To think getting into debt is incredibly easy?

[Username1917]

I had a comfortable upbringing, parents taught me “don’t buy what you can’t afford, saving is important” etc.

I got a job at 18 and a few months later was offered a credit card by my bank, for the first few months I paid it off in full religiously. Then I thought well I’ll just pay half this month and half next month, no big deal! Then it spiralled and I thought oh I’ll just switch to an interest free deal and pay it off before it ends. Then when the interest free deal expired I got a loan over 5 years because it was “much cheaper” per month.

Before I knew it I had debt (including PCP car) the same level as my salary, at the time that seemed very manageable.

I’m lucky that I have a well paid job now and have paid it off in full. It’s given me a right kick up the bum and now I have no debt, but AIBU to think this is not uncommon, even having grown up with parents that tried to teach me about money?

@chomalungma

When I joined MN previously I was astounded by how many posters felt they would be falling on hard times because they didn't have 3 months of bills in savings

I think that is a massive problem in society.

The question is - why?

And I suspect there are a lot of different answers - most of which have been touched on on this thread.

Sorry, why is it a massive problem?

I obvious realise some people can't save it...but I am wondering if I have misunderstood something? It's good to have savings?

The question is - why?

One answer is that apart from the super rich, everyone else's incomes have stagnated, in the period MN has been around. Employers have been allowed to take the piss and the cost of living has gone up exponentially. People can't afford to live.

Plus the fact that debt is both expected and normalised.

Sorry, why is it a massive problem

It's a massive problem that many people in the UK don't have enough savings to survive several months of unemployment.

@chomalungma

Sorry, why is it a massive problem

It's a massive problem that many people in the UK don't have enough savings to survive several months of unemployment.

Sorry, I misunderstood your comment. Ignore me.

MoltenLasagne

I love your post about debt being an behaviour problem rather than an arithmetic problem. I will be using that.

There is a lot of pressure in our society to 'keep up' and experience things etc. And a lot of visibility of unrealistic lifestyles through SM and so on. So I think as well as learning about personal finance it's also good to learn about marketing and consumerism and how it affects us. I count myself lucky that my parents guided me in that sense. I've always spent low in comparison to my income but I know a few ppl who have got into trouble with easy credit. I agree it's easy; banks were throwing overdrafts and credit cards at me when I was a student I remember (is it still the same now?)

[quote FindingMeno]@DedlyMedally can I ask what book it was please?[/quote]
The book is called "I will teach you to be rich". The name is pure marketing, it's about really basic stuff like budgeting, intelligent use of credit, negotiating better deals on devices, dealing with mortgages and saving/investing etc.
www.amazon.co.uk/Will-Teach-You-Rich-2nd/dp/1529306582/ref=mp_s_a_1_1?dchild=1&keywords=i+will+teach+you+to+be+rich&sprefix=i+wi&tag=mumsnetforu03-21&qid=1614252216&sr=8-1

I grew up in poverty and have never been in debt (excluding my mortgage). Growing up with nothing made me ultra cautious with money and I never feel safe unless I have several months wages saved as a security measure. This does mean I miss out on things like holidays,new furniture etc but security is more important to me.

Two things need to happen.

Firstly, far better personal finance teaching in schools, in both PHSE (or whatever it's called) lessons and Maths lessons. We need some real-life examples of how credit/loans work and the "true" cost of borrowing after including interest, not to mention the impact of late payment charges, exceeding overdraft etc. Unfortunately, even sixth forms and Unis are guilty of not telling the "whole truth" about student loans, i.e. they gloss over the stupidly high interest rates and instead bang on about the proportion of students who never pay it all off (ignoring that fact that many will have paid far more than their original loans but only havn't paid it ALL off because of the huge interest added!).

