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:

alistair_darling
Alistair Darling and the Budget by HM Treasury

Credit

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?

Savings

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.

Budgeting

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

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.

Benefits in Lent (Week 4) – Time

I do not have the time to live on benefits. In a 168-hour week I have to work a full-time job, study for accountancy exams, keep the flat habitable, cook, train for bandit-defence and write blog posts. £64.30 does not buy me enough time.

time
Time by ToniVC

I have talked about how my existing possessions and working full-time makes living on benefits easier. However, I have not been able to substitute money for free time. I’m used to regularly eating out, convenience food, home delivery for groceries and a cleaner. None of that is possible without money.

Organising for Victory

Without money or time you have to organise beyond German efficiency levels to make things work. My life is run by my diary, to-do lists, revision plans, meal plans and New Year’s resolutions. However, being 100% efficient is not possible and leads to unhealthy psychological conditions. The need to buy time is one reason that I’m £7 over budget this week. I didn’t need to spend money on dishwasher tablets and a cleaner, but it saved me about 4 hours of time.

Everyone suffers time poverty and I don’t expect any sympathy. I have been questioning how I spend my resources. I can either:

  • wring out every last useful second and use up every single pound to maximise enjoyment and achievement. Economists call this “utility-maximising behaviour”.
  • leave gaps

Gaps such as the one where a pertinent conclusion to a blog post should go.

Benefits in Lent (Week 2) – Accruals Concept

It’s near the end of the week and I have £12.57 left to spend at the Korean restaurant birthday dinner tonight. It has been quite easy this week because I still enjoy the use of my existing stock of possessions and food. This doesn’t cost me any money.

Essentially, I am still living a middle class lifestyle that is far beyond someone on benefits. A fair way to take account of it is the use of accruals accounting. In short, goods and services are accounted for as they are used instead of when they are paid for. For example, I bought three boxes of cereal before the challenge started. Under cash accounting, I can ignore this. Under accruals accounting, I have to account for the one box of cereal I ate during the week.

More information on accruals accounting can be found in paragraph 22 of the IFRS manual.

ifrs_manual I’m going to adjust week 2’s budget under accruals accounting.

List of Adjustments

  1. To account for the consumption of the existing food in my fridge and freezer. Including free food given by my parents
  2. Benefits in Lents does not take account of Oyster card costs because they are assumed necessary for work, however, there’s no adjustment for non-work travel.
  3. To account for use of existing household products, such as my bed, sofa and toothpaste.
  4. Existing use of laptop and TV, assuming an estimated useful life of 3 years.
  5. To account for free beer and sandwiches consumed at a work event.
  6. To account for clothes worn, assuming a useful life of 2.5 years.
  7. Existing use of guitar, piano and the reading of 3 chapters of book. Estimated useful life of 10 years. The book cost £2 and has a total of 14 chapters.

Notwithstanding the disturbing fact that this looks like a spreadsheet at work, I am now over budget by £22.77. This shows that I already have good wealth and income doesn’t matter so much. Those on benefits don’t have such wealth, and need to borrow at extortionate rates to fund a basic lifestyle.

No kimchi for me tonight.