Reasons for Debt...

nh

I know what you mean! But then, that is what savings are for, except when they are supposed to be saving toward something specific... like a wedding/honeymoon! Just think, if you didn't have the savings, how else would you pay for those things you spend the money on?

Every month I go over my budget because there are always extra things to pay for (this month, it was my car insurance (£175) and the summer holiday (£189) (tho I know I should be budgeting monthly for these things!) but I just write down all the extra expenditure I make over and above what is accounted for in the budget, then I 'pay' for it by doing overtime at work or we take it out of the 'house' savings, as that is what they are for. That way, I know exactly where every penny is and where it has been spent and how we are going to cover it!

I reckon each month we spend at least £200 more than what is in the budget (and that is not including our own 'spends') There is always something to pay for!

Anyway, this thread is supposed to be about reasons for getting into debt - not control-freak spending/saving!

Fran

I have to say that a large amount of the clients I used to see in the CAB were not casualties of unexpected events with debt as the fallout. They were profligate spenders who simply overspent. What compounded their situations was the greed of the lenders in terms of high interest rates pushing them even further into debt.

It depends on where the CAB was located. In my work for the CAB, the majority were not the type you describe but were in debt because of low income, breakdown of relationship, illness, redundancy, mental health problems etc. Also a lot were casualties of the benefits system, eg: rent arrears because housing benefit take ages to work out payments.

BA-744.
Unfortunately for economists, the world doesn't work like that, as people do not make decisions rationally, they make them emotionally. A classic example is the forum member ac, who, despite the evidence she sees every day (cancer patients), still chooses to smoke.

It wrong to compare an addiction with an "emotional need". Also it's unfair of you to use ac as an example. There are a few of us who have said we smoke, there's no need to pick on one person.

But if it is all in our genes, how does this explain the complete sea-change in attitudes to debt and materialism over the past 2 or 3 decades? ..............
Surely, the answers are more rooted in culture than nature.

It is in our genes to take everything we can get in case of starvation or someone else getting to the "food" isn't it? I agree with what you say about culture though, it just depends how each cultural group decides is the best way of doing it. It depends who is in control too - Thatcher's "everyone for themselves" years seem to have contributed to the selfish attitudes around now where people are more concerned about their own images than caring for less fortunate people or working towards a common good.

People now appear far less willing to discuss their earnings than was historically the case.

I disagree. My grandfather would not have told my grandmother how much his wages were. I doubt very much whether my mother knew how much income my father had - she used to get "allocated" a certain amount for food and looking after the children and any extras at all she would have to find her own money regardless of whether my father could have paid or not. When I was first working people never discussed their wages. It is only when people started letting others know what their wages were that women realised they were paid less than men for the same job. This is only relatively recent and unbelievably this still happens in some employment.

The media and the lenders between them, make it easy for people to have it all NOW and this ethos ensures that debt will continue to rise. ..........

............We live in a materialistic, impatient world, ever encouraged by greedy lenders. At one time the question would be - how many households have a car? Now the question is how many cars per household? Or TVs or whatever.

I agree - I don't think people have changed though over the years, it's the advent of mass media and the accessibility of means of credit. We now know what we can buy (before TV/newspapers/magazines it would have been word of mouth) and the lenders are there offering. So we take it. People will always push to boundaries of existence in all fields. It's all too easy. Sit at computer - order - give credit card details - make a cup of tea.....

But I also think, that there are also more subtle forces at work in the media. For example, thinking of newer TV programmes versus older ones, there is a definite shift towards portraying richer people and their lifestyles. Think of Friends versus Rising Damp, Footballers' Wives versus Only Fools & Horses.

The TV programming thing occurred to me too, but I'm not sure of your examples. Lucille Ball was always in a "nice" american house, in fact all that genre of american comedy (which we've been force fed since the beginning of TV) has the families in very comfortable settings so I don't see that has changed. I don't think you can then compare "Friends" (american) with "Rising Damp" (british). Aren't programmes like "To the Manor Born" from that era too? Our older comedies either had people like "Rising Damp", "Only Fools and Horses" and "Porridge" characters which were made for people to laugh at, or the other comedies that ran alongside them always had familes in nice settings that spoke in posh voices that we aspired to laugh with ("Butterflies" etc). I think the game shows with throw away money of ridiculous amounts have the most to do with the shift in programming influencing us. And of course advertising which has gone from comparing washing powders to luxuries.

Unlike other posters I think things will now start to improve now that problems with debt have been identified and the extent of it is in the public eye.

kaznelson

Great discussion with some interesting theories on debt.

I grew up in a very poor environment were we often had no electricity, gas and the bailiffs were always knocking on the door (please put the violins away!!). Anything we needed for the home would have to come from catalogues or money lenders.

During my early twenties image was very important to me, a flash car, designer labels etc. I wanted to prove and appear that I was successful & better than the Joneses. . I was lucky that I had a good salary and never had any debt until I made an unwise decision to enter into a business partnership with an unsuitable (that’s wording it nicely!!) business partner. Due to Legal & Accountancy Fees I’ve now got a 10k Debt with an attached charging Order on my property  But as I’ve got older (OMG I sound old, I’m only 30 now!!) image doesn’t matter as much. I would rather have good quality time relaxing with my family rather than the latest Prada dress.

