Sunday, 7 February 2010

A long rant on money and debt.

Working today, but a browse of the papers set the rage meter too high. Therefore, a bit of venting is in order.

Today's most misleading headline is in the Guardian:

Cheap credit has pulled the UK's poorest families into a spiral of debt

On reading, the first paragraph says:

It all seemed easy to Angela McLeod when a doorstep lender first turned up at her home in Cranhill, Glasgow. She only needed £300 and here it was, with no credit checks and no questions asked. She just had to agree to an interest rate of 55%.

Nobody, not even the institutionalised and the comatose, could possibly consider 55% to be 'cheap credit'. These 'doorstep lenders' are not the credit institutions and the banks. They are loan sharks.

Further down...

Of those in the study, 59% had credit cards, 25% store cards and 47% used mail-order catalogues. A number also experienced doorstep lenders. In some ways Angela McLeod was lucky – some charge interest rates as high as 300%. More than a quarter of the families had members suffering from depression.

Credit cards. Store cards. No sign of cheap credit here. The percentages on those things are eye-watering. If you're short of cash, they are things to avoid at all costs. This time the banks are, at least partly, to blame.

When the money flowed like Buckfast in the streets, I was frequently accosted by credit card sellers in supermarket concourses and airports and - well, everywhere. They would set up a little stand and accost random strangers and try to sign them up. I told them I was self-employed, usually something that would get a response such as 'Oh, well, sorry to have taken your time' - but not with these people. Random and unspecified income was fine with them. They gave away those cards far too easily. I can assure you, it's rare for me to look like someone you'd want to lend money to. I'm a right scruffy little sod.

I signed up for some of them (depending on how pretty the sales girl was) but those cards have never been used. Sure, they were irresponsible in giving me so much easy credit but I wasn't going to use it. Been there, done that, wore the rags, slept under the bridges and visited the Righteous soup kitchens. Not again. I now have one card, use it sparingly and pay it off every month.

The banks are not solely to blame. They offered easy (but certainly not cheap) credit but nobody was obliged to use it. Nobody really needs a brand new huge TV. Get a smaller one and sit closer to it. Nobody really needs to take an overseas holiday every year. I haven't seen all the UK yet. All that 'treat yourself' advertising for loans and credit - a 'treat' is where someone else pays. With credit, you're paying with money you don't have yet and then you have to pay interest on top. That's not a treat. It's a trap. Even so, nobody was forced to take up those offers.

The article is not about cheap credit, it's about people who have done what the government did - borrowed, spent it all and then found they couldn't pay it back. At insane interest rates, certainly not cheap ones. So who is bringing this up? Who's looking for funding for their project?

As a result of its research, the IPPR is calling for low-income families to be given life-long savings accounts, more affordable credit initiatives, a website on which to compare lenders and free and impartial financial advice.

Right. So to counter this 'cheap credit' that has blighted the country, the obvious solution is... cheap credit. And a website. For those who cannot really afford a phone line, much less a computer and an internet subscription. Things they will only be able to get on... credit.

It also argues that policies to broaden the appeal of renting should be investigated. "Our reliance on debt – far from creating opportunity – has created vulnerability during this recession," the study concludes.

What the hell does that mean? Reliance on debt was meant to create opportunity, and they are shocked to find that those in debt are vulnerable? If you owe someone something, you are under obligation to them and therefore vulnerable. That has always been true and always will be. The only debt I have is a mortgage. I am therefore vulnerable to interest rates, and to the threat of foreclosure until that mortgage is paid off. Renting is no real solution because when I was renting I was vulnerable to rent increases, and immediate expulsion if I failed to pay. Paying either of them with credit increases vulnerability. Debt is not an opportunity. It is a millstone.

There's only one way out of debt and that is to cut back to the absolute bare essentials. You can get used to it and it does not have to be particularly painful. For example, I don't have the heating on today. It's about 5C outside and around 12C inside. Warm enough, as long as there are no draughts. There's no need for tropical heat indoors. Some people I visit have the heat on at a level that makes me break out in a sweat as soon as I cross their threshold - and they'll complain at the cost! It is not essential to be dressed in short-sleeved T-shirts indoors. Nobody minds if you wear a pullover. Or even two. When it's freezing, you need some heat to keep your pipes (and you) from freezing but above zero, be sparing.

One of the smoky-drinky places is in a house where the only heating is a coal fire. No radiators. No boiler. Immersion heater for water and electric fires for the rooms that don't have the coal fire. He only heats the room he's in. This guy is on disability (and he's not faking; some days he can barely move) but he's hardier than a lot of able-bodied people. On the streets, I see younger, fitter people wrapped up like Michelin men and still shivering, when I haven't even done my coat up.

It's nothing to do with being 'hard' as the modern parlance goes. It's just a matter of what you get used to. What many people are used to nowadays is central heating, where every room is toasty warm all the time, even bedrooms that have nobody in them all day. Fine when you can afford it. Crippling if you can't.

Remember, heating is a continuous cost but warm clothes are a one-off cost. They don't need to be branded with a fashionable logo either. And they don't get switched off when you run out of cash.

