Outside the marginals

a commentary on the politics that followed the UK 2010 & 2015 elections

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?

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4 thoughts on “Saving, Fridges and Wonga

  1. Peter on said:

    As somebody who has managed to save more than adequately on a very moderate income over the last 30 years, I fail to have much sympathy with the majority of those who find themselves with no money when there is a sudden need to buy something.

    The bottom line is that there is a significant proportion of the population that either sees saving as unimportant or wants to rely on somebody else to bail them out in a crisis, and wastes their money.

    There are too many people who see ‘desirable’ purchases as essential, such as fags, alcohol, mobile phones, premium TV subscriptions, clothing ‘labels’ and the whole range of pointless stuff people buy when they go to the supermarket such as fizzy drinks, crisps and other unnecessary stuff. And this is just the less well off.

    Go up the income scale we have the purchasing of wine with meals, excessive changing of cars, vanity/hair treatments and so I could go on. There is also the type of person who sees the final payment of their last ‘loan’ as a signal to buy something else unnecessary and get a new loan, or increase their mortgage to get a new kitchen/bathroom that didn’t need replacing in the first place.

    In the end, these people, whatever their income, they will spend it all, and probably actually more than they earn supplemented with credit cards and loans.

    Back to my original point, I have made good savings despite earning slightly below the average salary, my wife not working for 12 years when the children were young, and now having had to retire early 8 years ago on a pension of 2/3 of he minimum wage. This alongside having to pay excessive council tax as ‘punishment’ for investing in a good house.

    Yes, I feel quite bitter than my savings are earning me sod all interest to help subsidise all the groups I have mentioned above with cheap loans. The bottom line is that all but the very poorest can save if they budget properly and stop buying non-essential stuff.

    • Peter,

      I agree almost totally with your comment.

      (1) There are some who cannot resist spending – in fact shopping probably counts as a hobby. (I see shopping as a chore.)

      (2) There are some who feel “entitled”:

      just because I am on benefits why shouldn’t I have the good things in life?BBC TV – trailer for a forthcoming documentary “Britain’s Secret Spending Habits” (working title)

      (3) There are some who are so innumerate that they are incapable of budgeting.

      (4) Then there are some who are under such financial pressure that no budgeting or scrimping will keep their heads above water.

      The first two categories might be described as a psychological problem, the third an issue of education (or stupidity), and the final one is close to a modern form of destitution.

      As a society we need to consider our attitude to these issues.

      In some cases we may well decide that intervening in people’s lives is none of our business – people are entitled to got to hell in their own manner. The first two categories may “deserve” this sort of approach.

      But as a society are we happy that we have a world where “consumption is all”, and if not, what are we prepared to do about it? Politics and the media determine the environment. For instance:

      • Allowing people to totally free up their pension pots – even if they want to blow it all on a Lamborghini – or fall for an investment scam.
      • A planning system that seems in thrall to “retail”
      • An economy that values consumption- even when it is done on credit. (See How to $tuff Your Pig – An Idiots Question)
      • A credit environment that encourages impulse purchasing and discourages deferred gratification
      • A savings environment which penalises savers
      • TV programmes about home purchase and improvement – which seems to create the idea that there is something “unclean” about a “used” kitchen or bathroom (despite using a “used bathroom” whenever we stay in a hotel).
      • TV programmes (such as about foreign holidays) that normalises excessive spending.
      • Advertising of TV packages that give you even more channels that you do not have time to watch.
      • Advertising of legal services that seem to say no matter what happens to you we can sue someone for compensation at no expense to you.

      We could change this – if we wanted to.

      And what of those who through ignorance or inability cannot budget – or those under such financial stress that even the best budgeter and scrimper struggles to survive?

      Are we prepared to stand by and see them suffer (at developed world levels) or do we feel that we have no responsibility until their suffering approaches that of someone in the developing world after a natural disaster?

      Our fear of supporting the merely feckless (moral hazard) should not blind us to the genuine difficulties of a minority.

  2. Peter on said:

    I could probably do a very good job of sitting in an office, for example a local council or a CAB and advise people on how to manage their money. I could set my pitch at different levels depending on their level of income and their level of intelligence and probably have a very high success rate. The problem is that as far as I know, such a job doesn’t exist, and who would want to pay me, bearing in mind that politicians on the whole have a vested interest in benefiting from people in debt? Also there appears to be no desire to save, as there is always a way out, irrespective of high cost.

    I know of people who are working at minimum wage and people who are unemployed but genuinely seeking work who manage to get by and even treat themselves to a few luxuries such as a holiday or a desirable item every so often.

    On the other hand I watched a programme on TV a couple of years back called ‘We pay your benefits’, where somebody employed was matched with somebody on benefits to try to assist them. In one case that latter had been unemployed for 10 years, yet had qualifications, and was moaning that they had to make use of food banks, yet they RAN A CAR! What is worse, neither the employed mentor nor the programme maker raised this issue, so I can only assume that it was seen as perfectly normal.

    I would love to be given the challenge of being given a case of any number of families who can’t save, and I believe I could find a way for them to do so, though families without children would be the most difficult. Families with children are given so many benefits, working or not, that it would be almost impossible not to find a way for them to save.

    Consider this:

    1) One packet of fags NOT bought per week = a fairly decent fridge/freezer after 12 months.

    2) A person who normally changes their car every 3 years (with a loan) could buy a new car outright with no loan if they kept their car for 10 years instead.

    • I could probably do a very good job of sitting in an office, for example a local council or a CAB and advise people on how to manage their money. I could set my pitch at different levels depending on their level of income and their level of intelligence and probably have a very high success rate.

      I think that this has been attempted – and by people who are well qualified (professionally and pedagogically) – but with disappointing results.

      The problem is that as far as I know, such a job doesn’t exist, and who would want to pay me, bearing in mind that politicians on the whole have a vested interest in benefiting from people in debt? Also there appears to be no desire to save, as there is always a way out, irrespective of high cost.

      And this is probably one reason why the results were disappointing! I suspect that there is also another reason – the psychological one alluded to earlier.

      Just as we can fairly clearly divide people on the extrovert – introvert continuum, we can also place people on a continuum that relates to their attitudes to life- “live for today” (hobby shoppers) vs. “put something aside for a rainy day” (chore shoppers). I suspect that most people will be towards one extreme or the other of such a continuum.

      The later will probably be able to benefit from advice about managing money. They will see savings as contributing to their standard of living more than “luxuries” – they value security and independence more than material possessions (such as a “new” car).

      The former are probably deaf to such advice. They will see the fags – or a drink – as a necessity to make life bearable. The previous quote “just because I am on benefits why shouldn’t I have the good things in life?” illustrates this (and that is leaving aside the very real problems some have in overcoming addiction).

      Sometimes overcoming the emotional issues has to come before tackling the logical issues (such as budgeting).

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