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?

A bit of self control?
I was at school in the 80s - this wasn't taught but then I think it was harder to get credit

Schools definitely do teach this stuff. I was taught it years ago and I also taught it myself. It's just as theoretical and irrelevant to many teenagers as Pythagorus is until they are older and have had to deal with the reality. Just like schools teach healthy eating and the importance of exercise but we still have an obesity epidemic.

Much of it comes down to personality IMO. I got my first credit card at 18 and always paid it in full every month. I treated it like a delayed debit card. I did live in my free overdraft as a student but paid it once I graduated. I've learned a lot more about savvy money management as I've got older but the basics of don't spend more than you can repay and avoid paying interest if possible were always just obvious to me.

I've known people spiral into debt after unexpected problems and feel very empathetic towards them but have simply never understood those who consistently live above their means. If your debts are due to having champagne tastes on a lemonade budget then I have limited sympathy and you need to experience the inevitable crisis when it catches up or you will never change.

Martin Lewis has been involved in developing national curriculum on managing finances. I’m not sure if it is mandatory in all schools yet. You can access the courses for free on line even as an adult.
if your kids have missed out on this, get them to do the course during holidays,

People get very smug about not being in debt on Mumsnet. Sometimes if you’re a low income family you just can’t help it. I’m not talking about buying an moisturiser from Clinique or new shoes because you fancy it - I’m talking about having a change of circumstances in your family due to disabilities or losing a job and suddenly having a hole in your roof that insurance won’t cover or your child making a huge hole in their one pair of trainers. Or a Guinea pig suddenly needing an eye removed (£400). If you don’t have savings and are relying on tax credits / disability benefits sometimes credit is your only option to keep things going - especially if you’ve previously had a reasonable amount of money which means your own your own home and things need doing to it (but you can’t downsize as you’re already in a small house)! Things aren’t always black and white. But yes people should be taught about APRs and interest rates etc. We have quite a lot of debt as a family but it’s all on 0% and we shift it around a lot.

www.moneysavingexpert.com/news/2013/02/financial-education-to-be-added-to-the-national-curriculum/

My thinking is if you can't afford yo save for it before you buy it then you can't afford to pay for it after you have it.

The only reason to have a credit card is for the protection on a large purchase that you immediately clear.

I wasn’t taught this in my school, I left in 1996
my DC have been taught about money though

a lot of it is from parents though, if you never teach your DC the value of money or about APR or budgeting, you can’t be surprised when they make bad choices early on. It’s like learning to cook. You don’t just wake up age 18 and suddenly know how to cook all kinds of food. You either learn from your family growing up or teach yourself over time. Unfortunately bad finances can take hold of you early on in life and you then learn the hard way when you are already in debt

www.moneysavingexpert.com/news/2021/10/first-ever-financial-education-textbook-arrives-in-welsh-schools/

www.open.edu/openlearn/money-business/mses-academy-money/content-section-overview?utm_source=mse&utm_campaign=ol&utm_medium=mse-news&active-tab=description-tab

And it's important to remember debt is a tool that can be very helpful if you manage it well but disastrous if you mishandled it. Much like any tool really.

I've taken out loads of credit over my life. Overdraft, phone contract, kitchen loan, credit cards etc. Other than my mortgage, I've never paid interest on any of it (although arguably I did for the phone contract as I didn't realise for ages that the plan was much cheaper if you bought the phone outright and got a sim only deal).

I'm not a great believer in blaming everyone else.

Years ago, when the mortgage rate hit 15% I got into credit card debt. It took me a long time to pay it off. Once I was out of debt I told the bank to reduce my credit card limit to £300 and declined every increase they subsequently offered. I tore the card up years ago and haven't had one since.

I was listening to a radio phone-in on financial matters and there was a call
From a maths teacher. Last year as there were no GCSE exams and he had covered all the necessary material to grade his pupils he spent three weeks teaching general finance. He covered student loans, taxation, credit cards and compound interest, student loans etc.