If you want low cost but really good food, visit the supermarkets about half an hour before the fresh meat and fish sections close. The stuff they can't sell tomorrow will be marked down to absolutely silly prices. I once picked up an entire dressed crab in Tesco for seven pence! The downside is that you can't store most of this stuff, it's already at its use-by date, but some can be frozen. I wouldn't do it with crab, but I do still have some ultra-cheap sirloin steak in the freezer.

The same goes for the bakery section. Bread and rolls for pennies. Freeze them. The veg section too, although frozen veg isn't particularly great. Fresh food will just get dumped if it's not sold, and elfin safety means that the supermarkets can't even give away date-expired stuff to the homeless (insane, but them's the rules) so they have to pay to dispose of it. It's cheaper for them to sell it for a penny than to have to pay to have it dumped. You can live on good quality fresh food for very little if you're willing to apply a little cunning.

I've been skint. Totally skint. If I'd known about all that stuff I'd just written, back in the early 80's, I wouldn't have been skint. Then again, if I hadn't been skint I might never have learned it. Today I'm not skint. I could put the heat on, I could go out and buy a T-bone steak, I can (and do) buy a lot of malt whisky. However, having experienced skintness, I don't want to experience it again. I no longer drool at roadkill and don't want to go back to that. So I still buy those marked-down foods and I never buy designer clothes. Supermarket clothes sections are so cheap that if you spilled a tin of paint over yourself, you'd be more bothered about the cost of the paint than the clothes. A few smart things for meetings, the rest of the time I look like I still live on the street. Clothes are to keep me warm and stop me getting arrested for indecency. To me, they have no other function.

Second hand televisions show the same programmes as brand new ones. Which is a pity. There were some great shows in the old days, now banned by the feebleness of the collective mind. The smoky-drinker I mentioned has never bought a TV. He lets other people buy new ones and then takes the old ones away for them, as long as they work. Every so often he changes his TV. He always has a working one and it hasn't cost a penny. He even has Freeview because TVs now come with that installed, so many people are throwing out old Freeview boxes. Old DVD players are everywhere. New ones are so cheap that there's no point trying to sell the old ones. Some people upgrade so fast that the stuff they're throwing out has barely been used. You can equip an entertainment centre for absolutely no cost as long as you're not obsessed with 'new'. Oh, he has a computer too. He's had several. The upgrade rate for those is astonishing and since he has no phone line and therefore no internet, old ones are just fine... and free.

People are obsessed with 'new' and have been encouraged to be so because of the database state. Buy new, use a credit or store card, and what you buy is on a database somewhere with your name on it. Buy second hand with cash, or take a donated castoff, and there's no record that you have it. So you must be encouraged to buy new things on credit and you must be made dissatisfied with second hand stuff. You must have the latest trendy thing for this week and you must not wait until you can afford it. You must be in debt so that you are permanently under obligation and permanently under control. Step out of line and all that's needed is to call in your debts.

What the IPPR is calling for is more of the same but under their control, rather than someone else's. They are pet-collecting. Don't fall for it.

You can get out of debt and come back from a total asset worth of zero. It can be done. I've done it. I'm not rich and probably never will be but I'm not poor either. The most important thing is that you must not rely on someone else to do it for you. Not even for a moment. Accept nothing you haven't earned. Don't be under any obligations. If you can't afford it, don't buy it. Interest on loans will keep you poor. Be alert for the cheap and the free and ditch the 'must have new' mindset.

And stay away, well away, from the Righteous. They will tempt you with 'free' money but there is no such thing. They'll always want something for it. What they want is control over you and once you are in debt to them, they've got you. You become dependent and they'll keep you that way.

Always keep in mind that those organisations set up to 'help the poor' are dependent for their funding on the existence of the poor. Just like the anti-smoking and anti-drinking and anti-obesity and all the other 'anti' groups.

The last thing they want to do is eradicate their own reason for existence.


Anonymous said...

I haven't paid full cost for clothes in years: wait for the sales (even supermarket ones) and visit charity shops in affluent areas where people are throwing away hardly worn stuff. Another good source is the factory shop.

What about credit unions, though? I don't know much about them but they seem to be a benign way of helping people on low incomes who find themselves with an unexpected bill.


microdave said...

This should be required reading in all schools - but, of course, it won't be....

Old Holborn said...

Let's not forget Ebay

I love the mongs who end their auctions at 9pm on a Saturday night and can't spell.

Best buy yet? a 5 metre by 4 metre antique Iranian carpet. 99p

Anonymous said...

Agree 100%. The socks & slippers I'm wearing were new - Christmas presents from friends. My underwear was new - approx 7 years ago. My vest/T-shirt was worn by my son when he was at school - he had his 40th birthday in December, it's M&S & still sparkley white as is my undewear. Surprising what a periodic dunk in bleach does. My shirt was new too - back in around 1997 - it wasn't hi-fashion then so it's not out of fashion now. My M&S trousers cost me £2.50 in one of the local Charity Shops. My sweater was a Christmas present to myself - bought on a day when Sainsburys had a '25% Off' sale. The boots I wore out earlier today were new - in 1981 - surprising what a regular clean & polish can do. My padded jacket was £3.00 in the Charity Shop & the accompanying hat & gloves were £3.00 in Aldis. I certainly don't look like a fashion icon but I'm clean, presentable, and - most important - warm. What more can I ask for?

