No wonder there's a debt crisis

[undebted]

Just read this in the guardian, made me reflect a bit. When I turned 18 I got approved for a Barclaycard with a £2.5k limit, felt like I'd hit the jackpot. It spiralled pretty quick from there as it was a perfect combination of being clueless about finances, how interest rates actually worked and long term impacts/credit scores (perhaps school could of taught me that instead of pythagorus theorem, of which I remember the name and nout else!) and a lifestyle that involved wanting to go out drinking a lot, keep up with mates and have the latest clothes and tech, a nice car. By the time I was 22 I had 2 maxxed out credit cards (6k total) and a loan of £6k I was missing payments on. I ended up royally screwed and learnt my lesson the hard way with destroyed credit rating and a 5 year debt management plan. It was of course entirely my fault, but the fact that £12k credit was available to a very young adult with a part time minimum wage job was crazy to me.

It's been a couple of years since my plan ended and all my debt was repaid in full. My credit score is improving but still not great. I got an Aqua card a year ago to use everyday then pay off in full every payday which I do, I've accepted every increase as it is supposed to help my score but I never put more on it then I can pay off the very next payday as the interest rate is 49.9% APR. They've given me £3750 now on that card with that interest rate. The rate is insanity so I've recently applied for a different credit card and been given an automatic £5k limit on one of them. My clearscore shows that I'm fully 100% pre approved for loans of up to £7k. With a credit score full of defaults!

It's just no wonder is it. If you're hard up, which unfortunately so many people are and are going to continue to be in this economy, it's only going to get worse. People need money, and are offered so much at the click of a button. How is this right?

Course it’s the banks fault. They know exactly what they are doing offering young or less well off people with already dodgy credit ratings higher credit limits and/or ridiculous interest limits. They know they can make money on them. There is some personal responsibility of course but the banks aren’t innocent.

I was in a similar situation to @undebted at the same age. Easy free money with little understanding. I luckily didn’t default and consolidated and paid back every penny for years.

My family used credit, I had no idea how it could be a bad thing. More education on budgets, tax, NI, pensions and saving would go a long way in my eyes.

My parents did teach me ' money management' same as my dh's parents did too , but he was and still is the spend thrift. Parents can guide a bit ( if they are so inclined to do so ) but taking that advice is another matter!

It isn't just about parents being financially savvy. Some people have to live on a level of credit to get by. Credit Unions and their lost cost borrowing has helped, but many still rely on provident, Vanquis and other high rate lenders. So parents can't show the example of good saving/lending/spending.
I agree that a module should be done on it in a what was personal, social, emotional health lessons, don't know if they still exist.
My eldest DD often lives beyond her means, so do a lot of her friends. They are late 30's. I think in terms of CC there should be responsible lending, but in mortgages there should be flexibility.

Course it’s the banks fault. They know exactly what they are doing offering young or less well off people with already dodgy credit ratings higher credit limits and/or ridiculous interest limits. They know they can make money on them. There is some personal responsibility of course but the banks aren’t innocent.

But banks are businesses who want to make as much money out of you as possible - they don't exist to make you rich!

It's like how McDonald's used to ask if you wanted to "supersize" your meal, or when shops like Superdrug up-sell to you the bill. Banks are no different - they want your money and they don't really care whether you can afford to take on that amount of debt. It's not their job to care, either.

"More education on budgets, tax, NI, pensions and saving would go a long way in my eyes"

I agree and it might help if the myths of the benefit system was tackled, so more young women can make better choices around work and children, or rather who they decide on as a partner.

My Dad sat me down and explained budgeting to me when I got my first job and left home. He said it was better to save up for something than to put it on a credit card if you couldn’t pay it off in a couple of months, and that’s what I’ve always done. We had some very lean years, when we had to do without, and I think it’s helped that I’ve never had the urge to spend a month’s salary on a bag, and I’ve always tried to save something. Hopefully we’ve drummed this into the children as well.

If my DS1's high school is anything to go by then they still teach absolutely nothing about personal finance.

Between this and the Instagram culture, then it's only going to get worse.

YANBU

i did pretty much exactly the same as you, got into lots of debt in my 20s (credit cards, pay day loans, overdraft) which I then spent years paying off. Im debt free now and when I checked my credit score recently I was surprised at how good it was but it’s over 6 years since I paid everything off.

like you, I accept that I made stupid choices but I don’t think the companies should’ve enabled those choices. In particular payday loan companies are evil, one even offered to lend me more than my monthly salary as a pay day loan which makes no sense! Im very glad that they seem to have declined recently because they really do accelerate the debt spiral alarmingly.

Im not sure if education is the answer though. I knew all along that what I was doing was stupid. I was too embarrassed to tell anyone because I knew it was ridiculous. But I kept doing it.

