We would not advise you to invest your entire life savings in Dodgy Mining Ltd or bigscam.com. In general, we are rather in favour of thrift and caution at Times Money. In that spirit, we want to advise you against the single, biggest financial mistake you will make. This error is so monumentally ruinous to your finances that it makes betting your bank balance on black look like a rational investment choice. Don’t do it. Avoid childbirth if you value your wealth.
You shell out from the minute you conceive, and the spending never stops. Norwich Union, the insurer, found that the average cost of sending a child to state
school is £14,000. The figures for educating the little darling privately are mind-numbing: more than £200,000 for each child, allowing for inflation. No wonder churches throughout England are packed with hypocritical atheists trying to get little Fenella into the local church school.
If the expense of feeding them, educating them and clothing them does not bankrupt you, they may eventually reach their A levels unscathed. Then university beckons. Once upon a time, parental responsibility and funding ended at 18. But no longer.
As we report on pages 6-7, there is a shortfall between the maximum student loans and the cost of going to university, which stands at £20,000-plus. Who picks up the bill? The bank of mum and dad, of course. Cash is deposited as a result of your toil in a job you doubtless despise. That cash is withdrawn to be spent primarily on cheap cider and supermarket own-brand vodka. You are poorer, envious and find yourself starting speeches with the phrase: “In my day . . .”
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But help is at hand. Read our guide on pages 6-7 on how best to marshal your resources to help your son or daughter. If little Freddie is still a cute pre-adolescent, that is all the better. To be sure of paying the bill for your student offspring, you need to save £170 a month from birth. Of course, you need to eat, pay the mortgage and fund your pension as well. The only cheap way to get through it all with your bank balance intact and your pension coffers swelling is to remain resolutely childless. But sometimes the cheap, sensible option is no fun at all.
Government strikes the right balance on debt education
Students may be forced into debt, but many of us willingly accept it as part of life. Student life inoculates us against fear of being in debt. Rampant consumerism lures us into accepting interest charges — why save to buy something for £1,000 when you can walk away with it for a bargain £1,300? The Government issued a report this week into the £1,000 billion debt mountain in the UK. It painted a familiar, worrying picture. Despite our benign economic environment, personal insolvency and mortgage arrears are rising sharply. Desperate calls to debt charities are multiplying.
But what can, or should, the Government do about this? The banks’ willingness to lend cash is an unfortunate side-effect of our healthy, competitive banking market. A consumer who loads a credit card with debt is making a choice. The bank may be making it easy to lend, but the bank manager is not leading you, kicking and screaming, to the shops and forcing you to hand over your card.
Many of the banks have behaved irresponsibly by lending too much to people who cannot afford the repayments. But the consumer has also behaved irresponsibly by spending the cash. So where does the Government fit in? If ministers started legislating against these unhealthy relationships between banks and their customers, accusations of nannying would rightly fly. Adults, as well as children, must be free to make their own mistakes.
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For a government keen to fling acres of legislation at wrinkles in financial systems, it seems to have the balance right this time. The emphasis is on consumer education, including funding for the admirable work of charities such as the National Debtline and the Consumer Credit Counselling Service. But the report found that this may be a “challenging” year for the overindebted. Soaring energy bills and rising interest rates could hurt those who are already struggling. All this consumer education may come too late for those on the brink of financial meltdown.
How do you rate loan deals offered by the big banks?
Most of us find it impossible to resist debt permanently. Whether you are a student clutching your loan cheque in an iPod shop, a broody thirtysomething or midlifer drooling over a Harley-Davidson, sometimes the urge to splurge proves irresistible.
Too often, however, we allow all reason to vanish hand in hand with our willpower. There is no logic in compounding the error by taking out expensive credit. To find the best-buy personal loans, turn to page 14, or go online at timesonline.co.uk/bestbuys. All the top deals come in at less than 6 per cent.
But as we revealed last month, the big banks are no longer publishing loan rates, relying on personal pricing and individual quotes. Any coincidence that when they were in the best-buy tables they languished at the bottom? This practice makes it impossible for the price-comparison websites, and Times Money, to evaluate how they compare with smaller rivals. How have you fared with personal pricing from the big banks, such as HSBC and Barclays? Let us know at moneyletters@thetimes.co.uk.