Can an improved financial education reduce trust deeds?
16th May 2011
A survey of young people by The Royal Bank of Scotland (RBS) has revealed a significant gap between financial expectations and reality, which could impact on the number of people seeking trust deed advice in the future. The survey began in 2007 and has collated the views of over a thousand 12 to 19 year olds.
62% of young people in Scotland thought they would have purchased their first home by the age of 25, by which time they expected to be earning an average salary of £33,769. By the age of 35 they expected to be earning an average of £54,355. Such expectations and averages are of course entirely unrealistic when compared to average earnings in Scotland and the average age of a first time buyer. In actuality salaries are far lower than this, perhaps one factor in prompting such a number of trust deeds.
Such statistics of course spell financial danger for young people. When entering into further education there is no shortage of financial institutions lining up to offer credit facilities to young people, which is often the start of a spiral which can end with trust deeds. It’s therefore easy to get into the habit of using credit at a comparatively young age.
When entering work for the first time many young adults are therefore likely to be carrying some debt burden already. If they expect their wages to surge in the manner described in the survey many will have little reluctance to rely on credit to fund a lifestyle over and above their means. After all, within a few years they’ll expect their increased income to easily be able to cope with the repayments. Wishful thinking for many, who will find themselves seeking a debt solution such as trust deeds to help them out of trouble.
The current reality is that many adults in their twenties and thirties experience great difficulty with debt, which can often result in the requirement to sign up to trust deeds. Making your first foray in the housing market, marrying and starting a family are all incredibly expensive undertakings at a time when their careers and earnings are unlikely to be at their peak.
In many cases those needing to resort to trust deeds entered into an expensive life style with debts already incurred. They have then funded further spend which might have been beyond their budget such as cars and holidays. Such expenditure can lead to the tipping point where debts are no longer affordable, leaving trust deeds as one of the few ways to turn.
Introducing further personal finance education into schools is a must if there is a serious will for the next generation to avoid unmanageable personal debt and Scottish trust deeds. It’s hard to understand why someone might be able to leave school capable of completing a “simultaneous equation” but unable to explain what “APR” means. It’s also difficult to understand why children would be able to leave school without a realistic idea of how much an average person will earn, what it will take to get on the housing ladder and the high financial costs of raising a family.
Until this happens it seems likely that the pattern of a slow build-up of debt will continue to push many people in their twenties and early thirties towards trust deeds or other serious debt solutions. For many, some additional knowledge and a dose of reality at an early age could help prevent a significant amount of stress and difficulty later.
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