Mark Wadsworth said...

Agreed. The IPPR really deserve a good kicking for that.

Besides, this is not just about being frugal (a good idea in itself) - if you save up for stuff BEFORE you buy it and then pay cash, over a lifetime you'll be able to have more nice things because you'll be spending less on interest.

Anonymous said...

1. Stop buying unnecessary things. Only buy the necessities, and always ask yourself: is this truly necessary? Stop the bleeding first.

2. Get rid of the obvious things. Stuff that's getting in your way, that you rarely ever use. You can often fill up a few boxes immediately, put them in your car, and donate them to a charity shop or to friends and family the next day.

3. Get rid of more obvious things. Now that you've cleared up some of the clutter, you can take a look around and start seeing other things you rarely use. Box these up as well.

4. Clear the clutter on your floors. If your floors are barely visible because you have clothes and boxes and different items all over the place, start clearing your floors.

5. Clear other flat surfaces. Shelves, table tops, counter tops. They don't have to be completely clear, but should only have a few essential objects.

6. Start going into closets and drawers. One place at a time, start clearing out clutter.

7. Cut back another third. At this point, you should have simplified drastically, but you can revisit what you still own and see things you don't really use that often.

8. Start letting go, emotionally. For emotional reasons, there will be things that you "just can't part" with -- clothes or shoes or books or mementoes or gifts, childhood items. This is difficult, but given time, you'll learn that such attachments aren't necessary.

9. Get rid of another third. At this point, you're pretty minimalist, but you can cut back more.

Leg-iron said...

I once bought a leather motorcycle jacket in a charity shop for £4. I'm incapable of riding a motorbike but it was one amazingly warm jacket.

The best part was that it was in PDSA - the people's dispensary for sick animals. A wonderful irony, I thought.

OH - Friday nights are good on Ebay too, and watch out for things that end around 5 pm when most potential buyers are in traffic.

Leg-iron said...

Mark W - that's a good point. Saving up first saves on interest and has another effect... you might realise you don't really need the thing after all.

Leg-iron said...

Anon 19:21 - good advice. I'm guilty of buying unnecessary things and am due for a possessions purge. Any day now...

Might have to hire a skip for this one.

Beware of Geeks bearing GIFs said...

Great post as always LegIron and some good comments as well.

I like to add, get rid of a high spending wife to the list as well.

I'm once again engaging in the black arts of homebrew as we speak having been inspired that the quality of the products has been improved since my student days, and plus the fact that I resent paying the government for the increased tax they have subjected us to.

I also don't buy and microwave and processed food - bake my own bread, go to the butchers for good cheap cuts of meat and buy veg from a farm shop - and grow my own.

A touch of the good life, but with the combined pincer effect of high fuel costs and food inflation, it's an easy way to counter that AND start learning how to cook and make fine meals every day, and quicker than you imagine as well.

I'm saving hundreds of pounds a month and as far as I'm concerned, living and eating better for it.

Trident said...

Great post Leg Iron. I have a basic bank account and a pre-pay credit card, no loans no credit. I save to buy and stop spending before I'm broke.

I run my business on the same basis - it's been tough over the last year, but that's because things are tough for my clients, small businesses in Scotland, but there is always work if you look hard enough. The most empowering thing for me was finding just how little you can get by on - without freezing or starving.

As for 55% or 300% interest loans, that's just insanity.

Chief_Sceptic said...

Poverty - been there, done that, got the T-shirt - really didn't like it ...

Not to the point of being homeless, just to the point of my Bank refusing to let me draw on my Salary or even to pay my Mortgage (to a rival bank) - gigantic (in its time) overdraft ...

Avaricious ex-wife problem - I was Bankrupt in all but name - survived only because my parents posted cash to my work address, so that my children and I could eat, and I could afford petrol to actually get to work - this lasted for 6 months ...

Now, having emigrated (to Norway) I have a several different credit cards (used in rotation) - and paid off in full every month - plus, I keep a large wad of cash at home, "just in case" ...

Oh, and "possession purges" - WELL recommended - I hire a skip every couple of years, and I am ruthless in my 'chucking-out-ness' ! ...

Leg-iron said...

Beware of Geeks - I'm just hoping my fruit trees survive this winter. The plum tree had only just grown big enough to fruit and the apple trees were planted last year. Might be replanting this year :(

Polaris - I run my business the same way. No credit, either way. I can't go bankrupt, I can only go bust.

Chief Sceptic - the purge is imminent. There are things I didn't know I had in among the clutter. Might have to revive that Ebay account for some of it.

TheFatBigot said...

Buying on credit makes stuff more expensive.

My parents would never have dreamt of taking anything on HP, let alone having credit cards (not that they existed at the time) because they were always on a tight budget.

When you have only a little money it is sheer madness to give any away to a lender. After all, what do you get in return? Only the pleasure of owning something now rather than saving and owning it later, and in the meantime your disposable income for other things is reduced by the interest payments.

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