Top tips for managing borrowing 

225/05    7 December 2005

The OFT has joined forces with financial organisations, money advice agencies and trading standards departments to help 18 to 24 year olds choose the kind of credit that best suits their needs this Christmas.

The OFT's interactive, web-based campaign 'Be choosy about credit' provides advice, online budget-planners and interest calculators to help give young consumers the skills and tools they need to:

• be as choosy about how they borrow as how they shop
• compare the costs of different kinds of borrowing and keep the costs of borrowing as low as possible
• assess their ability to cope with credit repayments if they were to experience a change in their circumstances, such as losing a job.

The campaign has been developed in response to research from range of sources which illustrates levels of credit and attitudes towards it among young adults.

For both men and women in this age group, access to credit is viewed as a sign of freedom and an affirmation of adulthood; but a survey carried out by Experian suggests that this is also the group most worried about debts over the festive season. Research by the OFT  shows that young men and women have different triggers for spending and the use of credit at Christmas. Men said they were more likely to spend money on nights out with friends and are happy to use a credit card to finance such spending, as it saved them having to carry cash. Women are more likely to spend money on shopping for presents and feel under pressure to buy high-quality presents of equal value for all their family and friends. They also said that 'panic-buying' gifts at the last minute was likely to trigger overspending (see note 1).

According to a survey of clients by the Consumer Credit Counselling Service, young women tend to owe more numerous, smaller debts to store card, credit card and catalogue providers, and their overall debt levels as a proportion of income are rising faster than those of men. Men tend to have few store card and catalogue debts, but more credit card and personal loan debts, which have larger balances (see note 2).

Responding to a recent survey carried out by Equifax (see note 3), over 30 per cent of young adults said they would be unable to survive financially for a month were they to lose their job; and over 30 per cent of those who described themselves as 'struggling financially' blamed job losses.

The OFT will be working in conjunction with its public and private sector partners in the consumer education Alliance (see note 5) to distribute campaign materials and ensure the widest possible reach for the campaign messages. A webchat will also take place on 14 December at www.webchats.tv.

John Fingleton, OFT Chief Executive, said:

'Credit helps consumers spread their commitments over the year. It is of growing importance to young consumers and is already an established part of their financial landscape. Our campaign aims to give this group the skills they need to budget and be as savvy borrowers as they are shoppers.'

Top tips for managing credit

• Ask yourself, 'What's the best way for me to borrow?'
• Different types of borrowing include: credit card; personal loan; hire-purchase; current account overdraft; store card; buying goods on credit through a catalogue; interest-free deals directly from a retailer. These can have very different costs
• Different methods of borrowing suit different people and situations. Make sure you are able to afford the repayments - a personal budget calculator can help you
• Shop around for credit deals and make sure you are getting value for money. Use a loan calculator to help you compare how much borrowing at different rates of interest and over different lengths of time can cost you.

NOTES

1. Information about attitudes of 18 to 24 year olds towards financial issues, including credit and debt, is drawn from a report,  'Young people and their financial information needs', prepared by Synovate for the Financial Services Authority (September 2005) and focus group research commissioned by the OFT (November 2005). A survey by Experian credit reference agency of 1500 consumers nationwide (November 2005) shows that 40 per cent of 17 -25 year olds rate existing debt as an additional money pressure over Christmas. This proportion declines in successive age groups, dropping steeply to 20 per cent of over 55s and 10 per cent of over 65s.

2. Debt level figures from a report prepared by the Consumer Credit Counselling Service (CCCS). Young people and debt is based upon the CCCS database for 2003, 2004 and 2005 - 104,000 clients across all age categories. The average debt among young women in the survey group has risen from £10,953 in 2003 to £14,202 in 2005, compared with take-home pay of £10,420 and £10,728. For young men in the survey group, average debt levels have increased from £12,740 to £15,118 compared with take-home pay of £10,349 and £10,747.

3. Equifax debt management survey (July 2005) of 1500 consumers aged 18 - 24.

4. The OFT campaign comprises radio advertising, web advertising, a webchat, posters and direct mailing via consumer education Alliance partners such as the Finance Leasing Association and its member organisations; Experian; Equifax and trading standards departments throughout the UK.

5. The Enterprise Act 2002 gave the OFT new powers to use consumer education to support its work in making markets work well for consumers. The OFT set up a consumer education strategy group in October 2003 as a first step in developing its strategy. The OFT's 'Consumer Education: A strategy and framework' is available from the publications page of the website. The consumer education Alliance brings together public and private sector organisations to deliver the consumer education strategy (see press releases 113/04, 182/04 and 209/05).

6. The campaign messages have been devised in conjunction with the members of the consumer credit working group, a sub-group of the consumer education Alliance. Member organisations of the credit working group are: Lloyds TSB; Experian; Equifax; the Finance and Leasing Association; Financial Services Authority; Debt Managers' Standards Association; Credit Action; Association of British Credit Unions Ltd; Trading Standards Institute; LACORS; Energywatch.