Easy credit leading the young to protected trust deeds
3rd January 2011
High levels of personal debt exist throughout society and the economy. Increasingly however younger people are finding themselves under pressure with levels of debt that they cannot manage leading eventually to using a protected trust deed. The recent reports in the media highlight in particular that students (and future students) face the frightening prospect that they must graduate with ever increasing debt levels due to an increase in student fees.
The development of student debt over the past twenty years has “normalised” debt for young people. Whilst in university students are offered various forms of credit through several different avenues. Student loans are the main source, but the main high street banks also offer “special” credit facilities for students. An example of this is where banks offer large overdrafts to students, with discounted interest rates whilst they remain in university. However, when they have finished their studies, they then only have a set period of time before normal (i.e. higher) interest and charges start applying to the overdraft. This can lead to the debt increasing in their early working lives as they may not be in a position to repay this overdraft off.
Not every young person goes to university, but debt remains a temptation for most of them. Many young people choose to go straight in to employment after school. Those who did go straight in to employment may now be finding their job is at risk or may have already been made redundant. This often leaves them unable to service debt that was previously manageable. Periods of unemployment may also lead to the use of credit to fund the period where they were without earned income. Periods of unemployment are a key cause of the need for a Scottish trust deed later.
Copying celebrity lifestyles
The younger generation also have the media and reporting of celebrity lifestyles influencing the way they live their lives. Glossy magazines show the most recent trends in what people “should” be wearing, what they “should” be doing, and where they “should” be going. Some of the younger generation see the lifestyles of the celebrities being shown and want to try and emulate these lifestyles. This can lead to store cards, credit cards and loans being obtained in order to have the newest fashions, the latest cars and the holidays that they see their icons enjoying, whilst not having the income to service this lavish lifestyle.
An example of this is the footballer and WAG culture. Magazine photos often show glamorous women coming out of designer shops laden with shopping bags, or a photo shoot of them being in some exotic location and attending parties frequently. People see this and feel they want to be like them. The same can be seen with the footballers who are shown driving around in the latest car and buying the latest fashion trends. All of this media focus adds to the pressure on young people who want to be like their idols but simply do not have the same level of money at their disposal. For some, credit can be the tool that solves the problem.
The dangers of credit advertising
Advertising of credit is also an issue for the younger generation. Many companies use advertising campaigns to make credit seem like a necessity and an easy thing to obtain. Letters are posted on a daily basis with phrases such as “you could be approved for credit in minutes”, there are adverts on the TV and on the internet saying how easy it is to get a loan or credit card. Debt is even sold to young people when they are at a shop till trying to pay for items, in many stores now they offer a store card with the added bonus of “20% off your first purchase” for example. Customers often aren’t specifically warned what the added fees or interest will be or how they need to repay the credit. They are simply given the credit agreement and advised to read this at some point to fully understand what the credit agreements entail.
Lack of financial education leads to later debt risks
In a recently publicized case a 19 year old female had six store cards, an overdraft of £500 and a credit card with a credit limit of £1000. When asked, she freely admitted she didn’t fully understand how the store cards worked in terms of interest and fees when she signed up for them. She had never read the terms and conditions of the store cards. She also advised she didn’t understand that the credit could increase if she wasn’t making the monthly repayments on the store cards. In terms of her banking she had only recently discovered that there was a charge for her to use the overdraft facility.
Such a lack of financial education, which could be delivered by schools or parents, leaves many younger people extremely vulnerable to making financial mistakes that result later in heavy debt levels. Such financially unaware younger people just see credit being offered to them when they reach a certain age, it appears to be “free” money, and enables them to live the life that they desire but cannot afford. Such a lack of financial education is also a key driver of the trust deed statistics, with many people honestly admitting they simply did not realise the dangers of using credit in the way that they did.
Debt may prevent access to the housing ladder for young people
It has become much harder recent times to obtain a mortgage; most mortgage companies now require a large deposit to be paid as part of the mortgage offer. Many younger people leave university with relatively high debt levels already, some other younger people are accumulating relatively high debt levels early in their working lives, and others have found themselves out of work and have used credit to help them get by. For all of these groups of younger people getting on the housing ladder will be almost impossible as they simply will not be able to save the amount of money required for a deposit.
The young therefore face many serious financial challenges that their parents did not have to face. Easy access to credit, student debt and the promotion of celebrity living creates additional risks of unmanageable debt and ultimately the requirement for a trust deed that their parents were not necessarily exposed to. Schools and parents could and should do much to educate children to better manage their finances as adults so that the current pattern is not repeated.
For more news and articles regarding debt in Scotland visit www.Trust-Deed.co.uk. The trust deed forum provides the opportunity to ask leading experts for advice on how to deal with high levels of debt.
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