Past Articles for June, 2006

Figures compiled by first-time buyer specialist FirstRungNow show the older generation are having to dig deep to ensure their children can get their first home, potentially undermining their own financial security and pushing up the prospect of debt-laden parents, reports Press Association.

Seven in ten of those asked said they expected they would have to contribute to their child’s first home, with many acknowledging this would require working on into later life.

The majority of parents said they anticipated their kids becoming financially independent by the age of 23, although the additional costs of rising energy prices and council tax bills could even mean parents paying out further into their dotage.

FirstRungNow managing director Helen Adams, of, said: “The current generation of first-time buyers not only have high property prices to deal with, there are also large numbers of young people leaving university with significant levels of debt.

“The result is that young people feel they just can’t afford to buy a house, when the reality is there are a range of options open to them.”

The average owed by under-25s seeking help from the Consumer Credit Counseling Service has soared in recent years, up from just under £12,000 in 2003 to around £15,000 in 2005.

Share This

New figures from financial information site Moneyfacts suggests young people are particularly susceptible to fraud thanks to a lax approach to their finances.

Almost three-quarters or 73 per cent - do not destroy old credit card receipts or bank statements, leaving the way open for identity theft, as well as the deduction of large sums of money from current and credit card accounts.

In addition, almost a third of those asked by the site said they used the same pin number for all of their different accounts, with a staggering half saying they allow other people to use their pin number.

Union of UEA Students finance officer Ben Williams said the potential for debt among students meant a scrupulous financial approach was imperative.

“With finances already tight for students, this is alarming evidence that they are putting themselves needlessly at risk of financial fraud,” he explained.

A student survey from Barclays recently estimated the level of debt for a student graduating in 2005 stood at £12,500.

Share This

That is the finding of new research from RBS in conjunction with the University of Bristol’s personal finance research centre, which has found a startling lack of awareness concerning financial matters.

In total, 7.4 million account holders will not open their bank statements, with just one in five aware of their bank balance within a £50 error margin.

Bristol University financial research specialist Adele Atkinson, who worked with RBS on the study, said the research “shows clearly that many people are not good at choosing appropriate financial products”.

She suggested more accessible tools could help consumers tackle their problems, but with many simply choosing not to face up to the true prospect of their debts, the data could indicate problems are being stored up for the future.

Online banking is seen as one way to stay on top of finances, meaning customers can check their statement more readily and at their own leisure.

According to the Citizens Advice Bureau, consumer debt issues have soared in the last decade – up from 405,800 in 1996 to more than 700,000 by the end of 2004.

Share This

Figures from Alliance & Leicester Savings reveals that 27.4 million consumers say they simply cannot resist a ‘bargain’, with a further quarter saying they buy things they simply don’t need.

In an effort to save money by snapping up so-called bargains, or cut-price goods, consumers are instead inadvertently fuelling their debt problems.

With a third of respondents admitting they have no money to put into savings, A&L savings manager, Mike Woodward said it was important Britons thought clearly about their debt.

“While it is great for consumers to now have the choice to buy ‘more for less’, our research has found that we’re just buying more! Instead of buying the same amount as we did before and saving money, we’re now buying things that we don’t need, just because it seems like a good deal,” he commented.

“Buying items at a reduced price isn’t translating into physically putting more money away each month,” he added.

The data showed women in particular were susceptible to becoming ’shopaholics’, with two-fifths admitting they frequently spent more than they had intended to.

“Maybe it’s time credit was classified as a class A drug,” says David Mond, CEO of debt resolution specialists, ClearDebt.

“We believe that one of the reasons many won’t take action to deal with their debt is because they will lose access to credit whilst doing so – and they just can’t see that credit is not essential to 21st century living.”

Share This

Last week, Lloyds TSB announced that while it was on course to deliver a strong set of results for the half-year, that mounting consumer bad debt was still a big problem for UK banks.

“As indicated in our 2005 preliminary results in February, the expected further deterioration in the consumer lending environment in the first half of 2006 has arisen, although the rate of increase in retail impairment is expected to be slightly slower than the comparable increase in the first half of last year,” the bank said.

The problem of customers missing payments and failing to repay borrowed money on time was not increasing at the same rate of last year, the bank reported, when bad debt hit £905 million.

Lloyds predicted that consumer bad debt levels would be characterised by greater “general stability” in the second half of the year.

Share This

While people may have an application for bankruptcy accepted, it does not mean it is the correct way out of debt. Other options, such as an Individual Voluntary Arrangement (IVA) can be much more suitable.

People struggling with bad debts are often so glad to be clear of them that they pay no heed to the knock-on effects and just accept them.

