Back Pocket Compassion

One of the by-products of the Russia conflict in Ukraine is the ‘tit-for-tat’ ban on economic relations between the UK and Russia. Effectively, Russia banned food imports from a number of Western European countries (including the UK) in response to a ban on these countries buying Russian products.

 

But this could all be a good thing.

 

As we have seen on far too many occasions over recent decades, politicians rarely put human life ahead of money. However, as soon as the issue hits a country’s back pocket, then it is amazing how quickly action is taken.

 

As the Russia conflict in Ukraine has shown, people dying in conflict or through a plane being blown up has caused little political comment. Let’s see how the attitude changes now that the back pocket of the UK could be impacted.

 

Very predictable and very sad.

 

 

The Cost of Financial Education

The results of a recent study by the Centre for Economics and Business Research (they’re independent – we can trust them – they’re not part of the Government!) into the cost implications of a lack of financial education have been made public.

 

It concluded that the lack of knowledge (everything from credit cards to pensions) costs UK taxpayers over £3.4 billion every year. That’s staggering…… 3,400,000,000.00

 

It also found that financial education could:

 

- Reduce unemployment by up to 10 per cent

 

- Save £1.8 billion per year on subsidising those in retirement

 

- Cut personal debt by £716 million a year

 

- Save consumers £244 million a year on mis-selling

 

Whilst over 20 countries teach personal finance in schools, the UK has lagged well behind. So far behind in fact, that they aren’t visible in the distance.

 

Some good news though……from September 2014 the UK will teach financial education to young people in mathematics and citizenship lessons. 

 

That just leaves the gap to be filled of the millions who never received personal financial education. By continuing to ignore or address will destroy future financial prosperity for too many.

 

It’s a start though.

 

 

Claim On A Claim

Well who'd of thought it......more scandal surrounding the banks. And to save you guessing all day on what the subject is this time, I'll save you......it's PPI again.

 

I think we all sick of the phone calls, adverts, etc. in fact the whole subject to be fair. But this compensation beast looks like it's set to roll on and on.

 

It's a little bizarre this one as the banks have been oh so willing to award compensation for the mis-sold PPI but appears that their calculations have not included all of the recompense due. Yes premiums have been refunded and interest awarded in line with regulator guidance, additional changes and fees have been 'forgotten'. Forgotten to the tune of around £1 billion.

 

That's quite a memory slip.

 

However, the biggest loser in all of this is our economy. As long as banks have liabilities that need cash, they will be reluctant to lend to the business community at attractive rates and this will stop the Private Sector growing and creating jobs.

 

What a mess......and all so avoidable
 

Pension Palaver

During the budget in March 2014, the Chancellor launched radicle reforms of pensions to allow those retiring access to their pensions as a lump sum. Given the complexity of pensions for retirees, Gorgeous George stated that everybody would have access to ‘free advice’ to help with their pension decisions.

 

You can read more from my blog post from March: http://stevesmithlive.blogspot.co.uk/2014/03/advice-furor_25.html

 

To ensure I am not mistaken, I am a great advocate of people getting the right advice……especially those entering retirement. We are one of the few countries in the world that does not offer subsidies or tax breaks for such complex advice areas. Good advice leads to better decisions……leads to better financial positions of the population……leads to less reliant on the State. Simple.

 

However, the current system in the UK is broken and offers little support. This week I received a new enquiry from a prospective client about to retire. They informed me that:

 

“I called my pension provider, but they wouldn’t help and told me to get independent advice. I called the regulator’s helpline but they wouldn’t help and told me to get independent advice. I went to the Citizens Advice Bureau and they printed off a list of 20 financial advisers within a 10 mile radius of where I live”.  

 

I have heard this story 10 times this year already. Sad and pathetic really.

 

So it is with great interest and dare I say it……intrigue……that I have been waiting for George Osborne’s announcement on how this ‘free advice’ was to be delivered. I should have known better though……he will use exactly the same failed Government departments as now.

 

I just don’t get it……The dust has settled, consultation has been sort and 4 months have passed……this was not a knee jerk reaction. This was a considered response.   

 

The complexity of pensions means they have danger written all over them in the wrong hands. The solution is really obvious……either make pensions really simple so that the decision making process is easy OR offer financial subsidies / tax breaks to allow experts to support retirees with the financial decisions.

 

What we have actually got is £20 million being spent over the next 2 years on the same Government departments that are failing now.

 

I feel cheated George – you just don’t get it.   

 

“Insanity: doing the same thing over and over again and expecting different results.”

Albert Einstein

Turning Uncle Sam’s Tap Off

 

The big news coming from across the water is that the Federal Reserve (think Bank of England with a difference accent) will end its financial support to the US economy from October.

 

The US Government has been pumping as much as $85 billion a month to prop up its economy……or the equivalent  of what ‘we’ spent to save RBS!

 

The big question has been when will the financial aid end……now that this is known, the even bigger question is what will the impact be?

 

When you stop injecting money into the biggest economy in the world, it will have a knock on effect. Or to put that another way……what will be the impact to the UK when the biggest buyer of our goods and services has less money in their economy?

 

One thing is for sure, pumping that kind of money into an economy is not sustainable and standing on its own feet can only be a good thing for the US long term. Let's hope it is for the UK also!

 

Time will tell.

Branching Out

I feel a little sorry for high street banks. Actually I better position this before you think that I am mad……I feel sorry for their branches!

 

I hear and see anger every day directed at banks……but it is the branches that cop it.

 

Bank branches didn’t cause the banking collapse – that happened much higher up the ladder. Yes we’ve all been annoyed by the overly enthusiastic cashier in a cheap suit asking when our insurance renewal is (etc.)……but they simply transmitted the policies decided at senior level.

 

However, the branches have been tarred with the same brush as they are the voice and face of a bank. Who else were we meant to blame?  

 

The times they be changing though.

 

Whilst banks are a necessary evil in many eyes, visiting a branch is not. Such is our loathing of bank branches that £1 billion of transactions are now done by mobile phone, tablet or internet banking. With 15,000 banking apps being downloaded a day, this figure will increase each week.

 

Voting with your feet……errrr phone….can only be a good thing I guess. This stops cross selling, mis-selling and any selling……leaving branches to think outside of the box to engage with customers.

 

Time will tell……but a fresh approach from branches can only be a good thing.

The Biggest Threat Is Within

It’s fair to say that property ownership is a big deal for us Brits……but so is property debt:

 

84% of all debt in the UK is mortgage debt.

 

Before the banking crises, total mortgage debt in the UK was the equivalent of 38% of the total annual money made in the UK. We then loosened the criteria for lending (you literally had to be breathing to borrow money – although I believe there were cases when even that wasn’t compulsory) and that figure now stands at 76%.

 

Mortgages are a big deal - interest rate rises are a big deal – monthly mortgage payments are a big deal.

 

This is why the biggest threat to the continued recovery of the UK economy is the housing market. The Bank of England / Government know this but they are powerless to control it as the banks hold all the aces.

 

We all have ‘some’ control over the interest rate we pay on our mortgage. But the window of opportunity is getting narrower and narrower……especially as the Bank of England warned last week that it could now be as early as Q4 2014 that rates rise.

 

You have been warned!