Personal Finance Overhaul

H: Jayne Constantinis, host
A: Roger Edwards, Bright Grey
B: Annie Shaw, Cashquestions.com

H: According to research carried out by Bright Grey, almost 7 million adults in the UK are living beyond their means. And worryingly 82% of people say they haven’t changed their lifestyle expenditure over the last 12 months

Titles

H: Hello and welcome to the Personal Finance Show, I’m Jayne Constantinis. Now research just in tells us that UK adults need about £1700 a month to fulfil their lifestyle requirements. The trouble is that’s about a quarter more than the average monthly income. Now clearly spending more than we earn, living beyond our means is not a long term option, and just imagine if you suddenly find that your income is dramatically reduced. Well joining me to talk about that and much more is Roger Edwards from Bright Grey and Annie Shaw from CashQuestions.com. Welcome both of you

A: Hello

B: Hello

H: Thank you for coming in. Coming up on the show – we look at the worrying spending trends of a nation living beyond its means. We look at practical ways of getting our finances under control, and all your questions will be answered here, live. And as we are live, if you’ve got a question for either of our guests, do type it in the box on your screen and send it to us with your name of course, and we’ll get through as many as we can during the course of the show. And if you’re Tweeting while you’re watching and want to send us a message or a question, then you need to use # tag Studiotalk and we’ll be sure to give you a mention. So Roger, let me begin by asking you a very general question – we’re in the middle of a recession and yet people are still spending beyond their means. What’s going on?

A: I think people have got used to spending money. They like going on holiday, they like consumer goods and I think the recession hasn’t really hit home yet. Quite a lot of people haven’t been affected as much as they may well be in the future, for example interest rates are low, so those with mortgages might have actually seen a temporary improvement in their financial situation. Other people may have lost their jobs already and might already be facing hardship, but I think there’s a core of people who haven’t seen the full effect of it yet. But we know that going forward, as the recession moves on, there’s going to be more government cuts, the private sector and the public sector are going to be hit by that, contracts might be lost, there may be more job losses and bad times could be ahead. What we’ve got to try and understand is what is the effect on our ability to keep spending this money, and if people are already spending more than they’re earning, what’s going to happen if unfortunately they lose their income?

H: They’re earning less

A: That’s right, that’s right

H: Or no income. Are people – have they got their heads in the sand, are we in denial, do we not actually believe it’s going to happen to us? What’s going on?

A: I think 50% - the research that we did at Bright Grey said that 50% of people are either spending more than they earn, or they’re maxing out credit cards or they’re taking bank loans, and this easy money, this easy credit has almost lulled us into a false sense of security, but unfortunately credit cards and loans need to be serviced over quite a long period of time, and it’s alright if you can afford it now, but what happens if something happens in the future, you lose your job, you become ill and you can’t work – those credit card debts still need to be paid off and that could be quite a great, big challenge for people in the future

H: I’ll bring you back a bit later to why, you say we’ve got into that habit of spending; I want to explore a little bit how we’ve got into that habit. Annie let me just bring you in at this point – were you surprised that 8 out of 10 people say they haven’t changed their spending habits?

B: I think I was surprised it was so high, at 8 out of 10. I’m a bit shocked at that but I can see the reasons as Roger just said, I think people have got into the habit of spending. We’ve had, obviously the easy credit, we’ve also had circulating credit, this idea of moving your money, your debts from one credit card to another, and really that’s kind of stopping now although some people are still doing it, but as – perhaps as Roger hinted – people are losing their jobs, they may find it harder to get that new credit card in the future, so they’re going to have to really be stuck with what they’ve got already, and that may be at a higher rate, so they could be really badly affected by this

H: But aren’t we – aren’t we being told by politicians that we need to keep spending to get us out of a recession, that if people do tighten the belts too much, that’s bad for the economy?

A: Of course companies want people to buy their products, it’s how they stay in business, but what we’re saying is that there’s got to be a sensible limit to the amount of money that people are spending, and we can’t continue to fuel the economy by debt. I mean debt to a large extent is what got us into this recessionary environment in the first place. What people need to do is to live within their means, and that’s not spend more than they’re earning, and to actually sit down and think what’s the income coming in each month and what are we – what are we spending that money on, and how could we survive if the income stopped coming in, and I don’t think people are having those conversations with themselves

H: Partly because we don’t want to, because it’s too hard isn’t it?

A: It’s too hard-

H: It’s too frightening

A: And we’re also very busy, you know people don’t sit down round the kitchen table anymore and almost have a family budget meeting. You know what are you spending – what are we spending on clothes, what are we spending on gas, electricity, on going out for meals, going to the cinema or on holidays

H: We’re going to come onto practical ways of keeping your finances under control in a minute. Let me just bring you back to this very interesting research and as we – were there any variations in the spending habits and patterns, for example between men and women or were there any regional variations?

