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The Credit Services Association (CSA)
Blog: Financial capability: Working together to encourage young people to look beyond the short-term impact of problem debt during #FinCapWeek
Yvonne MacDermid OBE is chief executive of Money Advice Scotland and Consumer Non-Executive Director on the Credit Services Association’s Board. Here, she shares her views on financial capability, young people and what the debt collection/money advice sector can do to help during Financial Capability Week 2016 (14-20 November).
In August 2016, the Money Advice Trust published a report called ‘Borrowed Years: A spotlight briefing on young people, credit and debt’. It highlighted widespread money worries being experienced by 18-24 year olds and the fact that many young people are now beginning to build up debts as soon as they turn 18.
Young people at the beginning of their careers tend to be on low incomes and are therefore vulnerable to getting into debt. They therefore also pay more for services, utilities and borrowing, which means the impact of getting into debt is even greater on them. For young people, issues that lead to financial difficulties can become habits of a lifetime if problem debt is not addressed and then prevented in the future.
Are we creating a society that normalises and even encourages problem debt for young people?
Accessibility of pay-day-loans, online gambling, fixed odds betting terminals, interest free student/graduate overdrafts and student loans are all impacting on attitudes towards money management and future financial planning. All too often, we look at the short-term impact of debts resulting from things such as gambling and general poor money management but this can have a much longer term effect on future finances. For example, paying off a gambling debt with a short term, high interest loan could lead to inability to pay for basic living costs/bills and spiralling problem debt, which can stay with young people for decades. When it comes to decision-making once they enter the world of work, paying back a student loan may result in a contrary decision to not sign up to a pension scheme, which impacts on future financial wellbeing. And so the cycle goes on.
What can the debt collection sector do to help?
When it comes to financial capability, the debt collection sector plays a vital role in dealing with young people who have fallen into problem debt to help them find a solution. While prevention is better than the cure, this is an opportunity to prevent a pattern of recurring problem debt once it has already become an issue by resolving outstanding debts in an affordable way that enables young people to get back on their feet and then providing support with future financial management and planning.
This is why it is vital that the debt collection sector and money advice sector work closely together on a joined-up approach to resolving problem debt. The money advice sector must encourage young people not to ignore problem debt and get in touch with the debt collection agency before it gets out of control, and the debt collection sector must encourage those in problem debt to seek help with avoiding future issues.
The consumer debt collection sector is now incredibly heavily regulated by the Financial Conduct Authority and is working hard to focus on getting the best long-term customer outcomes. But there is only so much collections professionals can do to help. Flagging up potential future issues and signposting to further help and support from the money advice sector at this critical point in a young person’s financial capability journey is key. We therefore must have better referral systems in place to help young people get out of financial difficulty as quickly as possible so that problem debt doesn’t become long term.
That’s why the Credit Services Association (CSA) has appointed me to their board to bring an advice sector dimension to their thinking. As the UK trade body for the debt collection sector, it is also acting as the hub of help, advice and information for consumers about what support is available and which organisations can be trusted.
What is the money advice sector doing?
At Money Advice Scotland, we’re trying to foster more long term thinking and financial planning amongst young people. We want to change the culture of things like getting into problem debt and surviving on pay-day-loans being seen as ‘normal’.
We have been working closely with schools, and teaching budgeting, and how to manage money. We have asked pupils to keep spending diaries and we look at how they spend their money, and what are priorities, and what are not.
We know from other work that young men in particular are affected by gambling addiction, as it is seen as normal to gamble online, and in betting shops (sometimes at the same time) and indeed it is really easy to run up debts very quickly. That’s why we need to get the message across to young people that whilst gambling might be a great pastime, it has its pitfalls which can cause other issues for individuals.
Unlike collections professionals, money advisers can ask to see bank statements and have those tough discussions with young people to glean what the underlying issues are, whether it is peer pressure or lack of understanding. It is difficult to get young people to admit to and talk about money problems but we must work to educate them on why it is so important to speak up. We don’t need separate guidelines for young people, just excellent listening skills and the ability to probe and ask difficult questions.
If there is one thing we can achieve together as organisations during #FinCapWeek 2016, it is improving dialogue between creditors, collections professionals and money advisers to ensure that young people are not ‘slipping through the net’ when it comes to preventing, dealing with and stopping problem debt becoming the habit of a lifetime.