FOOL'S EYE VIEW
Hey, Big Spender - Start Learning

By Jane Mack (TMFJane)
January 29, 2004

On Wednesday, the BBC carried a series of radio and TV programmes highlighting the nation's problem with money - in particular, debt.

The peak-time TV programme was called "Hey, Big Spender" during which members of the public were asked some basic questions such as "What does APR stand for?" and "What's the current Bank of England base rate?"

The lack of knowledge was pretty astounding and was probably typified by a comment from a single mother who was about £30,000 in debt because of her inability to resist a bargain. She said:

"I seem to have lost touch with the fact that what I earn and what I spend are linked."

It's something the Bank of England has been worried about too and in an effort to dampen consumer borrowing, it's Monetary Policy Committee put up interest rates by a quarter per cent last November. Interest rates are widely expected to rise next month, which means consumers will soon have to pay even more for their debts.

The problem is that many people think financial matters are boring and complicated so they either ignore them or leave them to someone else such as a financial adviser to sort out. According to the Financial Services Authority, this isn't good enough.

Earlier this week it published its Financial Risk Outlook 2004 in which it pointed out that it was becoming increasingly imperative for individuals to take responsibility for planning their own financial affairs.

FSA Chairman, Callum McCarthy says consumers "...are becoming responsible for decisions previously taken by government or by employers. Given the way government policy is developing here and in many western economies, with the state being rolled back in areas such as pension provision and funding for education, it is all the more important that consumers take control of their finances over the longer term".

As the report points out, it's a risky situation putting responsibility for financial matters squarely on the shoulders of consumers who don't understand much. The FSA can only do so much to help by regulating the industry and making sure products are simpler and easier to understand.

For many people a way out is to put these things in the hands of financial advisers. But even this appears risky to some people. What with pensions and endowment mis-selling claims, consumer confidence isn't exactly high.

I get a bit alarmed myself when I read, for example, that on Tuesday the FSA fined financial advisers Deloitte and Touche Wealth Management, £750,000, for failing to carry out its pensions mis-selling review on time and for not keeping proper records. It's not surprising they took so long to review their pensions mis-selling cases when their records didn't have enough information in them to establish whether a pension had been mis-sold in the first place!

To be honest I don't know what the solution is. I'm glad the BBC decided to devote a whole day to a series of programmes about debt and spending - if it makes even a small handful of people determined to master the art of financial management it can only be a good thing.

In the meantime, the key thing to remember is that what you earn and what you spend are linked. Repeat that as a mantra every time you get out your credit card to buy something. As someone once put it, you will be 'borrowing from your future self' and would you like your 'future self' to be broke?

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