“High cost credit is a blight on society fueling unaffordable debt that people often find inescapable, which can have a damaging effect on relationships, mental health and family life. It is therefore encouraging to hear Andrew Bailey setting out how it will be addressed including the possibility of extending the use of price caps beyond pay day loans to other forms of high cost credit and overdrafts. This follows John McDonnell’s announcement that a Labour government would also look to cap overdraft fees and charges.
“Action is needed as mountains of debt have been building. Consumer credit has been growing at an annual rate of almost 10% in recent years, a level not seen since before the financial crisis. Now interest rates are expected to rise, meaning people may start to feel the weight of their debt burden. Under this pressure people could enter a vicious circle of debt where they take on more so they can meet their current obligations. Caps will be crucial in avoiding such a devastating scenario as they stop people borrowing beyond their means.
“As Andrew Bailey notes, debt isn’t necessarily a bad thing. It can be a part of a healthy and properly thought through financial plan. In fact certain parts of the population are reliant on debt, such as the gig economy, who have fluctuating incomes. As more people opt for this kind of work it’s more crucial than ever that people have the financial knowledge necessary to use debt responsibly.
“Andrew Bailey’s speech, however, highlighted that 18-24 year olds are racked with debt and have little knowledge of financial matters. This is indicative of the fact that personal finance education is currently not a compulsory element of the UK curriculum.
“A study by the Money Advice Service found that financial habits are formed as early as seven, so it’s critical to address the root cause of the problem and teach good financial practice as early on as possible. Teaching children the basics about when to borrow, what for and then how to plan to repay it is essential. Borrowing can then become a useful tool for improving someone’s life without it becoming unmanageable.”