Britain's Debt problem

Language level: Advanced

Source: Speak Up

Standard: British accent

 

MONEY

Britain’s Debt proble

The British are the biggest borrowers in Europe. Total UK personal debt stands at £ 1.3 trillion and is rising by £ 1 million every four minutes. Average household debt is now over £50.000. Francesca Hopwood Road, who works for the London-based charity Citizens Advice, says that it represents a growing problem.

Francesca Hopwood Road

(Standard: British accent)

Yes, I mean over the last eight years the number of consumer credit debt enquires have doubled. So it’s certainly a growing issue and of growing concern, not just for our bureau, but I think that’s probably reflected more broadly amongst the general population. Debt is increasing. The number of personal bankruptcies is increasing in the general population. So I think she figures that we see are replicated as a trend across the country as whole.

BANKRUPTCY

In the past eight years. Citizens Advice has seen the number of consumer debt enquires double to 1.25 million. Almost two million people owe more than £10.000 on credit cards, overdrafts or other unsecured loans. Around one million households face problems with debt repayments. Bankruptcies rose to a record 26.000 in the second quarter of 2006 – up 66 per cent on the previous year –and mortgage repossessions are at a 13-year high.

It’s not all bad news –some experts say that personal borrowing is simply that personal borrowing is simply the result of an efficient financial market and helps to drive Britain’s economic growth. Interest rates are low and most people meet their repayments without problems. Nevertheless, a new generation is growing up with debt. There are special credit cards for teenagers, students pay fees of up to £3.000 per year to attend university, and more than 200.000 18 to 24-year-olds already owe at least £10.000:

Francesca Hopwood Road:

There’s probably less of a stigma attached to having debt that there was, certainly, for our grandparents’ generation. Now, obviously, student debt is a fact of life for most young people who graduate from university. It’s not unheard of to come out with £30.000-worth of debt. So I think the notion of having debt and that being a part of one’s life is becoming a notion that most people are most at ease with. I think maybe that’s then transferring into having…taking out credit and taking out loans to buy cars or whatever. But I think the notion of having debt is…people are more at ease with, potentially, than they were, say, maybe a couple of generations before.

The British love their plastic: there are now more credit and store cards than people in the UK. Almost one third of Britain’s unsecured debt is on credit cards, compared to just 1.6 per cent in France. Yet credit cards are usually the most expensive way to borrow money. Lack of financial understanding is a major problem for people in debt. One recent survey found that a quarter of British people have no idea how much they spend in a week. Only half know the balance on their credit cards, or what interested rates they receive or pay on savings or debts. The British government is so concerned that in 2003 it began a programme of financial literacy, targeting schools, workplaces, young adults and new parents. Citizens Advice helps to provide training and education as part of the scheme.

BUY NOW, PAY LATER…

In actual fact the British currently spend just 60 minutes or less per week reviewing their finances, the lowest in Europe. They spend twice as long texting or on the phone and six times as long watching TV! So is Britain’s “buy now, pay later” culture ever likely to change?

Francesca Hopwood Road:

I think that’s a very hard question to answer. I can’t see how necessarily we were to switch overnight form that culture to a culture, for example, in some countries in a mainland Europe, where there is very much a…not necessarily an anti-credit culture, but credit culture’s not so pervasive as it is here. Personally, I can’t see it changing, but I think there does have to be a shift in mentality around the way use credit and why we use credit.

Cases Studies

GRAHAM, 45, a carpenter and builder, fell behind with his income tax payments. He borrowed money against his house to settle his tax bills. An injury left him unable to work for tour months, and a bad debtor left him with business debts. He now owes nearly £100.000. Source: PrincewaterhouseCoopers

Max X, 22, built up debts totaling £15.000 on five different credit cards. She got into difficulties after losing her job and could no longer keep up the repayments. Source: Citizens Advices

MARK MACDONALD killed himself in January 2005. Afterwards, he was found to owe a total of £120.000 on loans, two credit cards and a re-mortgage with the bank. He had kept the debt secret from his wife. Source: BBC News

RACHEL, 24, a graduate, left college and travelled with friends, putting the cost on her two credit cards. She got a job and a bank overdraft. After she started work, she was offered a further credit card, and also took out two store cards. She ended up with debts of £35.000, owing monthly interested of more than £450. Source: PrincewaterhouseCoopers