Absolutely agree. I was a teenage mother and when I got a part time job I ended up with a crazy amount of debt. I’d pay off the minimum then have little to live on and end up getting more. It was so easy and I desperately wanted my children to have things their peers had. I never wanted designer clothes , just new ones! This was the early 00’s. It ended up I owed around 6k but this just increased as my income barely covered the repayments so I’d use my credit card to buy food.
I met DH (ironically an accountant) and went to uni and we were still trapped in the cycle because we were paying off Peter to pay Paul - we bought a tiny house and it just seemed never ending despite DH being knowledgeable. We entered into a repayment plan but then the house needed a new roof so we had to take another loan out for that and I remember my lovely mum buying us milk and bread at times.
Eventually we are both in good jobs and still in a mess. All really because when I was 18-20 I took out too many loans/credit cards.
I accept full responsibility but I had no idea at that age about debt and interest rates. I just wanted to buy my babies clothes and get a car (we live rurally). Later on it was about feeding everyone and paying for school things.
We got out of it but only because DH is on a ridiculous wage and gets huge bonuses. We are now well off. This is a combination of hard work and luck.
I work in the NHS, graduate job but I’d have ended up bankrupt if it were solely my responsibility, no amount of hard work would make the sort of money we needed.
Scary how one seemingly small loan in your teens can spiral.
I’m terrified of debt now and will teach my children never to do it. Save up or borrow from us!
I fear for the younger generation, the way costs of living are spiralling I fear more and more people will be sucked into it.

Anyway i got my arse handed to me by people here because parents should teach children that and that's not what schools are for. But that involves every child having parents who are financially savvy themselves.

I completely agree with you. When posters like @Kennykenkencat say “Why don’t the parents teach it?”, what happens when the parents don’t know themselves? When does the chain get broken? Is it fair to condemn future generations? And, from a purely financial point of view, surely it’s more cost effective to deal with the issue at source by education, rather than keep on picking up the pieces (which are not without cost when you consider the courts to deal with bankruptcies etc, the prisons for those who steal to feed debt etc)?

I think this is where cards like Go Henry or Nimbl can be helpful, though the view on here tends to be that they are a waste of money.

If child age 8/9 gets a card, with no credit, just pocket money and birthday money on it, that they can easily look at via an app, it helps them learn about spending, running out and not being able to buy something they want, and (at least on Nimbl) about how small regular savings add up.

When they get to 13 and can have a debit card and a banking app, they’ve already got into the habit of checking how much is in their account before they spend, and maybe even of saving up for things.

Then when they get to 18, hopefully those habits are ingrained and it doesn’t feel like play money when they spend on cards.

House prices haven't helped matters either yet nobody seems that interested in helping people to have affordable homes these days ( even those they call ' affordable' really are not, not where I live anyway )
We've had debts in the past that have kept me awake at night , but we did get out of it eventually over time despite my own parents giving us all money management advice and Dh was one to spend more than he earns. He has curbed this a bit over the years though.
Once your in a spiral of debt it is hard to come out of though.

Dh’s parents taught him to always pay the minimum even if you could afford more. I cannot comprehend that approach. My parents used credit cards for big payments but paid off every month. When dh and I moved in together he had £400 on his card and I refused joint finances until it was paid off. I’ve always looked after finances since.

I know one too. Very sad life. It was a case of his parents choosing his career and he hated it so much but was so much under the thumb of his parents by the time he broke free he felt he couldn’t retrain as he had spent so much money on “treats” to get him through the day, the week, the month, he couldn’t afford to leave his job.

But people make choices, I come from a very poor background, got issued a huge overdraft and credit card at eighteen. Refused it, took a year or prior to going to uni worked full time plus a bar job, saved like hell but still went out clubbing etc.
The only debt I've ever had is my mortgage and my student loan, I worked all through uni and full time in the holidays.
I do have a credit card now, more for the protection on larger purchases, I never pay any interest and always have more in savings than I have on the card so it could be cleared any time. Currently there just one holiday on there because we're not sure if we can go or not, the money to pay it off is sat in another account.
Yes the temptation is there but you don't have to take it.
My mum was and is terrible with money, my dad is very cautious. Neither really taught me anything about finances directly. It's just obvious if you borrow money you need a way to pay it back.

IMO

That is arrogance.

I think some of the faults are with the lenders. They do lure people in with a few desirable extras and are notoriously bad in pointing out the real cost of their product. Often, there are also on the spot benefits!
Their aim is to tapp into your future earnings- which, when I look at this thread they are very successful with.

Being educated in every day finance is the only way to avoid a huge debt mountain.

@TheBatKeeper in his case it was circumstances.