B: Yes the north seem to be a bit more out of control perhaps than the south, and also – this I was surprised at – men are more than women. I think you can imagine women out buying their fancy shoes and their handbags, but I think perhaps women are perhaps more used to being in control of the budget, particularly if they’re living in a family, and perhaps men are just more used to going down the pub, spending the money with their mates and they’re not keeping control of it

A: Perhaps the women are thinking a little bit further ahead

B: Perhaps. I mean it’s very hard to know the psychology of this, I also think there’s quite a bit of the keeping up with the Jones’s, perhaps again peer pressure, if it’s not necessarily the next door neighbours as a family, it may be as individuals in your workplace, if all your mates are going out for a drink it’s quite hard for you to say I don’t want to come, I can’t afford it. So I think we’ve got a bit of that going on as well

H: Except the other thing that we hear that’s happening is middle class people are wearing as a sort of badge of honour, going to the pound shops and the 99p shops. There’s something weird going on there as well conversely isn’t there?

B: I do think that but I think that again I think a bit of confidence there that you can actually make a bit of a joke of it, a bit of a thing of pride. We’ve always had the aristocracy where they wear their grandfather’s suits with the holes in the sleeves, that’s fine because everybody knows they’re rich, but if you’re perhaps a little bit lower down the social scale, you don’t actually want to look poor and hence why the passion for desiring goods and things, you want that reassurance that you’ve got the best products

H: Yes good point. Don’t go away because in a few moments we’re going to start to look at how you can keep your personal finances in check. Don’t go away

Break

H: And if you’ve just joined us, we’re talking about all things personal finance today, so if you’ve got a question for either of our guests then do type it in the box on the screen and send it to us, we’ll get through as many as we possibly can. So let’s now get down to the nitty gritty, to keeping those finances under control. Roger you’ve talked about the family budgeting meeting round the kitchen table. Is that practical?

A: I think so. If you sit down and think very carefully about what, what you’re spending each month and just ask yourselves a question, what would happen if the income stopped coming into the household? And most people, unless they’re very lucky and they’ve got savings or they’ve inherited some money, will pay for everything that they buy from the income that they earn from their job. And it’s a very simple question to ask yourself, what would happen to us and to the family and to our spending patterns if that income stopped? And what could stop the income; it could be redundancy and let’s face it that could happen in the future, we know there are cuts on the way. Another thing that could stop you working is illness and sickness. Again what would happen to the family if you couldn’t bring the income in? Not only could you not be able to pay the mortgage or the utility bills, but those things that you have come to like, like holidays and meals out, cinemas etc etc. That might have to stop as well so what can we do as a family to make sure that if one of those things happens to us, we’ve got a replacement income that can effectively fill in

H: We’ll come onto how you can protect yourself in a minute, but just back to you know we’ve used the words “essentials” and “luxuries” – is that what it’s all about?

B: It is I think when you’re making, when you’re having this family conference or if you’re a single person and you’re doing this by yourself, very useful to make a list of what your actual essential outgoings are. Now that’s going to be things like your rent or mortgage, it’s going to be your utility bills, your bus fare to work, whatever those things are that you actually can’t manage without. Then on the other side you can have the things that maybe you can manage without at a push. That’s going to be things like your holidays, meals out in a restaurant, perhaps clothes which are not clothes necessarily for warmth, you know that pair of shoes you really fancy. You put those on the other side and see where you could cut down, and of course on the essentials side there may other be ways you can cut down that too, you know switch your energy supplier, take out a mortgage with a different mortgage company if you can get a better deal. So – but the idea is to keep a control and know where the cuts could be made. And particularly on that discretionary spend, if it’s something you could leave out, or you know use it to pay for something else and I think we’re going to be talking about protection later on

H: Yes, yes

B: And that might be one where you could perhaps ditch the shoes and get some protection

H: Yes I mean you can’t – we can’t predict if, when we’re going to be made redundant. What can we do to protect ourselves in a very practical way, against those eventualities or illness?

A: People need to think about income protection probably, and you can protect your income from being made redundant and from being off work through sickness and accident, and people need to have a look at the sorts of policies that are available that they could take out. Now immediately people are going to say no no no, I don’t want this, it’s a dull subject, I don’t like insurance and it’s expensive. Actually it isn’t as expensive as people might think, and there’s a lot of ways you can get advice to find a really good, value for money product. And it’s a bit like, if you’re spending say £500 a month on those luxuries, the meals out, yes we know that people need to cut back, but even if you invested 5 or 10% of that, into an income protection policy, you’d still have £450 a month to spend on those luxuries. The other £50 might be in an insurance policy but one day if that insurance policy pays out because you can’t work; you’re still going to have that £450 to spend on what you want to spend it on

H: It could be as low as that could it?

A: It could be as low as that, absolutely. I think there is a pre-conception amongst the public, insurance is very, very expensive, but there are ways of getting it really good value for money, and you can get advice from independent financial advisors, you can find information on the internet from people like Annie, and get a good value for money deal

H: But as you say it’s sort of counter-intuitive, here we are talking about saving money and cutting down on those shoes that you won’t’ let me have, and yet we’re saying spend more money, but it’s sort of spending to save in the long run isn’t it?

