Benefits in Lent (Week 5) – Credit, Savings and Budgets
I saved £10.84 in week 5. It makes up for some of the previous weeks budgetary excesses and brings the Lent Debt down to a manageable £5.71. That’s 8.9% of my benefits income and favourably compares to the UK national debt, which is 53.5% of GDP. Therefore, I believe that should be considered for this man’s job:
Most Britons have access to cheap credit. It’s useful for unexpected emergencies, such as car repairs or a broken economy. I used “notional credit” to cover my spending overruns but this was unrealistic because I wasn’t charged any interest.
In real life, the poor only have access to the most expensive forms of credit. For example, I found a website that offered a one-day £50 loan for a finance charge of £14.75 – giving an APR of 2222.46%. Crazy - but what alternative is there when things break and food runs out?
Low income means that there is no slack. Building wealth and safety buffers is not possible. In Britain, the top 10% of the population owns 53% of the wealth and the bottom 50% own 7%. The point is, nobody ever escaped poverty without saving.
The natural argument is that those on benefits should not live beyond their means. No-one disputes this, but that doesn’t explain why budgeting is often absent. I venture two reasons:
1) Poor financial education – Financial education in schools is currently not compulsory and its delivery is varying (source: FSA study). Financial habits are learnt at the home. However, what message do you learn when you see everything going on a credit card, or a quick loan company being used. Unfortunately, there’s evidence that the under-40s are less financially capable than their elders (source: FSA study). The bankers have highlighted the dangers of a lack of financial nous.
2) Societal expectations – Eating out used to be a rare treat. Now I’ve memorised the Pizza Express menu and eating out is one of my bigger expenses. Mobile phone are everywhere. Computers are considered essential. Everyone has a high definition TV (except me). It’s easy to say that the poor should do without these things. But we can’t live our expensive lifestyles and wonder why others don’t want the same.
Now we have a difference between income and expectations. Debt is the only way to fill the gap. Most of society is in debt – I’m in a negative wealth position if you count my student loan. However, the poor suffer more intensely from debt because of much higher interest rates.
Financial services, such as credit, have made our lives better by making it possible to withstand unexpected events. This is why I welcome the government’s decision to make bank accounts universal for all.
However, the poor are still disadvantaged. They live on the edge of a cliff with loan sharks waiting if they fail.