Report on talk given on 3 May 2006 by Keith Tondeur,
National Director, Credit Action.

If you don’t have time to read all of this report right now and need the basic contact details of Keith’s two charities which offer a free, yes free, advice service, here they are:

First, there is Credit Action 0800 138 1111 If you ring that free phone helpline you will be among 1200 or 1500 people who access it per day, so clearly you are not on your own!

Second, there is the Consumer Credit Counselling Service

Both organisations offer easy to understand guides on money matters – great value too.

Some startling facts: 

• When people ring up Keith’s free service, the average level of unsecured debt they are trying to deal with is £31K, i.e. 18 months’ average UK salary…
• In the UK we have £1.16 Trillion (=12 zeros) debt, i.e. when you add up what we all owe in mortgages, loans, overdrafts and credit cards, that is what we owe.
• We are 59.5 million in the UK, but between us we have 76 million store and credit cards.
• When paying off credit card sums, many people – 1 in 8 in fact – only pay the minimum each month. This costs them a lot in the long run.

Here are the three further facts that amazed me: 

• That hard-to-grasp figure of £1.16 Trillion (12 zeros remember) is more than the combined third world debt of Asia, Africa and Latin America. (I know: you’re thinking I misheard the speaker. No: I went back to him and double-checked that he did indeed say that.)
• 1/3 of interest charged on our cards is to pay for others’ bad debts.
• If you have a credit card, you spend 30% more in the year than you would otherwise – because using plastic doesn’t feel like spending.

The average financial knowledge of citizens in the UK is woefully low – my own included! For example:

• 25% of people under 25, when asked what an ISA is, said it is an accessory for an iPod.
• They also thought APR was an abbreviation for April (FYI, it stands for Annualised Percentage Rate, especially of interest on loans or credit.)
• Unless you pay off in full what your credit card monthly bill states as being owed, you pay interest on the whole sum; e.g.. if you owe £3K and pay off £2K, you still get charged interest on all £3K because you didn’t pay off in full what you owed. This was news to me and to many others at the lunchtime!

Lest you think Keith was going to rant against credit or indeed the whole financial system in the capitalist West, he said:

• “Credit is a good thing when used wisely and sensibly.”
• “As a former stockbroker, I am no Communist

But clearly there is a massive money handling problem around us in society and most of us are in denial about it… To wise us up, here are some further stats:

• 80% of family arguments have a strong money component.
• 70% of marriage breakdowns can be attributed to a money/debt issue.
• “Somebody will have shouted at their kids today over a money matter”.
• “Somebody will have struck their partner today over a money matter”.
• “Somebody will have stolen from their workplace today over a money matter”.

Why, we may well ask, did we not learn at school about money matters and handling money? Well, at least Credit Action and the Consumer Credit Counselling Service are doing their bit to make up for our lack of basic education, e.g. between them they are producing booklets etc. for:

• Relate – the marriage guidance organisation.
• Prisons – people serving time across the country.
• The Services – every new recruit gets one of their booklets.
• The Civil Service – The Civil Service Benevolent fund have ordered £20K worth.
• The financially excluded – people who don’t have a bank account.

Here is one reason we haven’t learned more about money, said Keith: it is a boring subject! Boring, that is, until things go wrong…

Here is what happens when a family goes from earning to being on benefits. Expenditure changes as follows. The average family spend per week goes from:

• On food: £70 down to £30
• On cigarettes: £3 up to £7 (not a misprint)
• On clothing: £30 down to £4
• On Transport: £67 down to £6
• On leisure: £61 down to £5

So how do people get badly into debt? Some reasons are: 

• They lose their job
• They fall ill
• Their relationship breaks down
• They just don’t have a clue about their personal finances
• They develop an addiction (e.g. buying things)
• They feel the pressure to borrow, and borrow more than they can afford
• They pay off the minimum each month, but this still allows them to get credit elsewhere and they take advantage of this and they slip further into debt
• The benefits system is so bewildering – there’s even a leaflet to tell you which leaflets you need

How do people feel in debt? 