A: It’s almost just making sure that you’ve got that emergency route to making sure that you can continue to spend in the future. Whereas if you don’t have anything in place and your income stops, then it’s not just the luxuries that stop, it’s the gas and electricity, the repossession knock on the door

H: Ok well let’s see what questions have come in because in just a moment we’re going to be answering the questions that you’ve sent in. Still a few moments left though for you to send in a question if you’d like. See you in a moment

Break

H: So if you’ve just joined us we’re live and interactive today talking about spending more than we earn and how to cut back on our finances with Roger Edwards from Bright Grey and Annie Shaw from cashquestions.com. And in this final part of this show we’re going to answer your questions. So let’s have a look at the first one that’s come in from Findley from – is that Lossimouth? Sorry if I’ve pronounced that incorrectly. “With news of job losses outweighing new opportunities and food prices set to rise sharply in the new year because Sterling is weak, can you offer any shred of optimism? When will we see the light at the end of the tunnel?” So we’re being squeezed at both ends – job losses and rising bills. What would your advice be?

B: Well I’m not – I don’t think we can predict the future because wouldn’t we be – wouldn’t it be wonderful if we could. I think the point is that we can’t predict the future, we do hope that things are going to get better soon but we absolutely cannot rely on that and that is why these measures to protect yourself by reviewing your spending and looking for areas where you can save and you know perhaps take out insurance, or taking other measures to protect yourself in the future. I’m afraid you can’t really say oh well it will all be over this time next year because there isn’t an answer like that, and I think the government will be telling you that too. So it really is looking after yourself and doing the best that you can, you know for the time-being

A: I think that’s absolutely right, we don’t know whether this is going to take 6 months, 2 years, 3 years. All we can do is prepare ourselves for that future, and we have to prepare for the good times and for the bad times, and therefore let’s put the measures in place now, that will enable us to ride out the storm and hopefully when things do turn round, we’ll still be earning some money, we’ll still be protected, we’ll still have a good lifestyle

H: I think the word you used earlier Annie, which is crucial to all of this is “control”

B: Yes absolutely

H: It’s – the kitchen table moment when you write down what you’re actually spending, and I bet it will be a surprise to most families to see what they are spending their money on

B: Yes

H: Let’s take a question from Simon in Brighton. Yes – “what happened to the old advice from our grandparents that you should never buy anything until you can afford to pay for it? People’s weaknesses have been exploited. Surely it’s going to need a 360 degree shift in the “must have” – and it’s not just must-have, its must have now isn’t it? “Culture to stop the spiralling debt problem?” So this comes back to your point earlier about we’ve got into the habit of spending, but who’s to blame?

A: I think that you can’t really blame any one person or institution for the situation we’ve got ourselves into. The world economy was booming for such a long time that credit became easy, we’ve become used to this, so I suppose collectively we’ve all got some responsibility for the situation that we’re in, and yes a 360 degree change would probably sort the problem out, but that’s not going to happen. People have got used to these sorts of things. What we need to do is to start making small changes, upon small changes and then eventually we’ll probably help ourselves and protect ourselves. So I think it’s like we’ve been saying, it’s put some plans in place, have the kitchen table meeting, decide what you’re going to do, decide what you’re going to protect and then that gives us the opportunity to start to make the change

H: I’m going to rush onto another question because we haven’t got as much time left, want to take as many as we can – form Sandra who says “we can all take measures to limit our spending – no holidays, buying fewer clothes etc – but if there’s a shortfall, what government help is there and will that be cut back?” It’s a very specific question; can you help us on that Roger? Or Annie?

A: I think that we know that there are going to be some cutbacks and benefits, child benefit is one that’s been mentioned by the chancellor recently. Again it’s difficult to predict what the government will have to do; it’ll depend upon where the economy goes, whether the recovery starts, or whether the recession continues. All I could say is just to reiterate what we’ve already said, if we don’t know exactly what’s going to happen in the future, we do have to put plans in place to protect ourselves

H: We’re almost out of time sadly, but can you, just to end give me the one thing that people should do this afternoon to try to tackle this problem? Each of you please in turn

B: I’d say make a start on that list of what you really need and what you don’t need, because even if you are actually well-off at the moment, you know things might change so know where you can make those cuts and think what would you do if you had a cut in your income and make some plans for that

A: spend a little bit of time on the internet learning about finance, the financial products. Visit brightgrey.com for some general information, seek an independent financial advisor, go to unbiased.co.uk – if you click in your postcode you’ll be given the name, address and telephone number of a financial advisor nearby, and you can contact them. They’ll be able to really help you out, working out what you need to do to start putting these plans in motion

H: And what you’ve both said in a nutshell is take control

A: Take control

H: Take control of your own finances and don’t wait for things to happen to you

A: Absolutely

B: That’s right

H: Thank you very much indeed, it’s been very interesting. Thank you for watching. As Roger said if you want to go to brightgrey.com you’ll find some more interesting information there. See you again soon, bye for now.