The Govt considering financial MOTs for over 50s
- Published on Tuesday, 17 December 2013 15:46
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The Government should introduce “financial MOTs” for those aged over 50, a think tank has suggested.
The Smith Institute has called for bold action to warn people about the danger of problem debt in the same way that campaigns raised awareness about HIV and Aids in the 1980s.
The report, supported by StepChange Debt Charity, argued that many people were likely to see their debts worsen in the coming years, despite recent signs the economy was improving.
It warned that without stronger intervention such as a national awareness campaign which could be accompanied by a education refreshers for older people, consumers would be dogged for longer by loans they took out in early life and problem debt among pensioners would increase.
It said that while schools were incorporating financial education into teaching, under the national curriculum in autumn, levels of financial literacy were “worringly low for older people”. It said “financial MOTs” could include guidance on how to get retirement income and advice on debt management.
The report, titled Tomorrow’s Borrowers, argued that the country was yet to have a “meaningful public conversation about credit dependency” and it needed to address its over-reliance on forms of high-cost credit such as payday loans.
It said: “There needs to be a concerted national campaign designed to bring the issue out into the open and change attitudes and behaviour.
“This campaign needs to be on a par with the Aids awareness campaign of the 1980s or the ‘five a day’ fruit and vegetable campaign that began in the 1990s.
“Most effective would be a generic message that stops debt problems escalating, using role models and case studies.
“Possible themes could be around seeking help early, or having a plan to repay debt, or ensuring that the length of term of the debt does not exceed the term of the benefit for which the loan was originally taken out.”
The report comes after research by Government-backed body the Money Advice Service (MAS) warned that around nine million were trapped in a spiral of severe debt in the UK – but only one in six of them was getting advice on how to escape their situation.
The MAS found that one fifth of people it classed as over-indebted did not realise they had a problem.
The Smith Institute, which was founded in memory of former Labour Party leader John Smith, said schools, the NHS and housing associations could get involved in the campaign and signpost people towards places they could get help.
It also called for stronger efforts to encourage saving.
The report suggested the mass development of “jam jar” accounts, which would allow consumers to easily split their account balance into separate budgets for spending, saving and bill payments.
The report, which drew on a range of studies, including official statistics, pointed to several emerging trends indicating that personal indebtedness “will not magically disappear when we move from austerity to prosperity”.
These trends included people living for longer and more people living alone, rising house prices and a lack of supply of homes making it harder for some people to get on the property ladder and fears that a wave of households with interest-only mortgages which were due to mature in the coming years would be unable to fully pay off their home loans when they come to an end.
A less generous welfare state, continued sluggish wage growth and rising levels of student debt were also set to exacerbate some people’s problems, the report warned.
Around one quarter of UK households already feel burdened in some way by debt and at the beginning of 2013, the total value of consumer loans in the UK (excluding student loans) stood at £1.4 trillion, equating to just under £30,000 for every person over the age of 20, the report said.
The vast majority of this total was made up of mortgage debt, while the remaining £158 billion included credit cards, personal loans and overdrafts.
The report identified two groups of consumers who were particularly vulnerable to being tipped over the edge, both of whom tended to rely heavily on payday loans.
Each group represented around one in 10 households.
The first group had around £12,000 of debts and was made up of middle-income earners with a mortgage and the second had around £2,000 worth of debt but few assets and tended to be made up of people who were unemployed, single and lone parents.
Paul Hackett, director of the Smith Institute, said: “Unless Government and regulators take early action, we are in danger of sleep walking into a major personal debt crisis.
“An over-reliance on high cost credit and an anti-savings culture will push more people, and especially older people, into unmanageable debt.”
On Monday, Chancellor George Osborne announced plans to cap the costs of payday loans.
The Government will bring in powers to impose the restriction through an amendment to the Banking Reform Bill and the level of the cap will be set by new regulator the Financial Conduct Authority (FCA).
Almost two million people have also been automatically placed into workplace pensions as the Government tries to encourage people to save more for their later years.
28 Nov 2013