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Comment: The case for extra curricular activity

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The lack of curricular emphasis on financial awareness is evident in current issues, such as inadequate pension savings

I was interested to see the recent comments from the Financial Policy Committee stating households were more likely to default on credit card repayments than on mortgage debts.

Given the potential consequences and comparative levels of debt we are talking about, perhaps it is no surprise. The size of lending is very different: consumer credit comprises 10 per cent of total lending to UK households whereas mortgages account for a sizeable 70 per cent.

The Bank of England appears to be concerned that consumer credit growth could lead to weaker underwriting standards and, therefore, become a risk to lenders. However, the FPC has stated that, relative to mortgage debt, consumer credit is less likely to pose a risk to broader macro stability through its effect on household spending.

This has me wondering whether consumers are more relaxed about credit compared to mortgages. Perhaps they are less worried about paying off these debts quickly because they consider them key to managing their finances in the long term.

Credit is relatively easy to access and the approval process is quick. People are often not sure of how much they owe, how much interest they have paid over the duration of a debt or how much could have been saved if the debt had been paid off more quickly.

As always, it comes back to financial awareness. More should be done in schools to help young people understand the long-term implications of debt, savings, pensions and financial commitments.

The lack of curricular emphasis in this area is evident in issues we are seeing now, such as inadequate pension savings or the number of people struggling to raise a deposit for a house.

Educating youngsters about managing their finances could make a real difference to their attitude to debt for the longer term and contribute to macro stability.

Sally Laker is managing director of Mortgage Intelligence

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