• Afraid – about losing the house, the kids…
• Insecure
• Guilty
• Lonely
• Depressed
• Suicidal (Keith told us a harrowing real life story about a 6 hour phone call with a man who had a gun at his head)

How to get out of the hole? By budgeting: 

• Face the issue square on
• Get every person in the family to write down for a month what they spend money on
• Calculate just what the outlays are
• Decide where you can trim
• Live within the new budget
• Offer your new budget to your creditors and enter into discussions with them

Simple? Well, lest we think it’s just those other poor souls around us who are a bit out of touch when it comes to money matters, Keith had us do an exercise:

1. Think just for a few seconds how much your average British family of father, mother and 2 teenage kids spends extra between 10 December and 1 January. Jot down the figure. (Go on, do it for fun.)
2. Now jot down the following, just off the top of your head, a figure against each category:

• How much extra on food?
• How much extra on drink?
• How much extra on presents?
• How much extra on cards and postage?
• How much extra on entertainment and going out, incl. office parties and that taxi home?
• How much extra on travel? – to see relatives or to have a short break away
• How much extra on the post-Christmas sales?
• How much extra on miscellaneous- Christmas tree, crackers etc.?

3. Add up everything under 2 and compare it with what you put for 1. (I was out by a factor of 2.5…)
4. Guess what the real, actual, average extra spend is for this very same average UK family. (I give you Keith’s answer at the end of this report. You won’t believe it…)

N.B. In December 2006 some will still be paying off Christmas 2005…

The key to getting yourself out of the hole is communication: 

• Being really open and honest with yourself
• Being really open and honest with your partner
• Being really open and honest with your creditors
• Being really open and honest with people who are there to help you – CAB (Citizens Advice Bureau), debt counsellor, taxman etc.

What can we personally do to help? 

• Put about posters, postcards, business cards etc with info about free advice
• Tell people where they can get free advice
• Pass booklets to people, e.g. Credit Action’s

You reckon that is too direct? People are too shy about the issue for you to be so direct? OK, there is the indirect route too:

• “Did you see that programme on debt last night?”
• “I’ve just read that the problem of debt is much more common than people realise.”
• “I noticed a freephone number on a website that offers totally free advice to people who’ve got money problems.”

Clearly, individuals and whole families can get very badly hurt by debt problems. But each of us really can offer help. There really are free services we can point people to. Maybe we can even volunteer to be part of Credit Action’s network around the country… (Keith Tondeur would love to hear from you if you would like to offer your time.)

A question came up: “What about the Government’s response to this issue?”

Answer: All the main parties are aware of the massive problem but little is being done, for fear of rocking the whole financial system we depend on. One solution might be to have a dose of inflation. But that would hurt young people trying to get on the housing ladder and also the old on fixed incomes.

The current Government has only got as far as putting money into debt counselling. Meanwhile, it is also encouraging young people to go on to (costly) Further Education. Why? One reason is: to delay them starting work so that they work longer than today’s retirement age and won’t expect a pension till later…

A deeper question yet was asked: “Can our capitalist system sustain such a situation? Are we not sitting on a time bomb of lots of mini–Enrons?”

Answer: Well, it is surely very problematic that so much of our growth is being fuelled by credit, e.g. we can’t be happy that young people are being encouraged to take out mortgages as high as 5 times their annual salary.

Something is going to happen in the next while to end the 15 year cycle of low inflation, low unemployment and rising asset values, but the above-mentioned “solution” of a dose of inflation would see many casualties…

Most lenders are at least tightening up, but may it be a case of too little too late? There has admittedly been a new banking code, but there is not much new in it…

Banks need to be fairer, e.g. not coming down as hard on customers who inadvertently get overdrawn when they can have expected their cheques to have cleared. There is surely something amiss when Barclaycard earn 43% of their profit from late payment charges.

Footnote: the answer to the above point 4 is: £1,130 per person in the family of four, making altogether £4,520 for the family as a whole. (I was way out in my calculations!)