I feel that the way our parents teach us to look after our money, contributes to our financial spending. I don’t have (or wish for) any Credit Cards, have only one loan for my car and I always have a reserve in the bank for emergencies. I save for anything I want or need. Its also worrying that our Schools fail to teach our kids how to look after their money in the National Curriculum. As soon as you leave school/college you’re overwhelmed with Loan/Credit Card offers with little knowledge of the risk involved.

nh

Another thing about schools and handling money, the careers advice never mentioned money. This 'just do what you enjoy' advice is pretty rubbish really. There was no sitting people down and saying 'what are your ambitions, what do you want out of life?' A friend of mine was encouraged to do a meaningless sports science course (which he quit six months) after high school even though he was also interested in civil engineering. Now he is in a job he hates (panel beating) and thinks 'I could have been an engineer'. But I suppose the sports science course seemed more fun at the time.

Schools should point out to students just how poor they might end up if they don't work hard and follow the right courses after leaving!

kaznelson

I agree totally NH, I left school and joined a YTS Scheme as a Clerk with out being given any other options.

I didnt understand about NI, Tax or Pensions and just had to pick this up as I went along.

Surely it would benefit many Students if they were given some sort of basic advice about different type of savings available and the dangers of getting into debt.

Pal

It wrong to compare an addiction with an "emotional need". Also it's unfair of you to use ac as an example. There are a few of us who have said we smoke, there's no need to pick on one person.

At the risk of going off topic, I am not picking on AC at all. She has stated on these boards that she smokes because she wants and chooses to and that she has no intention of giving up because she enjoys it. Unlike the rest of you she has also stated that she sees cancer patients in her work who are suffering the ill effects of smoking.

I am not critisising her decision in any way. I am simply saying that it is a classic example of an "irrational" purchasing decision which flys in the face of economic assumptions that people make rational decisions based on the information available to them.

The fact is that humans rarely make completely rational decisions. We are not designed that way. We all make "emotional" irrational decisions every day and without them we couldn't function, but would simply spend all our time weighing up the different options indefinitely. (There was a famous historical study done on this with brain surgery patients who had effectively been rendered "emotionless". If I remember I will dig up the reference).

When I refer to "emotional" decisions I am not using it critically in any way. I use the phrase to decribe the process whereby humans make decisions that "feel right" to them, without weighing up every single option and possible outcome. For example, walking past a shop, seeing something you like and then buying it immediately rather than shopping around, going on-line etc etc to check that it is the best value possible. Economics assumes that everyone does the latter, but in real life it is rarely the case.

nearlyrich

What about decorating the house and who pays for holidays? What if one partner earns twice as much as the other and so has much more disposable income and can then have nicer clothes or whatever?

In our case we have similar incomes and we pay half each for food bills house maintenance and holidays.

It works for us !!

Debbie_Hobdell

My previous post makes my husband sound worse than he is! I'm the more acutious one with money, whereas he tends to spend with less worry about how it will be paid off, should anything untoward happen.

(It doesn't help that he'd been paying CC insurance only to be told that they would not pay out becuase he was a company director and should've known what was coming)!

But yes, we both agreed before we got married that we would have on joint account for all the bills, mortgage etc, and as I've always been the better with money I would look after that side of things. That way neither of us would feel that the other was looking over their shoulder to see what we were doing with the rest of our money.

Hubby earned more than me so put in the bulk of the money. He would tend to pay the majority of holiday stuff, too, but we both contributed - I'd pay for most of the petrol & some meals out, or excursions, and it's worked very well until our change in circumstances.

I would recommend this set-up to most people.

I also think that the vast majority of kids today have no concept of money or it's value, and if you don't teach this sort of thing to them fairly early on then they probably won't learn it at all. Good on you, nearlyrich, and any others who are trying to teach your kids the concept of budgeting - I'll try & do the same with my little girl when she's old enough!

nicki_2

The reason we're in debt is my parnter went to university in London for 3-years totalling about £7000 in debt (student loan, borrowed from family and WILL be paid back, and a £1500 overdraft!) whereas I went to university in my home town (lived with parents) on a course where I got paid to attend (£100 a week) even though I still had no money at the end of it ::)

When we first started going out together neither of us had 10p to rub together so we both lived with our parents and then went to our job centres and signed on (we lived in seperate towns). This allowed us to look for a job, pay my mobile bill, and visit each other at least once a month (£20 total in train fair wasn't much and easily saved).

I've always been careful with money. I've seen the arguements it's caused with my parents. I saved what I could while still enjoying myself. Partner got a part-time job delivering papers (in a van around a small town) and I used to help him as much as I could. With those wages and me mostly visiting him, we managed to pay off £500 of his overdraft in 12 months by drip feeding it and debts he owed to his friends as well. He then got a contract that would pay him £1500 in three instalments so we knew his overdraft would be paid, and we could concentrate on finding a flat and moving in with each other. Due to stress, he had to leave the job early and therefore only got paid £1000.

