RUTH SUNDERLAND: There has been a crackdown on high-interest lenders, but pawnbrokers are going great guns already – a sign of the times
- Rampant inflation exposing precarious situation of many families
- Millions of Britons have little or no financial resilience
- Education about personal finances is woefully lacking
- Politicians have added to confusion by sending out some very mixed messages
Still mindful of the blight they inflicted on society in the financial crisis, the banks are keen to redeem themselves during the post-Covid cost of living crisis by, whisper it, helping people.
The scary state of the economy has not translated into a rise in bad debts among individual and business customers – not yet – but the High Street lenders are launching a pre-emptive strike against potential defaults. Santander has identified around a million UK customers whose finances may be at risk over the coming months and is contacting them in order to intervene and save people from tumbling into real trouble.
Other banks are engaged in versions of the same thing. The risk with this type of exercise is that it can, if it is not done tactfully, come across as intrusive and patronising. The logic, though, is impeccable: Prevention is better than cure. Underlying the current situation are several deep-seated problems. Wealth inequality is entrenched and likely to become more so. Millions of Britons have little or no financial resilience. Education about personal finances is woefully lacking.
Out of control: Inflation reduces people’s ability to save and can also devastate the deposits they do possess
Politicians have added to the confusion by sending out some very mixed messages.
Look at Rishi Sunak, the former chancellor. Not long ago, he was Mr Hospitality, who egged us on to ‘eat out to help out’. In his current incarnation, he is Mr Hairshirt, telling voters there is no alternative to painful tax increases and belt-tightening. Low interest rates, easy credit and a culture of Yolo and Fomo – translation for older readers: You only live once and fear of missing out – have promoted a credit culture.
Miserly savings rates have discouraged thrift. Central bankers have stoked the furnace by until recently printing more money under the Quantitative Easing programme, which has kept interest rates low and driven up the prices of assets such as housing.
Much has been said about the accidental savings of more than £200billion amassed during the pandemic, but this is concentrated among already well-off households.
According to MoneySupermarket, one in four Britons has no savings whatsoever. Those who do are hardly in Rockefeller territory, as the average size of a rainy-day pot is around £5,700 per household.
Difficulties will not be confined to low-income families. So-called ‘wealthy hand-to-mouth’ households – theoretically rich due to large properties and pensions but with high outgoings and little spare cash – will also feel the squeeze. The long-term picture is discouraging. Although auto-enrolment has encouraged more pensions saving, a third are relying solely on the State when they retire.
Inflation reduces people’s ability to save and can also devastate the deposits they do possess. The best fixed-rate accounts at the moment are offering less than 3.5 per cent, while the Bank of England is forecasting inflation will peak at 13.3 per cent in October.
Rampant inflation is exposing the precarious situation in which many families have been existing for some time. This has been obscured by low interest rates and easy credit, but is now becoming plain.
Some will try to earn their way out of trouble. The pandemic saw an increase in people in their fifties and sixties taking early retirement. Some will go back to work.
Others may take second jobs. That is good news, if not for the individuals concerned, then for the economy, which is suffering labour shortages. Others will try to borrow their way out. There has been a crackdown on high-interest lenders, but pawnbrokers are going great guns already. Shares in the UK’s biggest, H&T Group, are up nearly 43 per cent this year. Sign of the times.