Sunday, 17 February 2013

Modern Young Finance: weekly round-up 7


A generation Y-er’s verdict on the latest developments in the world of young people and personal finance.


As we reported last week, the Government has now promised to include financial education in the school curriculum. The Herald in Scotland took a look at the effectiveness of similar programmes in Scotland, where it has been part of the curriculum since 2008. The Financial Education Partnership (FEP), which is run by the Chartered Institute of Bankers in Scotland (CIBS), found that, although all the schools it had visited had made some time for teaching about finance, nearly 25% of pupils wished they had more time to learn about all the different aspects involved – including money management, borrowing and financial products.

The FEP also wants to make every school put a teacher or department in charge of lessons in money management. The main concerns here though are that teachers are already overladen with other responsibilities, and the curriculum is jam-packed as it is. Also, there is a worry that many teachers may not be fully qualified to teach children about personal finance, particularly older children.

This evidence from Scotland suggests that the Department for Education needs to make sure that their programme presents a coherent pattern, and gives pupils enough access to information about various financial products, as well as just teaching them the basics.


Citizens Advice has called for the Office of Fair Trading (OFT) to use new powers to suspend the licences of several payday lenders which it says have been causing distress to customers – 2 of which, it confirms, are household names.

From February 19, 2013, the OFT will be allowed to suspend the consumer credit licences of companies which are engaging in “deceitful, oppressive or unfair” business practices.  According to Citizen Advice’s chief executive, Gillian Guy:

“These firms pose a real risk to people looking to get a short-term loan to tide them over.
“Our evidence shows these lenders are behaving as a law to themselves. Excessive fees and charges are escalating debts and people are worried sick as companies bombard them with texts, emails and phone calls, often overstating their debt collection powers.”

Given the high usage of payday lending amongst young people – a June 2012 survey by Centre for the Modern Family (the Scottish Widows think-tank), 18-34 year olds are twice as likely as the average person to take out a payday loan, at 10% - this should go some way to protecting them from supposedly abusive behaviour by these lenders. However, it should be stated that the OFT is only allowed to exercise these powers for the most extreme of cases.


The FT reported this week that only 30% of young peoplecontribute to a pension fund, while 40% of these do not know what type of pension they are paying into. This comes from a survey which was released in 2012 by the CSFI.

This figure is more or less in line with the national average, of 33%, this is a worrying figure, especially since other age groups are more likely to have other assets, such as house, or equity shares, and are more likely to have benefited from a generous workplace pension at some point in their working lives. Not only this, but young people are expected to live longer. According to Stephanie Rochford of Z/Yen:

“Recent Office for National Statistics data shows nearly one in four children aged 20 in 2011 will live to be 100 years old but the financial system is dominated by short-term thinking.”

Overall, young people appear to be very naïve about pensions, with little idea about how the basic model works, let alone how much pension fund charges are likely to cost them and how much they can expect from a workplace pension.

This drives home the danger that young people are not engaged with pensions and so are less likely to make active and effective plans to save towards retirement.


This week, Cait Reilly, a 24 year old geology graduate made to work for free in Poundland or face losing her £52 a week Jobseekers allowance, won a major legal battle after judges branded this unlawful.

Reilly’s motivation behind taking the case to court was:

“I knew it was wrong when I was prevented from doing my voluntary work in a museum and forced to work in Poundland for free for two weeks as part of a scheme known as the sector based work academy.

Those two weeks were a complete waste of my time as the experience did not help me get a job.”

Does this have implications for other young people struggling to find work commensurate with their level of skill?

Well, first of all, Reilly was already working, albeit in a voluntary capacity, so she was in fact doing something towards getting into the industry of her choice. Unfortunately, the industry of her choice seem to require that she did unpaid work experience in order to boost her CV, which, in turn, meant that she was dependent on jobseekers allowance.  This means that those young people who do not have the means to pay for this sort of work experience may find it difficult to get into this sort of industry – and will exacerbate the inequality already found in areas such as journalism and certain parts of the music industry.

Secondly, the time she spent working at Poundland was time spent not looking for jobs. At the moment, there are, on average 34 applicants per graduate job, so it is likely that the average young person will have to spend some time getting hired. Perhaps the government should have forced her to sift through job websites for that two weeks, rather than ask her to stack shelves? Sitting in front of a computer at a job centre applying for job after job would surely have been a better use of her time?

Thirdly, as is well-documented, this sort of free labour prevents other unemployed, and unskilled young people from taking on these jobs. The government is essentially giving large companies such as Tesco and Poundland a boost by sending jobseekers to work there for free. It means they have fewer vacancies that they need to pay people for.

Lastly, making someone work for two weeks seems rather half-hearted. If a scheme such as this is really to have any effect, perhaps a longer term rotational scheme, where jobseekers could spend time in different companies, and different departments of companies would be more practical and useful in the long-term, if only to show the benefits of team-work and belonging on self-esteem.


Since fewer young people are able to buy houses and other assets in recent years, CNW Marketing Research has been looking at ways in which young people in the States spend their money.

Technology has come out on top. According to the blog,

“Just in the last few years, we have all watched the influx of smartphones, laptops, televisions and tablets, to name just a few. Let’s not forget the upgrades versions of each of these which come out every few months. The competition between companies to create the next “it” version of a product/service which Americans are dropping billions on”.

I look forward to seeing more figures on this, particularly how much they spend in relation to what they earn, and whether there is any correlation between this type of spending and different social groups. I would also be interested in learning how much these electrical items depreciate in cost, in order to do a full analysis on how cost effective this type of spending might be. worries that young people may be living beyond their means, perhaps because of this  spending on new technology.

It identifies several underlying issues which are fuelling a risk of overconsumption by young people, who, it believes are increasingly living beyond their means.

-High levels of student debts, and limited employment opportunities, often outside original area of study.

-Fewer secured loans, such as mortgages or car purchases – as fewer young people are buying either of these.

-Overuse of credit cards on discretionary purchases

-Increasing reliance on payday loans

-There is also the concern that being forced to live with parents for longer hinders the ability to learn important money management skills.

Does this sound familiar to anyone in the UK?

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