Plans changed, I got pregnant and we moved to a rental house in my home town instead. I have a back problem which meant that the pregnancy was not easy so I started claiming Income Support and housing/countil tax benefit as my parnter stayed at home (but looked for work) to help take care of me. After the birth of our daughter, we carried on claiming for a while as I was still having problems. After 6 weeks, we had to swap to my parnter claiming jobseekers allowance, etc.

Finally he managed to get a job through a placement. However, this is when our real problems, and debts started. With having a baby visiting the family in another town by train had gotten difficult so we started hiring a car (very few trips though). To hire the car you need to have a credit card which we didn't so my dad used to have to meet my partner at the car hire place, sign the form and have charges made to his card so that we could hire a car. We couldn't carry on like that as it was costing my dad money, so I applied for a credit card - orginally for emergencies and paying for the hire car.

In March 2003 a slight problem occured when my partner was due to move from benefits to wages - we were to be without any income for six weeks until he got paid his wages. We saved every penny we could in our bank accounts and used them to pay bills like rent, gas, electricity etc. This meant that food shopping had to be put on the credit card as we were only just going to be managing the "fixed bills" as we were not entitled to housing/council tax benefit due to working.

Six weeks of spending on a credit card became a very bad habit that I have trouble breaking. Then we had problems with trying to budget on wages which worked out only £50 more than job seekers for the first month or so until benefits etc were sorted out. We got there in the end but the credit card debt had grown quite a bit.

We were making progress with the debt but then partners nan died unexpectedly so we had to hire a car and go up there on no notice adding about £200 to the credit card. That was right on top of Xmas and as a result the Xmas shopping (although I stuck to a budget) got thrown on the credit card for speed and ease.

Since then, retail therapy has been a major factor on our increasing debt. Mainly treats (freeview, new clothes for me due to varying weight problem) /requirements for the house (like a new hoover, iron, furniture) have been put on the credit card.

Also we've taken out 2 loans with Comet to pay for a fridge-freezer (finish paying for that in April - had to go for the longest time an minimum payments as we were on benefits at the time and we needed a fridge/freezer on account of our daughter being bottle fed and needing to refridgerate them) and a new computer last August (Parnter needs one for work, and we'd be lost without the internet - it also helps me a great deal with keeping track of our money situation etc with online banking and money.).

More recently though, we've been on holiday to stay with friends in Switzerland. The flight and clothing went on the credit card as we wanted to spend cash rather than use a credit card while away. We would have paid for things with our savings, but we had to pay our £109 for passports which took a big chunk of our savings.

Yes, we didn't NEED to go on the holiday but we've been under alot of stress the past 3 months after being evicted from our rental house and until 2 days before we were due to be out, we didn't have anywhere to go except to sleep on family's floor. (We were evicted as the landlady wanted to sell the house - it still isn't sold {it's just down the road from where we are now} and is now costing her £330 a month in mortgage repayments. So far that's totalling £660 and I can't see it being sold by 1st August ;D ) . The holiday was a welcome break and I feel much better and able to cope with things again.

Unfortunatly, my partner has decided to move to a new job starting in September, which means more messing around over tax benefits but hopefully it should work out better all around as he'll be on about £7000 a year more, for less hours per week, and with more holidays as he'll be working in a school. BUT he'll be working in a nearby town so we now have to find the money to buy and run our own car (he currently "owns" a company car) which means another loan.

We're hoping that his pay increase will allow us to pay off the credit card as it's now at the point of minimum payment being £85 a month. We're pretty good with money and we rarely (as in once in the past year) go into our overdrafts, but we'll have to see what happens when he starts his new job.

BTW, his wages go into his account and then he transfers a fixed amount to my bank account, his other bank account and a savings account. My bank account has his transfer, my tax credits and the family allowance as the only income, but ALL bills (apart from insurance and his mobile bill which go out of other accounts) including food shopping comes out of my account. This way we know how much money we have to "spare" each month and can budget accordingly if needed (I occasionally even manage to persuade him to make an extra credit card payment from his accounts )

churchmouse_3

Although i was brought up by parents who wanted us to have the things that they didnt due to the war etc i have always been taught to save for what i wanted. Even as a child i did part time jobs to earn my own pocket money , it never did me any harm , but children today just have to ask and they shall receive, it seems to be a greedy society we live in and we all want, want ,want, but ask why ? they want something and the answer is often an" i dont know".
Temptation is thrown our way and of course banks love us to pay interest on loans instead of paying us interest on savings. Recently i was sent an offer from my bank to take out a loan, implying that i could buy that car i always wanted, or go on that holiday to somewhere exotic or have improvements to my home. I sent the form back having scrawlled in red pen " Dont ever send me this rubbish again, i dont do loans or credit cards, i am not that stupid.
Money is useful but its not the answer to happiness and no amount of money can make the Beckhams truly intelligent , witty , and wonderful people.
I see a lot of keeping up with the Jones's mentality plus there is so much advertising on TV which plays on our emotion, that if you dont buy a new sofa / flatscreen tv this year you will be an outcast to society! Are we all senseless morons following like sheep ? No, just say i dont really NEED it and keep your money things you do need.