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Britain has managed to trounce the rest of Europe once again.
We’re the proud holders of the title “most indebted country in western Europe”. Well, you’ve got to be good at something.
Analysts at Datamonitor report that the UK consumer credit market (excluding mortgages, in other words) grew to £214bn last year. The average UK consumer owes just over £3,000, almost twice as much as our friends on the continent.
It’s all down to our “insatiable appetite for credit,” say Datamonitor. No kidding…
The research from Datamonitor has provoked the inevitable cries for better financial education. Camilla Cavendish, generally one of the better columnists in The Times succumbs to this befuddled thinking in backing calls for a ‘MoneyDoctor’ helpline, proposed by think-tank The Resolution Foundation, which says that people on low-to-moderate incomes tend to make the worst financial decisions.
“I can think of no one I know who would not jump at the chance to phone a MoneyDoctor. Many would even be prepared to pay for it, if it was something you could really trust. Why not make the service pay for itself, by charging those who could afford to pay?” she says.
Nice idea. The trouble is, there are already MoneyDoctors who charge for their advice – they’re called independent financial advisers. And the unfortunate reality is that Ms Cavendish’s friends are clearly in a minority in being willing to pay upfront for their financial advice – most people would rather go to an IFA who offers their advice ‘for free‘, and then picks up their money in commissions (you can read my colleague Jody Clarke’s take on IFA commissions and ‘independent’ advice from a recent issue of MoneyWeek, by clicking here: How independent is your IFA?
The fact is, you don’t have to look very hard to find advice on financial matters, particularly on something as straightforward as credit cards. A quick flick through Google, or the personal finance pages of any newspaper will very quickly reveal basic guides to credit cards galore. And then there’s Citizens Advice, who can help out on any number of financial issues for free.
The real problem comes down to economics. When people hear that people on low incomes are the ones making the worst financial decisions, they wring their hands and immediately leap to the conclusion – people on low incomes are stupid, therefore we need to educate them. It’s oddly similar to our attitude towards teen pregnancy – more poor people get pregnant in their teens; poor people are stupid; therefore all we need is more sex education.
This is patronising nonsense. If there’s one thing you can rely on, it’s that people will by and large behave in an economically rational way that suits their specific circumstances, regardless of income, or even education. Teenage motherhood rates in the UK have nothing to do with a lack of sex education – they have everything to do with the fact that for many young girls whose family backgrounds are essentially ones of long-term unemployment, there is no economic deterrent to having a baby at a young age.
It’s similar for financial planning. Why are people with less money more careless about their financial decisions? Because they’ve got less to lose. The current system of pension credits penalises those who save for the future by cutting back on the amount of state aid they get, so below a certain level of income, there is no point in putting away money for your retirement because you‘ll be no better off.
Forget financial education – saving could be encouraged far more easily in any number of ways. The government could scrap all tax on savings income, or scrap the system of tax credits, extend the Isa limits – it’s not difficult.
But the Government doesn’t want us to save. The entire Labour economic miracle has been based on borrowed money – consumers borrow to prop up the housing market and thereby the economy, while the Government borrows to prop up public spending, and takes money from the private sector to fuel ‘make-work’ schemes for the otherwise unemployable, like the ridiculous community support officers scheme.
We’re not denigrating financial education – that’s one of the purposes behind MoneyWeek after all. But it’s hardly surprising that so many people would rather spend today and let tomorrow take care of itself when the incentives for taking a more prudent approach are so few.
Turning to the markets…
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In London yesterday, the FTSE 100 closed 56 points higher at 5,930. Mining stocks were among the day’s biggest gainers after Goldman Sachs declared recent weakness to be a buying opportunity. Alliance and Leicester topped the risers as investors continued to push banks higher. Compass was the biggest faller as the contract caterer warned of slower revenue growth ahead. For a full market report, see: London market close
Across the Channel, the Paris CAC-40 closed 23 points higher, at 5,243, with the gains led by car-maker Peugeot. In Frankfurt, the DAX-30 also ended the day in positive territory, climbing 29 points to 5,989, although off an intra-day four-month high of 6,000.
On Wall Street, the Dow Jones Industrial Average came tantalisingly close to reaching a record high, climbing to within 2 points of its highest-ever close of 11,722. However, a surprise rally in the oil price offset earlier gains and caused the major averages to fall back from their session highs. In the end, the Dow Jones closed at 11,689, a 19-point gain. The Nasdaq was 2 points higher, at 2,263. The S&P 500 gained a fraction of a point to close at 1,336.
The gains were echoed in Asia where the Nikkei 225 ended the day 390 points higher, at 15,947.
The price of crude oil spiked above $63 a barrel yesterday, and was trading at $62.97 this morning. In London, Brent spot was at $60.91 a barrel.
Spot gold tracked crude gains, climbing as high as $604 yesterday. It was trading at $601.50 today.
And the London Stock Exchange this morning announced that it expected an ‘excellent trading performance’ for the fiscal year as stock transactions increased. The exchange, the third-largest in Europe by market value, has been the subject of takeover talk all summer, and was most recently linked to Icap. The LSE is waiting to see how previous suitor Nasdaq Stock Markets will act when it is allowed to make another offer on October 2.
And our two recommended articles for today…
Is gold’s bull market over?
– When investing, it’s always good to stay focused on long-term trends, says the Aden newsletter. That’s why investors shouldn’t panic at the recent drop in the gold price. To find out why the gold, oil and commodities are all such long-term trends, read: Is gold’s bull market over?
What is the Peak Oil theory of value?
– Exxon Mobil Australia’s CEO Mark Nolan recently stated that ‘there is no Peak Oil theory of value’. Was he right? And what exactly is a Peak Oil theory of value anyway? For an in-depth look at whether demand for oil could soon exceed supply, see: What is the Peak Oil theory of value?