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?

As a society, we have gotten used to get things the moment we want them.

this is true but we have an economy that depends on this

I'm probably considered old fashioned for many reasons, though I think finances and general money management should be taught at home rather than in school. As a saver, I'm personally sick and tired of being punished with ridiculously low interest rates. My DH has been buying gold recently because he doesn't trust the banks will be able to weather the incoming recession.

What’s the answer, require a maths proficiency test before you’re allowed a credit card/loan? There would be an outcry about financial inclusion.

@Menora that really wasn’t the cause of the 2008 crash. It was more complicated than that.

in any event people now can’t borrow to buy houses and are left paying more in rent than a mortgage would be due to strict affordability criteria. I got a 125% Interest only mortgage in 2006 or so. The flat allows me to get on the property ladder and doubled in value. Much better than if I had been stuck renting

Klarna is massively different to Wonga. Again this comes down to personal responsibility. Klarna can be very useful when used responsibly. Like anything though if people abuse it, then it becomes toxic

I said I use klarna above but the try it now, pay it later one not the credit one. It's less admin for me.

I got a 125% Interest only mortgage in 2006 or so. The flat allows me to get on the property ladder and doubled in value. Much better than if I had been stuck renting

I wish I could have bought then.

I love Klarna. I order tons of stuff on Asos or H and M or wherever, multiple sizes etc and then just send back whatever I don’t want - I never pay for anything I don’t keep. I only use the pay in 30 days option and never order more than I can afford. It’s brilliant when you have teens / older kids where they’re between sizes etc.

We had financial education at primary school and secondary school in the 80s! I remember someone from the Midland Bank coming in and setting savings accounts for us. I still got in the shit with cards in my 20s though!

It can be totally opaque how banks handle credit, which makes it all very difficult. I remember coming to live in the UK in 2002, bringing £22k in cash along, but I couldn't get a debit card "because you could spend it all and then go overdrawn". Not sure why they cared if I spent it all, to be honest. And when I did start earning, they gave me a 0 overdraft, and it was definitely zero/zilch/nada, I couldn't get money out of a cash point if there was not enough in the account. So not sure why they were so worried I'd get into debt if they gave me a debit card.

Several years later, and by the same bank being upped on my credit card again and again, at some point being 3 times my take home monthly salary - that didn't seem to worry them one little bit.

Decisions by banks and their underwriters are a mystery. Current home wanted a small mortgate (as in 25k). Fighting and fighting, they're valuer claimed the house had been flooded (the home report stated no such thing, last flooding in the area had been before the turn of the century). Mortage to value was about 1:6, so not sure what the were so worried about anyway. But other people we know, wanting a mortgage about 3 times that, both on low wage (no/irregular income and minimum wage) and over 65, on a house that was not insurable/mortgageable by regular providers, it took them a while but they got the money (as far as I know it was 100% mortgage as well unless some other people lent them a downpayment privately). Rates were low at that point, so that's beneficial but considering I have no idea how they will pay it all off.

It's a perfect storm. Money is there for the taking, whether it's feasible or not. Credit Unions don't lend over 65s typically, and they're getting tighter as well, as the small loans of 100 pounds or less are not feasible for them (even with volunteers it costs them more to process than they get in interest). And the idea that you save for something is not that widespread anymore.

You'd think after 2009 things would have settled into more "normal" patterns, but it doesn't seem to be the case.

I'd be screwed. I grew up with two young parents who were terrible with money. I did a module called personal finance through the open university when I was in my early 20s and it was eye opening. Every single thing on that module was something I thought everybody should know but my parents definitely didn't. The chapter on pensions was particularly eye opening when I realised how much less I would need to put in if I started immediately.

Lots of people talking about a recession. Is it a given then?

Mmmm I’m not so sure on this one.

It’s absolutely fucking obvious you will owe the money and have to repay, you also don’t need a MSc Mathematics to understand that interest means you’ll pay back more and I’m pretty sure everyone understands what a percentage is. They give the interest rate and if it’s massive this should be ringing alarm bells.

I took credit as soon as it was offered when I was younger, I had zero ability to delay gratification.

now I have old stuff, all paid off, I love having a bank balance that ALL mine

consumerism is ruining peoples lives

What topics did it teach?

I have a similar story - £10k debt. I’m on a debt management plan now, have been for the past 5-6 years. I’ve paid half of it off in that time. Can’t get credit now which I guess is a good thing at the moment!

Finance, taxes, savings in shares and pensions, debt, interest rates etc should definitely be taught in schools. So many people cannot manage their money, but plenty can. It is not down to banks to advise people what amount of debt is acceptable to them.

OP, are you saying that if you had been taught about interest rates and long term impacts/credit scores etc you wouldn't have borrowed the money? My guess is that it wouldn't have made any difference at all and you would still have spent it. You will have been receiving statements and unless you made a conscious decision not to look at them ( which would hardly have been the banks fault) you will have seen what was happening but choose to carry on spending.

However

I'm fully in favour of financial education in schools ( Martin Lewis is on the case)

Also, I think most banks go out their way to mislead people. As an example the use of 'representative APR' is useless for the 49% of customers who get a higher interest rate than that advertised. Why would any reputable company use such an unhelpful term if it wasn't in their own interests. Unfortunately banks have too much political power and have little desire to act in the best interests of their customers.

I wouldn’t have borrowed the money if I had really understood it. A lot of it came with incentives. Free car insurance. 6 months payment holiday. 5 years to pay back the house deposit. Free money for getting your mates onto your catalogue account. Vouchers when you spend X money. Cash back (Egg credit card).

