Saving, Fridges and Wonga
… more than a quarter of families (26%) are saving nothing each month, and the percentage with no savings cushion has remained static at 17% over the last six months.
It suggests that, while those families who can afford to save are making efforts to put more money away, the situation has shown little sign of improving for those who were already struggling or failing to do so.
Aviva News Website 12 August 2015 : UK: Rising incomes mask growing inequality amongst UK families
So what do these families do if their fridge fails?
My fridge failed just before the Whit bank holiday. Of all domestic appliances the fridge and the cooker are probably the most vital. If the washing machine fails you can wash your clothes in the bath or use a laundrette (where they still exist) or ask a neighbour for “washer time”. If your central heating boiler fails you can live without heating (just – a fan heater is a useful reserve), but the cooker or the fridge? You don’t want to do without whilst you save up – you need to repair or replace.
To get “an engineer” out (on a normal work day) to repair my fridge would cost £149 call out plus labour and parts (and VAT no doubt). I was instead offered a replacement for £125.
I have savings and a credit card which I use to provide the few days extra cash flow until those savings can be transferred into my bank account. (I use it as a payment card – not as a source of credit) So I went out and bought a new fridge – and was able to negotiate a good price (£115) because I was “buying now” and not having to worry about credit. I also have a car so I could go and shop around and not have to rely on a delivery service.
But what if I was one of the quarter of households who are not saving every month or one of the 17% who have no savings (about 1 in 6 households)?
- If I was on benefits (and had been for 26 weeks) I might have been eligible for a “Budgeting Loan”. It is interest free, but I doubt I could have got one on a Friday afternoon before a Bank Holiday.
- I don’t think my council’s Emergency Transition Support would help.
- So I would be looking for retail credit.
- Many “normal stores” seem to only want to offer you credit (~30% APR) if you spend more than about £250. With a credit card of course I could access similarly priced credit for a purchase at about £125.
- From a “weekly payment store” I could get a similar fridge for about £300 or £600 after three years credit at an APR of almost 70% is taken into account.
- Or I could borrow from a “payday lender”. £125 for 32 days (the maximum period offered) would cost me £157 (APR 292%). But if I can’t afford £125 now, I probably can’t afford £157 in a month’s time. So borrowing £157 at the end of the month from another lender for another 32 days might cost me £197. And then?
Having even a small “savings pot” makes a huge difference.
- Those that’s have money, get’s more money
- Those that’s have debt, get’s more debt
To rectify this situation requires a particularly paternalistic and coercive approach – that seems unworkable.
You cannot just exhort people with no disposable income to start saving – as people are finding with stakeholder pensions.
Even if people only save £2 a week it will take more than a year to build up a savings pot to permit replacement of a small fridge.
If you have no disposable income almost any event is likely to put a demand on this savings pot. New shoes, replacing a stolen school bag, a cold snap putting up the cost of heating, a broken window.
So can you enforce saving and then control the circumstances in which people can draw on those savings? The bureaucracy necessary to release funds for a new fridge but not for a new TV or the new school bag is hard to imagine.
So are the poor (25% of households) forever condemned to use expensive credit? Credit that might run away from them as the interest costs more than what they can repay.
Or do we as a society think that there has to be a better way?
Or do we as individuals view the poor (even the working poor) as feckless and undeserving?