Business News
Counting the cost of ‘spendemic’
WHILE the dramatic
rate cut
from the Federal
Reserve might
avert the feared
US recession, similar action in
Britain to help us spend our way
out of trouble might have limited
success - while hammering
the income of savers.
The problem is we are "spent
out", says uSwitch.com, the independent
price comparison service,
which flagged up the sharp
drop in our spending power last
autumn, which was subsequently
confirmed by retailers.
Its latest analysis says nine
million British households, one
in three, have nothing left in the
bank at the end of each month although
"we are working harder
than ever before".
It blames a "spendemic" spiralling
out of control last year.
uSwitch says the average consumer
has only £157 left in their
bank account when all bills have
been paid.
With the number of credit
cards doubling since 1997 to 71
million, uSwitch says too many
household budgets are sunk by
debt repayment: it has soared to
an average £356 per month since
1997, with 45 to 54 year olds more
inclined to overspend than 25 to
34 year olds.
Nearly 13 million Britons now
owe more than £5,000 in nonmortgage
household debt, and
nearly 12 million households
have seen debts rise in the past
year.
While public debate focuses relentlessly
on the concept of
equality, it is difficult to picture
a new generation of super-rich
teenagers reaching adulthood
with £30,000-plus in their bank
accounts and toying with the
idea of launching a business.
It could happen as early as
2020, when the first recipients of
the child trust fund (CTF),
launched in 2002, see their savings
reach maturity.
When CTF vouchers first arrived
three years ago, they were
greeted with scepticism, and
some lazy parents. At the last
count, about 3.6 million CTF
vouchers had been despatched,
but more than a quarter of the recipients
haven't bothered to use
them to open a savings account
for their child.
Now a detailed study of CTFs
from The Children's Mutual, a
friendly society restyled by chief
executive David White to promote
Gordon Brown's dream of
a "savings gateway", tries to put
the scheme into perspective.
Compiled by The Social Issues
Research Centre, it predicts an
initial payout of £2.4bn in autumn
2020 to children born after
September 1, 2002, a sum possibly
big enough to influence the economy
by triggering a new generation
of entrepreneurs, and by
making it possible to buy a home
much earlier.
When babies are registered for
child benefit, parents receive a
£250 CTF voucher - or £500 for
poorer children - plus an additional
£250 promised by Government
at age seven.
This tax-free money can be
topped up by friends and family
to a maximum £100 per month
through childhood - and this
maximum contribution could deliver
£37,100 per child in September
2020, worth about £28,590
when inflation during the savings
period is taken into account.
The Children's Mutual, managing
funds worth £250m, reckons
the average fund could produce
a lump sum of £9,500 at 18.
In 2020, that might be half the
deposit on a first home, expected
then to be £18,800. But the survey
found today's youngsters put
owner-occupation third on their
list of priorities at 18 after a determination
to keep saving, and
helping to finance university.
The strong wish of older people
to save for the youngest
members of their family is confirmed
by figures from Norwich
& Peterborough building society,
based on nearly 3,000 accounts.
The data reveals that regular
savers are potentially saving
their entire child benefit payment
each year (£941.20 for a first
child), also adding £400 more. But perhaps the surprise in the
Children's Mutual analysis is the
claim that many might use CTF
cash to avoid university: one in
five of teenagers might use the
lump sum to start their own business
instead.
With nearly four million people
already self-employed in the
UK, CTFs could allow up to
150,000 youngsters a year take
the entrepreneurial approach instead
of continuing their studies.
For those who go on to further
education, CTFs could mean
more graduating with a financial
"clean sheet" instead of the large
debts prevalent among today's
students.
Given that almost half of
households with an annual income
below £10,400 have no savings
at all, CTFs will appeal most
to families able to set aside sizeable
sums for the long-term. Anything
invested is locked in until
a child's 18th birthday.
But new parents should stir
themselves to find a CTF for their
child. If not, the taxman opens an
account for them after a year,
from a list of approved providers.
CTFs are held either in cash or
equities - and over a lengthy savings
period, equities should normally
be the better bet.
Advice on choosing an account
is available at www.childtrust
fund.gov.uk
11:16am Tuesday 29th January 2008
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