Saturday, October 21, 2006

We Love Credit Cards

The Bank of England recently reported that consumers owe a total of nearly £57 billion on their cards.

The Office for National Statistics says that in mid-2004 the UK was home to 59.8 million people. This means that, on average, we owe just under £1,000 each on credit cards.

Getting a credit card is easy enough. And this is fine. Credit cards offer flexible spending and incentives like cash back and travel credit. If used properly credit cards can save money and earn you some extra funds.

Users can even feel a better person while they shop – use American Express’s Red card and the provider will donate a minimum of 1% of all your spend to the Global Fund (“the world’s leading funder of programmes to fight AIDS, tuberculosis and malaria”).

But credit cards can come too easily. A recent BBC TV programme ‘Britain’s streets of debt: Whistleblower’ shone a light on how banks want you to use your credit cards.

The banking industry insider told the BBC that customers are given names like “revolvers” and “transactors” depending on their spending behaviour. Everything is geared to maximise profits for the banks.

The whistleblower explained how credit limits are often “automatically increased”; “the higher the credit limit, the more the customer is likely to spend.” If you use your card a lot and fail to pay off the bill in full each month, you are one of the bank’s “profitable customers”.

The programme highlighted the case of Robert Jenkins. On an annul salary of just £18,000, he had the credit limit on his Lloyds TSB platinum credit card upped from £6,000 to over £11,000 in under two years. The BBC reported that his wife Evelyn was lent £4,500 on her Lloyds TSB platinum card on a yearly salary of £5,500.

This is madness. If you cannot afford to pay you must not spend excessively on your credit card. Work out a budget and stick to it.

You should always pay off the balance on your card in full. Failure to do this means you are paying extra for goods and services secured on the card. This is not financially prudent. Remember that the credit card companies charges retailers every time you use their cards to pay. It’s not up to you to make them more money.

The example of Mr and Mrs Jenkins shows how the banks, apparently, tempt you into debt.

We will be discussing debt in more detail later. For now, the advice for anyone in debt is not to take on more of it (avoid those debt consolidation services that charge a fee). You should work out a budget, and call the Consumer Credit Counselling Service (0800 1381111).

For those of you who can afford to pay off your credit card statement in full each month, interest charges are irrelevant.

And you can earn bonuses. Next week we will tell you how to take advantage of some of the best credit card deals around…

Thursday, October 19, 2006

It's Your Money

“IT’S time we admitted that there’s more to life than money, and it’s time we focused not just on GDP, but on GWB - general well-being.”

David Cameron said that. He’s the leader of the Conservative Party. He was educated at Eton College (the fees from September 2005 are £23,688 a year). He divides his time between homes in North Kensington, London, and Chipping Norton in Oxfordshire.

If ever short of a few quid to pay off his council tax, or if he wants to treat himself to a new pannier for his bicycle, Cameron can always tap his fifth cousin twice removed for a loan. She’s called Queen Elizabeth II and she has her face on more money than you will ever own.

Who needs money, eh? The answer is simple: you need money.

What Mr Cameron might not fully comprehend is that money – and most importantly what it can buy (food, clothes, water, shelter and more) - is inextricably linked to what he calls GWB.

We do not pursue money for money’s sake but for what it can buy.

Cameron’s statement of the obvious reminds us of Pablo Picasso’s comment: “I’d like to live as a poor man with lots of money.” See Cameron’s push bike.

And to make the most of what you have, we will be offering you tips. Here, you will read about how to minimise your outgoings and maximise your returns.

This need not be complicated. It won’t be. Much of our advice will simply involve shopping around. You should see everything you spend money on as a purchase.

Just as you buy bread and eggs, you buy electricity, gas and petrol.

And there are financial products. Your pension is not some mythical thing of esoteric complexity. It is real thing that you buy. Pensions can be complicated, but if you approach them with the idea that you are buying a product, you will be able to understand them better.

And helping you through all this is information. If you are reticent or downright shy about asking a bank or other financial institution for advice, the Internet is a great tool.

Over the web, you will not be sized up. On the web we are all eccentric millionaires, shabbily dressed and looking for a great deal. There are sites that help you find cheaper utilities, better credit rates and less expensive debt.

We will save you time and check them out for you.

And as we go, we will attempt to demystify the world of finance. It is not hard to understand money. We are not expecting you to manage the economy, just your wallet and bank account.

And if you don’t understand, do ask questions. If you prefer a new dress in blue to the green, you ask. If you want a different kind of mortgage, you should do the same.

So tell us what you want to know about and we will look into it.

Next week we will looking at credit cards. And how much we love them...