He said that his students were more engaged than they had been during the whole teaching of GCSE curriculum.

Just to stand up for Pythagoras for a minute, I too wondered what the hell it was taught for when I was at school...
And then regularly used it when I left! In a practical setting too, literally on the ground setting out site grids.

PSHE does cover these topics though- when I was at school it was called General Studies (a bit of politics, a bit of finances etc.).
Whether we as teens listened is another matter! I was lucky because my parents also tried to instill financial sense - save up to buy etc. And think about if you really need something before you buy it. Also, they never kept up with the Jones, they couldn't afford to. It is a valuable lesson for children to have, you don't need the latest phone, trainers, cars, TV packages etc to exist happily. It is not a popular view though.

My parents talked about credit cards (pay it off in full every month), APR, interest rates, mortgages etc. So I had a double pronged education of parents and school. And then met a boyfriend who was extremely financially sensible!
All that helped at an influential age, and back when you could get a 105% mortgage! It could very easily have gone the other way.

My school tried to teach through this course very recently, in PSHE lessons, to post-16 kids.

I think out of a class of 20 around 2 actively participated, another 4 or so passively listened and the rest made it very clear they had no interest in the course. It didn't help that many aspects of the course could only be completed through personal questionnaires, which made it difficult to engage students who had to use their mobile phones for this and often preferred to update their social media instead.

Sadly, until attitudes towards education in schools change, this type of scenario will be very common.

I teach a subject with many real life applications. Sadly, many students don't think they need the subject to proceed in their chosen careers. Whenever I mention how I have personally used it to make my life easier, I get told that I'm sad and should just pay for someone to do this very simple job instead. By students who often have no money themselves.

I wonder whether pocket money and attitudes around it are to blame? My kids don't get to spend more than they have, get no advances and the elder ones have to finance all their hobbies and interests/ social days out, so are far more careful than some of their peers who get given money for such things by their own families.

People are always looking to blame someone or something else for problems that they have created themselves. What ever happened to personal responsibility?

Dear maths class,
If you borrow money, you will have to pay it back.

With that out of the way, let us turn to the Pythagorean theorem...

Banks should have to state clearly how much debt you will spiral into, only making the minimum payments, for the maximum credit they are offering. People can't get their heads around compound interest, if they did more people would invest.

Of course there will always be losers, if you have a free bank account then you must be aware that money is being made elsewhere? The well or better off are always subsidised by the poor and those who can't manage their money.

Banks aren't going to stop lending, they have tightened their lending criteria since 07-08. Most of the money in existence has been created from nowhere by lending. As Minsky said "Banking is not money lending; to lend, a money lender must have money."

The financial system is incredibly complicated but most don't seem to grasp the basics. There needs to be more emphasis on personal responsibility. I'm sure that education at school would help but the information is out there. You wouldn't book a holiday without doing some research so why take out a credit card?

I’m early 30s and distinctly remember being taught how to calculate compounding interest in maths. As others have said, I bet I wouldn’t have to ask many of my school friends to find one who swears blind we weren’t taught it.

I also remember a PSHE project on budgeting where we all picked an occupation out if a hat, with an associated salary and had a team project on how we would make that stretch to cover rent/bills/food etc.

My group was the only group in the whole class to have done the homework and so were the only ones with a project to present back.

Teaching in schools just isn’t enough.

But, I took out a £1,000 student overdraft and £500 credit card at 18, paid all back regularly, have bought things on interest free finance since being 19 and have been responsible with debt since. “Don’t buy what you can’t afford” isn’t a difficult mantra (accepting there are necessities such as food, rent, utilities that you may not be able to cut back on and can lead to debt spiralling).

it is ridiculous they throw these large credit limits at you then wonder why you cant pay it all back

as soon as my iva was finished i started getting loan and cc offers its a joke

@littledrummergirl that's a really smug and unrealistic attitude. If people need shoes, a freezer or washing machine, a boiler, car repairs, they can't just put it off. Due to divorce I have been managing debt for the last 6-7 years. I use my good credit score to get 0% cards and do balance transfers every 2 years or so to allow me to manage it. I re-fixed my mortgage at a lower rate, while borrowing more to pay off the CC and spread the debt over a much longer period. Right now due to the kids' ages, I am incurring a lot of expense but I have a clear plan to manage it and know what is going on. I could clear it quicker if I denied my kids the chance to have activities and the occasional treat or day out but you need to live and debt in and of itself is not a bad thing so long as you are aware of it and have management in place.

