Iona on Sky News

Iona was on Sky News this morning commenting on a Sky survey which found 65per cent of 18 to 34 year olds are worried about what will happen when interest rates start to rise.

At the same time, new analysis from the debt charity Stepchange shows that more and more young people are seeking emergency advice on how to manage their finances, and deal with problems managing their credit.

Nearly two-thirds of the people coming to the charity for help are now under the age of 40 – just six years ago, that group made up only half of Stepchange’s clients.

Iona said credit was “a sticking plaster for many young people who are really just struggling to get by” and went on: “We are the last generation to miss out on any financial education in schools, while older generations were able to benefiting from a housing system which worked in their favour.  Younger people are finding their take-home pay is being swallowed up by the cost of rent, and just the pressure of day to day living makes them turn to credit to get by.”

Iona said some forms of credit were essential, such as that needed to get on the housing ladder, or for specific  purposes, and it was important for people to build up a healthy credit rating. “The problem comes when it becomes a way of life or a way for us to survive.”

On how to manage their borrowing, Iona said the minimum credit card repayment level “is not the level you want to be paying” as it prolonged the life of the debt and made it more expensive in the long-term.  “You should also steer clear of payday loans, which are a high-cost form of credit although there have been curbs brought in on their cost.”

On the effect of rising interest rates, Iona said people were right to anticipate a probable first rise in November, but that would not necessarily translate to a change in the rates charged on credit cards or other borrowing across the board.  “Generally speaking it pays to budget and save what you can, so you can dip into that pot and not rely on credit to get by.”

 

2017-10-06T08:12:02+00:00 October 6th, 2017|

2 Comments

  1. Ian Muir November 11, 2017 at 9:39 pm - Reply

    It was good to find this blog and see this post, albeit a month after publication.

    It was a pleasant surprise to hear that 65% of 18 to 34-year-olds are actually worried about interest rates rising. This is a responsible attitude. Excellent!

    I am a landlord and property investor, and despite being a beneficiary of low interest rates, I am concerned about the fact that many people are stretching themselves to get on the “property ladder” whilst interest rates are at these historically low levels as part of central governments’ (IMHO, misguided) economic experiment. I started buying houses when interest rates were close to 10%, and in the early 1990s I was forced to sell my home because interest rates reached the unrepayable level of 15%. It was a harsh lesson in blind enthusiasm mixed with overconfidence! We too had received no financial education! Mortgages were a relatively new facility, and debt was not part of our culture in those days.

    The long-term average interest rate is somewhere between 5 and 7%. Mathematically averages revert to the mean. The implications for this are, frankly, scary.

    Despite the impression you will get from the media, interest rates are not controlled by governments or central bankers, but by the markets. Governments simply react to market conditions. When governments have to raise finance or refinance their debts, the interest rate they will pay depends on how the market views the risk involved. Perversely, current interest rates are not factoring in the risk of default. It is incomprehensible that whilst there is a 100% certainty of Greece (amongst others) defaulting on its debt, there is only a 6% premium (or thereabouts) for taking on this risk. Why would anyone lend to them on these terms?

    Ultimately, when risk is factored into market rates, it is likely that interest rates will take a leap, not just a qurter percent tweak. I really worry for people who have stretched themselves financially over the last couple of years in order to get on the housing ladder, and I think it is irresponsible of the government to encourage people to do this, it is gambling. House prices are far from guaranteed to rise in the future.

    My opinions may appear somewhat contrarian but in property networking circles, blind enthusiasm is rife. Many “investors” and new landlords will get burned if interest rates rise by just 2%, so if you are considering getting on the property ladder, do remember that the old game was snakes and ladders. Make sure that as a MINIMUM you can afford your mortgage repayments if interest rates rise to the long-term average.

    Debt is financially dangerous. It is why the government needs interest rates to be as close to zero as possible, to minimise the repayments on their own debt. Unfortunately low interest rates are robbing savers which means they are investing in risky assets, but that is another topic.

    However, there is good debt and there is bad debt. Good debt enables you to make more money than you are paying out in repayments, and this is how it works in business. Bad debt simply costs you more money, and has no financial return. To this old ranter, much of consumerism should not be thought of as part of the cost of living, but as a luxury that incurs bad debt.

    Iona, keep getting the message out there that people need to learn more about finance and debt management, and to think more about the implications of interest rate rises which will increase some repayments, and the opportunities to get an income from saving money at the higher rates.

    [Ian Muir is a landlord, property and business investor and author of Smart Student Guides: Renting Property].

    • Iona December 21, 2017 at 8:34 pm - Reply

      Thanks for your thoughtful feedback Ian – I agree with much of what you’ve said, and understand it comes from a place of significant financial and life experience too! While I myself am relatively new on this path, hopefully I (and other millennials) will accrue enough wisdom to avoid learning about money the REALLY hard way. Your book sounds really intriguing – maybe I could review it? If you’re interested, drop me an email. All the best and thanks again for commenting!

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