Secondly, we need stronger laws to protect borrowers to make it harder to borrow. It used to be that you had to "put down" a pretty hefty deposit to get something on Hire Purchase (was it a third?) - that encouraged people to save and gave "time out" for people to think whether they need something or not. Credit is far too easy to get, i.e. you can walk into a shop to buy something small/cheap and end up coming out with something expensive due to the hard sell and "easy credit" messaging. I'd love to see a ban or restrictions on advertising of credit (a bit like the ban on advertising cigarettes!) so that it's not everywhere you look. I'd also like a ban on both "high" interest/charges and also low/zero interest - credit should always be at "market" rates and there should be no "punitive" charges for missing payments - such charges should be limited to the actual charges of the finance firm (i.e. admin/management fee only).

To add to the above, there is a UK version (where he discussed ISAs) and a US version (where he talks about Roth IRAs etc). The Amazon version has always been the UK version for me but it's something to look out for because a few of the reviews seem to be tripped up by this.

I think school is too early for most as too abstract.
It should be in the final year of college when it feels more 'real'.

@chomalungma

Sorry, why is it a massive problem

It's a massive problem that many people in the UK don't have enough savings to survive several months of unemployment.

Exactly, as evidenced by the Covid situation. Huge numbers of people losing their businesses and homes because they were some of the 3 million excluded self employed who fell through Rishi's cracks and havn't benefitted from the support schemes.

You never know what's around the corner. Unforeseen events can happen overnight and if you're already in debt with no savings, you can quickly find yourself stuffed!

@DedlyMedally thank you.

I obvious realise some people can't save it...but I am wondering if I have misunderstood something? It's good to have savings?

Of course it's good to have savings, but it's less good to think (as I've seen on here regularly over time) that not having several months saved is financially irresponsible, that you're worried about finances due to only having several grand in savings, or taking on a superior tone on threads where a poster has a finance issue by saying 'use your savings (tilts head)' or 'surely you have some float for these things'.

I think school is too early for most as too abstract
It really is. Every school I've been in has topics about finances in PSHE. Trying to explain credit cards and debt to 13 year olds, especially those who are used to being given what they like and have probably never experienced money issues, can be like pulling teeth.

@LolaSmiles

I obvious realise some people can't save it...but I am wondering if I have misunderstood something? It's good to have savings?

Of course it's good to have savings, but it's less good to think (as I've seen on here regularly over time) that not having several months saved is financially irresponsible, that you're worried about finances due to only having several grand in savings, or taking on a superior tone on threads where a poster has a finance issue by saying 'use your savings (tilts head)' or 'surely you have some float for these things'.

I think school is too early for most as too abstract
It really is. Every school I've been in has topics about finances in PSHE. Trying to explain credit cards and debt to 13 year olds, especially those who are used to being given what they like and have probably never experienced money issues, can be like pulling teeth.

Is it any easier to explain trigonometry or algebra which is what happens in Maths lessons anyway and arguably a lot less useful for most pupils who'll never use it in real life. Every pupil will need to deal with money/debt in their future lives.

Just because something is "hard" doesn't mean it's not the right thing to do.

Secondary schools have 5 years before GCSEs. Start with easy stuff in years 7-9 and then the more complicated stuff as part of GCSE in years 10-11.

After all, in Maths, schools teach basic triangles and degrees first, then move onto pythagoras and 3/4/5 triangles, before they move onto sine and cosine, before they move onto tangents.

So many people talk about their finances being derailed by an 'unexpected' car repair, or because the washing machine broke, or because it was after Christmas, but the reality is that, if they have money available in their budget that they haven't put by, and instead have spent on non essentials, being short of money for car repairs or washing machines is entirely their own doing

Yes, exactly this. And the fact that many people are on the breadline and can't afford to save for forseeable expenses, does not negate the fact that there are many people who could, but instead spend it on holidays, furniture on credit, monthly payments on a slightly nicer car, living in a slightly nicer house, etc etc. All of which are reasonable lifestyle choices until something goes wrong and there's absolutely no room for error because every bit of money coming in is already budgeted for.

Also, I was taught money management at 6th form, how mortgages work etc. Most people didn't pay much attention.

Most people I know who are in debt understood that they have to pay more back. The problem is the unrealistic expectations about how much their lifestyle will have improved by then and how easy it will be to do so. I don't think it's maths education that's needed, it's cultural. But that is a much more difficult problem that schools aren't really the place for solving!