When I lost my job some years ago, I was shocked at how many banks and financial institutions immediately contacted me to offer me credit.

My own bank (one of the top 4) offered me a personal loan at 27%apr. It was just before Christmas, so very tempting.

I changed banks to a more responsible one.

Surely most of this is about personal responsibility. Yes the banks offers are tempting, but it's literally their business, they don't have a duty of care to individuals. If you spend money you don't have on fancy cars and keeping up with the Joneses then that is your responsibility isn't it?

I think blaming the schools is the easy way out. It also relies on all teachers being money savvy, and that just isn't the case.

My parents were the biggest influencer, they always told me never to get a credit card or a loan because if I couldn't afford it, then I had to either save for it, or not have it. When I was growing up, if we saw payday loan adverts, they'd explain what they were and why to avoid, they wouldn't let me get a phone on contract till I had a permanent, salaried position and explained why, they taught me the importance of setting aside a certain amount each month, just in case you ever hit a period in your life where you can't put money aside. When I was applying for a mortgage, they explained why the full amount the bank offered me was a bad idea (my monthly outgoings for housing would be a significant proportion of my income).

Yes, not all parents are that switched on, but neither are teachers and they are not experts in finance. Those that are experts in finance are the ones we need to involve, in the same way we teach smoking is bad for you, but people still do it, so then we added extra taxes, changed the labelling, offered free services on the NHS etc, to really drive the message home and see results, it had to come from all angles. We need to look at this as a societal problem rather than an education problem. Ultimately, even if you'd learnt about debt, would that have stopped you going out? Because at the time, I bet it all seemed manageable and the future too far off. What would have helped is if you'd had to sit down with a professional as part of the application process and they explained what APR was and what theirs was and what that meant in practical terms and look at the impact on your earnings. What about if you'd never seen those adverts because they had been banned the same as cigarettes or sugary Cereal?

Like others have said, this is something that falls under parental responsibility, together with cooking and cleaning. But just like with those things, there are many families who don't teach their children basic life skills. Or worse, the lives they lead are a bad example of those skills.

People put holidays on their credit card. People buy (non essential) clothes, TVs, sofas on their credit card. I'm not talking about those who then pay the bill in full the week after. I'm talking about those who decide to 'redecorate' because the furniture is a bit dated, and they have the credit to do so. A larger TV is what everybody else is buying, so let's buy one too. Top range phones on contract, new cars, the list goes on.

As a society, we have gotten used to get things the moment we want them. I want to find out something I don't know, I open my smartphone and have the answer within 10 seconds. Using google is free. Buying clothes, holidays, eating out, furniture and cars because I want them, isn't free. 'I want it, and I want it now' is how we as a society function nowadays. It's what we teach our children.

APR and mortgages and repayments should be taught in schools, yes. But more important than that is teaching our children that we don't buy things we can't afford. That means, we don't buy things we don't already have the cash for. Excluding big purchases and the protection that comes with using a credit card for those, credit cards are to be used in emergencies. A new sofa, carpet or TV is not an emergency. A boiler is, a food shop is, basic clothes are.

I wasn't taught at school about finances. I barely understand how interest function. I just know that I own a credit card (0% rate), and I don't buy anything on it unless there's an emergency. I have several thousands available to me in cards and loans. I'm reminded of them every time I open my banking app. But that doesn't mean I should spend them. The bottom line is, don't buy stuff you don't have the money for. THAT is what we should be teaching our children, and teaching starts with leading by example.

Klarna and Clearpay seem to be new ways of encouraging young people to take on debt too.