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Financial Management Issues for Consumers . Debbie Forsey Student Debt Adviser Queen’s University Students’ Union. Issues to be covered. How to achieve financial stability Exploring consumer credit option Choosing the best credit option Analysing financial data
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Financial Management Issues for Consumers Debbie Forsey Student Debt Adviser Queen’s University Students’ Union
Issues to be covered • How to achieve financial stability • Exploring consumer credit option • Choosing the best credit option • Analysing financial data • Strategies to deal with debt
How to Achieve Financial Stability • Effective Budgeting • Keeping track of finances • Planning ahead • Choosing the right financial products • Staying informed about financial matters
Budgeting • Budgeting is a positive rather than a negative. • Stops unwanted and unnecessary debt • Helps with planning for the future • Helps reduce spending in some areas • Allows increased spending in others • Lets you stay in control of your finances
How to Budget • Work out how much money you have regularly coming in each week/month • Salaries • Benefits • Maintenance allowances. • Work out how much you spend each week/month • Keep a spending diary for one month • Look back over bank statements • Think of everything that requires payment over the year • Use a budget sheet • Be realistic
How to Budget • Spending more than you earn? • Make changes – sooner rather than later • Review Direct Debits • Are you paying bills by the cheapest method • Check if you can get it cheaper elsewhere • Review broadband, phone and TV packages • Save on food bills - plan menus, stick to a list, shop at discount stores, avoid ready meals etc. • Are you covered already?
How to Budget Spending within your means? • Don’t become complacent! • Review your budget regularly • The money spent on that daily Starbucks could buy a new laptop without having to use credit!
Keeping Track of Finances • Get the right account for your needs • Basic • Current • Student • Savings • Post Office • Check statements regularly and thoroughly • Ask the bank about anything you don’t recognise or seems strange • Use on-line banking • Be familiar with the fees and charges • Be aware of fraud and scams
Planning Ahead • Consider life events and their financial impact • School and College • First job after school • Leaving home • University • Graduate job • Buying a home • Starting a family • Retirement • Death!
Choosing the Right Financial Products • Choosing a financial product is like eating a bag of Revels! • Any company’s job is to make money out of you • Look beyond the attractive advertising • Look at the detail • Use several comparison sites • Make sure it meets your needs
Staying Informed About Financial Matters • Don’t automatically disregard the literature that comes with your bank/credit card statement • Gather information from banks, building societies, credit unions • Seek free impartial advice • FSA Moneymade Clear Website • Regulated independent financial adviser • Sign up to moneysavingexpert.com
Secured Loans Unsecured Loans Student Loans Overdrafts Credit Cards Store Cards Hire Purchase Credit Union Door Step Lenders Exploring Consumer Credit Options
Exploring Consumer Credit Options • Secured Loans • Secured against property • Lower interest rates • House can be repossessed if payments are missed • Unsecured Loan • Not secured against property • Interest rates, fees and charges vary • Can be taken to court if payments missed
Exploring Consumer Credit Options • Student Loans • Administered by Student Loan Company • Interest is charged based on the rate of inflation • Repayment commences after graduation • Authorised Overdrafts • Set agreed limits • Some banks offer interest free overdrafts • Check out charges and fees • Unauthorised Overdrafts • High charges if overdrawn without agreement • Can lead to further difficulties
Exploring Consumer Credit Options • Credit Cards • Expensive way to borrow • Set credit limit • Must make a minimum payment each month • Penalties for missed payments • Added protection • Store Cards • Like a credit card but only for certain retailers • Very expensive interest rates
Exploring Consumer Credit Options • Hire Purchase • Often used for products such as cars and large electrical items • Pay goods off monthly within a specified period • Goods remain the property off the supplier until the last penny is paid • Expensive form of credit • Goods can be repossessed if payments are missed • Read the small print!
Exploring Consumer Credit Options • Credit Unions • Community based • Not for profit • Encourages saving and will only allow affordable borrowing • Can’t lend out all members’ savings or invest in anything risky • Offers small loans • Interest rates vary • Added benefits
Exploring Consumer Credit Options • Door Step Lenders • Payments are made to an agent who calls at your home weekly or monthly • Very high interest rates • Often provide credit to those with a poor credit rating • Must have a licence – if not- they are illegal
Choosing the best credit option • Before entering into any credit agreement consider the following: • What is the APR? • The length of the loan agreement • Can you afford the payments? • What if things go wrong?
Choosing the best credit option • The APR (Annual Percentage Rate) takes account of the following: • the interest rate • how you repay the loan • fees associated with the loan • compulsory premiums for payment protection insurance • The lower the rate, the better • Vary from lender to lender • Can change during the term of an agreement
Choosing the best credit option • The length of the loan agreement • Generally the longer it takes to pay back, the dearer it will be • Be sure you can commit to the repayments for that period - are your circumstances likely to change? • Can you afford the payments? • Payments may be weekly, monthly, yearly or payable in one lump sum at the end of the agreement • If your interest rate is variable can you afford an increase
Choosing the best credit option • What if things go wrong? • The unexpected does happen • Are you covered • What are the penalties for missed payments • Can the agreement be altered at a later date
Analysing Financial Data • APR works best as a tool for comparing the cost of loans on a like-for-like basis (e.g. loans that run for the same length of time) Example 1: • Borrow £1,000 for one year at 20% interest, and at the end of the year you repay a lump sum of £1,200 • You will be paying an interest rate of 20% • The APR will also be 20%. Example 2: • Borrow £1,000 for one year at 20% interest, and pay throughout the year in equal monthly instalments (12 x £100 = £1,200) • You will still be paying an interest rate of 20%; but • The APR will be roughly 40%.
Analysing Financial Data • Example 2 is more expensive because you are paying back the £1,000 gradually throughout the year. • In Example 1 you have the benefit of being able to access the £1,200 for the whole year, which you could invest and earn interest on. • By paying in instalments you're losing out; this increases the cost of the loan - hence the higher APR.
Analysing Financial Data Minimum repayment calculator www.moneysavingexpert.com/cards/minimum-repayments-credit-card#calc
Strategies to deal with debt • Don’t ignore the problem • Contact your creditors – follow up in writing • Seek advice from a free advice agency • Citizens Advice • Consumer Credit Counselling Service • Maximise your income • Do not pay debt with debt • Calculate how much you have available to pay your creditors after paying for all the essentials such as rent, food and utilities.
Priority debts Mortgage/Rent Anything secured on your home Rates Electricity/Gas Fines Income Tax Non – priority debts Credit Cards Store cards Unsecured loans Mail Order Hire Purchase for non essentials Strategies to deal with debt
Strategies to deal with debt • Calculate affordable payments to each creditor on a pro- rata basis. • Provide each creditor with a financial statement and make your offer • Ask for interest to be suspended. • If the creditor refuses the offer- pay anyway • If the informal approach fails explore more formal routes
Strategies to deal with debt • Individual Voluntary Arrangement • Self Petition for Bankruptcy • Let the courts decide • Seek specialist advice in all of the above cases • Remember - there is always a solution
Useful Websites • www.moneysavingexpert.com • www.whataboutmoney.info • www.fsa.gov.uk • www.citizensadvice.org.uk • www.cccs.co.uk • www.creditaction.org.uk
Money+ Project If your school is interested in participating in Money+ please email d.forsey@qub.ac.uk
Thank you Any questions?