back to the people that they owe, but they can also see light at the end of the tunnel.
JB: Clearly, plenty of meat for further forums, Andy. Anyway, that’s about it. I hope you’ll join us afterwards and mingle with these learned folk here as well, maybe get some further information, but that’s all we’ve got time for. I thank the panel and thanks for joining us, and that’s all from me. Back to you, Andy Davie.
AD: Thank you, James. Thanks again to our panel and thank you, ladies and gentlemen, for a very good debate. I look forward to seeing all of you at our next debate. Thanks very much. |
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