No one in Bay Trading when I was 20 told me what the card APR was when they sold it to me. I am glad things have changed now. but it all did really ruin a lot of people early on and I think dismissing it as we are all just greedy is offensive. I was 20 and had come from a family who didn’t talk about money and were bad with money. I didn’t know anything about money. I would never allow my kids to know nothing but it happened to a lot of us and don’t dismiss it as we are stupid or greedy. Klarna is ok if you understand how it works, but I think many are naive sadly

I know a lot of people got into trouble with cards whilst a student/shortly after Uni in the 90’s plus huge overdrafts. Most of them first generation graduates whose parents were blue collar workers. They didn’t get advice from their probably money savvy parents as their parents had never had credit cards/overdrafts thrust on them like lots of teens/early 20’s did at that time, plus all the stores desperately signing everyone up to cards. All the banks then behaved like sign up a student and get a customer for life - yes because they get into so much debt. More education is needed but banks have an ethical responsibility.

Haven’t RTFT.

I agree there was or is inadequate (no?) financial literacy education - a couple of hours a year at school might help but would kids really listen? Not sure.

I think you should need to literally grow your credit limit - like a statutory cap of £500 at age 18 (or whenever you get your first card) and you should only ever be able to increase that if you pay it off in full at least by the end of the year, that kind of thing.

maybe by the time you’re 21 you have a limit of £5k because you’re in full time work and your credit report shows you have paid off in full most months and the banks can literally see you are managing your debt sensibly.

baby steps.

yes your credit limit will always be influenced by your salary and outgoings but I do think you should need to prove you can handle it.

@BoredYummyMummy it's a bit long but this is from the OU website for the module

Setting the context. An introduction to the module themes. This includes some major world trends, such as ageing populations and the march of technology which are changing the demands on our money. You’ll look at the behavioural traits we all have that influence the way we interact with our finances, firms and each other.
Income. What influences pay, including worker power and gender issues. How the tax and benefits system affects your income and can be used to relieve poverty and reduce inequality. The way income flows between the different sectors of the economy.
Expenditure. Why we spend on what we do from rational choices about meeting our needs to the social factors and marketing influences that work on our more subtle desires for belonging or displaying our worth. In small teams with your fellow students, you’ll explore the world of symbolic advertising. Using cash-flow and budgeting to control your household’s spending.
Debt. Understanding the good as well as dark side of debt. How to identify the best ways to borrow and be aware of hidden costs. Using a household balance sheet to check whether you are vulnerable to debt problems. How household debt contributes to economic growth but perversely can bring down economies.
Savings and investments. Why low-risk products promising amazing returns simply don’t exist. Choosing the right products for different types of goals. Navigating the risk-return trade-off, with strategies for managing stock-market risk. Why saving matters to the economy.
Housing. How, in many countries, homes are more than just a place to live and may be driving a wedge between younger and older generations. Using the economic model of supply and demand, you’ll explore what influences house prices and analyse different solutions to making homes affordable.
Insurance. The role of insurance in building your financial resilience – your ability to withstand and recover from shocks and life events. The principle of risk-sharing and how it is being undermined by Big Data and other technological changes.
Pensions. The implications for you personally and society as a whole of saving for a pension and the ageing population. How saving for the long-term means battling our behavioural traits. The way different pensions work and what that means for the choices you make and the risks you run.
Caring and sharing. The short-term and long-term consequences of decisions about having a family and the social norms that surround unpaid work. The choices households and society face about caring for the elderly.
Personal finance in context. What does it mean to be ‘financially capable’? What are the options for society if all individuals and households are to enjoy at least a minimum level of well-being?

Interest rates including compound interest and what happens when this is repeated month to month or year to year is part of the GCSE maths curriculum though.

I don't remember learning about compound interest but my GCSEs were in the mid 00's. I was genuinely gobsmacked years later when I learned the difference between saving (as an example because I can't remember the actually numbers) £20 a week for 40 years and £40 a week for 20 years (explained in the context of starting a pension).

That's bizrre. I've spent a few months repairing my credit rating, managed to get £15 credit with PayPal and a phone contract and then was given a £5000 limit when I applied for a card and I have a lower income than you.

It's probably worth applying for a different credit card, mine was with Tesco bank but if you go onto the Money Saving Expert website they have a soft checker for credit cards to show what you are likely to be offered.

@littledrummergirl What would you have done about your door if it broke before your cooker and you didn’t have the money saved? Would you still have waited to replace it? What if it was a car that broke and you needed it fixed to get to work?

I remember doing Key Skills Application of Number alongside my A levels in 2006/7. It was meant to take the stuff we learned in GCSE Maths and apply it to real world situations. As part of it, we had to do coursework on how much it would cost us to university and how we expected to finance it. I remember being shocked at how expensive it would be, and I was sure my numbers were wrong. I think the optional nature of the subject put people off (and the tiny amount of UCAS points available), and most of my class didn’t bother with it. I think that if we only taught subjects students cared about, they would only be in school a couple of days a year though.

My school also offered a Learning for Life and Work GCSE but no one in my year picked it.

Personally, I use my credit card a lot. I’ve always had enough in savings to cover what I spend, but it helps me split big payments over two pays instead of a huge chunk leaving my account at once, gives me an extra month to pay for things like insurance and education, and gives me a bit of a safety net at the end of the month when funds are starting to get low. It also means I can take advantage if I see something on offer that I need anyway.

A work colleague got into a lot of debt at 18, and is still paying for it at 27, so I do think more financial education and life skills could be taught in schools. A whole subject would probably be too boring, but elements could be better incorporated into others. Meal planning and shopping on a budget could be done in Home Economics, for example.