“Many borrowers see bankruptcy as a new lease of life,” said Frances Walker, of the CCCS, according to the Independent.

“For many, being free from the worry of the debt is such a relief that it is worth the consequences of the bankruptcy.”

With bankruptcy, all someone’s assets are divided up to creditors and the history of bankruptcy is on their credit file for some six years. However, due to the Enterprise Act, bankruptcy appears more tempting than ever to someone struggling with debt.

“It [bankruptcy] now looks very attractive - you can be discharged from bankruptcy after six to 12 months, with all your debts cleared,” said Tony Supperstone, president of R3, the insolvency practitioners’ trade body, according to the newspaper.

Share This

Following the recent research by Prudential that said that many pensioners are surviving on what equates to an average annual income of less than £5,000, the Consumer Credit Counselling Service (CCCS) has said that the level of debt for those over 60 saw a marked increase during 2005.

The amount of money owed by the over 60s who contacted the CCCS during 2005 was, on average, 25 per cent higher than that of a year before, standing at £33,568.

Council tax and utility bills are forcing many pensioners to live on around £8.49 a day and debt resolution company ClearDebt has offered that this is not always just the consequence of inadequate pension planning.

“Whilst many have made inadequate provision for retirement there are some who also head towards their last pay day with a big debt burden,” says ClearDebt chief executive, David Mond.

“This will become much more difficult to deal with once the only income is a pension. People in their early 50s need to make plans to deal with their debt if they intend to retire in the black.”

Age Concern has said that the over 60s often use money-saving initiatives that highlight the “stark picture” that many pensioners are dealing with, such as “heating just one room rather than the whole house, buying economy food and items near their sell-by date, and buying second-hand clothes from car-boot sales”.

Share This

In fact, according to the Consumer Credit Counselling Service (CCCS), the number of people in extreme debt has more than doubled in the year from 2004 to 2005, with 2.7 per cent of the CCCS’ clients owing £100,000 or more.

Over-indebtedness is a rising concern for the over 40s particularly, the demographic where the problem is growing at its fastest rate. The 40-59 years old age group also has the biggest average debt level, at £34,456.

The research has been published in the CCCS’ statistical yearbook, which also reveals that young people are not without their own debt problems.

Those aged 18-24 that were clients of the debt charity were found to have, on average, £15,079 of debt. The number of people in this age group seeking help from the CCCS rose from six per cent at the beginning of the decade to 11 per cent at the end of 2005.

Worryingly, the average amount of money owed by those later in life (those 60 and over) who contacted the CCCS rose to £33,568.

“This will become much more difficult to deal with once the only income is a pension,” said chief executive of debt resolution company ClearDebt, David Mond.

“People in their early 50s need to make plans to deal with their debt if they intend to retire in the black.”

Share This

Those heading into retirement are doing so with a debt burden hanging around the necks as more of their income is diverted towards paying for the essentials.

As a result, some are being forced to take drastic measures, with five per cent taking on debt by borrowing from the bank or friends, with the same number resorting to gambling.

The worrying financial predicament for pensioners even sees nearly one in four cutting back on using their heating to save money.

Angus Maciver, Prudential UK director, commented: “It’s worrying to think that such a large number of pensioners in this country live on £5,000 or less a year.

“How many of us could truly say that we could manage on what works out to be just £8.49 a day? What’s more, this struggle isn’t just for a couple of years.”

Debt resolution company, ClearDebt, believes people need to take action on debt well before retirement.

“Whilst many have made inadequate provision for retirement there are some who also head towards their last pay day with a big debt burden,” says ClearDebt chief executive, David Mond.

“This will become much more difficult to deal with once the only income is a pension. People in their early 50s need to make plans to deal with their debt if they intend to retire in the black.”

Share This

Different factors such as average income, unsecured debt, savings and mortgage balances were compared across England, France, Italy, Germany and Spain.

While the English can boast the highest wage earners and also the highest level of deposit savings, they ranked very badly when it came to consumer debt.

In terms of the amount of unsecured debt by person, the average in England was a huge €5,670 (£3,885), compared to the next biggest of €3,510 (£2,405) in Germany, while in Italy the figure stood at just €1,260 (£864).

This is also reflected in the number of ‘pay later’ cards held by consumers in European countries, with England having the most on average at 1.459, followed by Spain on 0.964 and Germany having the least with 0.295

Alison Wright, Egg’s chief marketing officer, said: “Whilst there are some positive signs in our personal finances, compared with our European counterparts England’s performance is not as strong as it could be.

“We could learn some valuable lessons from our European rivals by making our money work harder for us in key areas. This is particularly true with regards to paying down our short term debt.”

Share This