FOOL'S EYE VIEW
Students of the Debt Culture

By Jane Mack (TMFJane)
January 23, 2003

I'm a bit puzzled. Actually, I'm not a 'bit puzzled'. I am genuinely confused.

About three years ago the Government set up a Debt Task Force because they were so worried about excessive consumer borrowing. And, yet, yesterday, they announced that universities will be able to charge up to £3,000 a year in tuition fees from Autumn 2006. It means that anyone going to university will leave, not just with a degree, but with considerably more debt than their predecessors.

The announcement came out the same day as the Financial Services Authorities issued a report stating that consumer debt is getting out of hand and that we all need to watch out if we're to survive financially over the next few years.

There's a conflict there somewhere, is there? I'm also wondering about the message that this will send to the 20-year olds of today. That debt is okay? Debt is definitely not okay and it seems a contradiction in terms that our children will have to start out in the working world with huge debts and yet, somehow, be encouraged to appreciate that most debt is bad.

At the moment parents of students are expected to contribute up to £1,100 a year towards the cost of tuition fees if their residual income is more than about £20,000. Cheap loans amounting to about £4,000 a year are also available to help students with their living costs. As a result, it's not uncommon for students to leave university with around £12,000 worth of debt.

From Autumn 2006, universities will be able to charge £3,000 a year for tuition. If students have to borrow to finance their course, then they're looking at leaving university with debts of more than £20,000. It's going to take them years to pay it back – and they're going to have to do it in conjunction with saving to buy all the usual things such as a car, furniture and a house, not to mention savings and investment. It's a bit alarming, isn't it?

There are two things you can do for your kids.

The first is to teach them how to budget and how to save. If they're to manage their finances properly while they're at university, they will need to know how to count the pennies. And if you teach them how to save, they will be inclined to be more careful about what they're actually spending. If you manage to teach your kids about the value of money and the importance of saving, they'll be streets ahead of their fellow students.

The second thing, if they're still very young, is to start saving for them so that they have a fund to draw on when they are old enough to go to university. If you can invest £25 a month from birth into a simple index tracker, then your returns should enable you to pay those tuition fees of £3,000 a year so that your child isn't saddled with them. Invest a little more than that and they may be able to get away without having to borrow at all.

I'm not sure I can come to terms with the idea that the Government is worrying about the debt culture and yet, forcing students to start their working life saddled with so much debt from university. But just because the Government is sending conflicting messages to your children, it doesn't mean that you have to.

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