I teach PSHE in secondary. Guess what - we DO teach this, starting in about Y10 and moving on through into Y12-13 (16-18yo) I teach the difference between a credit and debit card, what being overdrawn means, what a credit score is, how it can be affected and how it effects you if you miss a mobile phone bill. We teach them about reading contracts, how do divvy up bills in a shared student house and avoiding being liable for the whole amount, the need for insurance etc. BUT, just like when we teach about smoking, vaping, drugs, sex and relationships, health, mental health, respect, cyber issues and every other bloody thing that is apparently our job on top of getting them GCSEs and A levels, they listen, make notes, make nice posters and powerpoints and then go out and ignore it all totally. There is a disconnect between real life and what they learn in a classroom - that's why its really better if this stuff comes from their home. And just like everything else, yes some parents will be better at it than others but I'm afraid that's just life. At some point, an adult has to start taking responsibility for educating themselves. The seemingly irrelevant stuff they get taught in the academic subjects will, for some, be the foundation of their career in a related field. You can't just teach numeracy and practical maths up to 16/18 and then expect those kids to learn algebra, geometry and all the more abstract stuff at Uni. The internet provides far more expert guidance on everything under the sun than a parent or teacher can and kids know how to use that. I would like to see more regulation in the industry and banks / loan companies / retailers that offer payment plans etc be held to higher account but it can't all be down to schools.

While I accept that schools could do more to educate on personal finance, there does have to be an element of personal responsibility. Just because you have access to credit, surely most would know that you’re not being given free money. It’s astonishingly easy to get a loan though. When we borrowed to buy a car I was surprised by how easy the process was.

I do absolutely hate the attitude that people have of ‘why don’t schools teach useful things like personal finance instead of rubbish like Pythagoras’ theorem?’ Schools are available to teach every child, so education must be broad spectrum so every child is exposed to a wide selection of subjects. Each child will be interested in different things and so will find different things useless. I’ve not used my knowledge on long shore drift, but it’s not a bad thing I know about it. Just because someone doesn’t use their GCSE maths in their day to day life doesn’t means there aren’t many others who do. And that’s making the assumption that the people who say they’d rather have been taught personal finance rather than boring useless subjects would have paid attention to that class at 14, rather than wishing they’d had it in hindsight.

Don't forgot saving hasn't been very attractive for a long time as interest rates have been low.

I totally agree that this kind of maths would be far more useful and shouldn't come under the PHSE type lessons.
I also think that parents should take some responsibility for teaching this to their children too. Which leads back to education and where it has failed those parents and so the cycle repeats itself.
I don't believe there is any single point of fault for it though. It's a collective of variables that will be different according to circumstances/experience.

We've talked to our kids about money, the value of it, what something is worth (essentially, whatever someone is willing to pay but doesn't mean you have to buy it) and thinking about long term 'planning'. I think they get a balance as I'm prone to being over cautious and DH...less so! We've talked about savings, avoiding certain types of debt but also about 'good' debt. There are aware of how we mange our money and why. And this started when they first got pocket money (obviously age appropriate).

Extremely similar story here @undebted

I also had a credit card when I was 18, had a loan for a car, used the credit card to pay for about four holidays abroad with my then boyfriend, this spanned over a period of about four years.

Problem was I was only paying off a limited amount per month and so the interest was virtually wiping out the monthly payments. Had another loan to pay off the credit card but stupidly didn’t destroy the credit card, ended up approx £13K in debt!

I couldn’t see a way out and I had no one to turn to. My parents couldn’t have helped and I wouldn’t have expected them to so I made an appointment with The Citizen’s Advice Bureau where a payment plan was set up so that at least the interest wouldn’t keep mounting up (except initially a certain bank kept adding interest, knowing my situation for another six months, from memory).

It took a long time to pay off the debt, but I was eventually debt free and haven’t had another credit card since!

I wish I’d had more advice at school or even from my parents but at that moment in time I possibly wouldn’t have listened anyway, who knows.

It is extremely easy to get yourself into debt and it’s very tempting to get yourself into even more debt trying to consolidate the first debt. It’s an awful situation to be in and I wouldn’t wish it on my worst enemy.

It's a huge bug bear of mine.

Children,teens struggling with maths concepts they won't ever learn or need but basic cc stuff, budgets etc... don't work.

Then they go onto low paid job with no skills on how to manage Money, budget and even invest.

I'm struggling to get my credit limit increased! Been with my bank over 30 years, was overdrawn a couple of times in my 20's ( in my 50's now). Pay my credit card off in full every month and have a very good credit score. I earn nearly 40k but I can't get an increase above 1.5k. so annoying as I fly to Australia annually where all my family live but can't pay for my flights using my credit card as it's normally 2-3k. In the past my H (now ex H) paid on his and I transferred the money to him. Now I'm divorced I don't have that option. The credit card company won't advise me why they won't raise my limit (it's with Lloyds). Seems crazy when I have all my savings with them, a healthy current account, not been over drawn or made late payments for nearly 30 years and have very good credit rating. Guess my option is to apply for a different one?