But a lot of people think £20 hand cream is general living expenses, it clearly isn't.

^^
Yes, sorry, that’s what I mean. People call it “general living expenses” but really it’s lots of little, unnecessary bits that they don’t need, adding up month on month. It’s not all spent on a massive holiday or car or something.

There’s a quote I can’t place (maybe Charles Dickens?) which I’m going to paraphrase into modern terms: “Income £20,000, outgoings £19,500 - result happiness. Income £20,000, outgoings £20,500 - result misery”. Something along those lines!

The point is there’s only a small difference between the two but it builds up into debt in the long term.

I don’t agree, but maybe it’s because I grew up poor & my mum lived in her overdraft, treated it like her own money.

I got a job at 17 & have always worked which helps I guess. I have used Klarna (paid it off straight away), I have a next credit account (pay it off straight away), my DH has a credit card (he pays off in full monthly). I have a cheap phone contract paying £7.50 a month as I bought my iPhone 11 Pro from very using credit with £100 cashback & paid it off straight away.

I have freeview TV instead of paying £50+ per month on TV channels! I get anxious if we are in debt, absolutely hate it. Bar the mortgage, which I overpay, we have no debt.

I recently needed a new car. I could have got a fancy, new(ish) car on finance for 20-30k. That’s what I wanted, I love cars, we can afford replacements easily. I ended up spending 7k (part exchanging mine for 4k). Paid on the credit card & paid off in full with savings. It’s a good family car - my kids actually said please don’t ever sell it

I don’t earn a massive amount but fairly comfortable & I currently only have £500 in savings but there’s the difference IMO. I didn’t need to get into debt in that instance, even though I could! It’s mostly about the choices you make* & at 18 you are an adult.

*bar divorce / unexpected bills / poverty etc - I appreciate some people cannot control this)

I don’t earn a massive amount but fairly comfortable & I currently only have £500 in savings but there’s the difference IMO. I didn’t need to get into debt in that instance, even though I could! It’s mostly about the choices you make & at 18 you are an adult*

You've done all that and you've only got £500 in savings. Which just shows that life is expensive and even if you take a lot of steps to save money, to not spend it on extravagances, it's still hard to save money.

@chomalungma

I don’t earn a massive amount but fairly comfortable & I currently only have £500 in savings but there’s the difference IMO. I didn’t need to get into debt in that instance, even though I could! It’s mostly about the choices you make & at 18 you are an adult*

You've done all that and you've only got £500 in savings. Which just shows that life is expensive and even if you take a lot of steps to save money, to not spend it on extravagances, it's still hard to save money.

And £500 is wiped out very, very quickly by some emergencies. You’re at real risk of debt if you have that saved. No judgement whatsoever on that point. Just saying you’re not as far away from the possibility as you’d like to think.

I personally now have £500 savings but my husband has around 10k so that’s our buffer, I guess.

I’d rather have a small amount of savings than debt though? I don’t see that I’ve done a lot to be honest, I live within my means & overpay my mortgage every month. It’s either I save more or overpay the mortgage & I personally chose to overpay for now as I am pretty secure at the moment.

And I clearly said *bar divorce / unexpected bills / poverty etc as I appreciate some people cannot control this - meaning that if i recognise i could get into debt but I wouldn’t choose to!

I love it when people say they just don't get into debt, don't spend it you don't have it. Well your child needs new shoes and you don't have it what do you do? Shoes are difficult to find in good condition second hand for free. So then you have a small debt. Then they need some bigger pants. More debt. Then you have make the repayments making you overdrawn. That's the spiral.

I have nothing spare each month, nothing for clothes or gifts. I can try to make better purchase with what I do spend. I've been trying to switch our gas & electric supplier but there's an issue with our meter, so I'm stuck at the moment.

And when you are in debt, the cost of borrowing dramatically increases which just makes thing harder

Need to borrow some money to fix a boiler - for some people, it could be interest free, or low interest. For others, it could be 50%, 99%...so they spend their money on interest when other people don't have to pay interest.

Which leads to a spiral. Or longer term borrowing at 'affordable' monthly repayments but the overall cost is much higher.