Families in the UK are £6 a week worse off than a year ago, according to new figures published this week by supermarket chain Asda. Savings levels for UK families are also low, with average cash reserves equal to just 14 days of daily living costs, before additional finance would have to be sought*.

Furthermore, 11% of UK families are now living beyond their means, by spending more than they earn, and a further 26%, or 13m UK adults, just break even each month, leaving no disposable income for savings and investments.

Chief cause for this fall in real standard of living was a low average wages increase of just 1.4% year on year in recent months, compared with an average increase of 4% before the recession. A second major contributory cost is the rise in the cost of petrol to 120p a litre, according to Cebr, the organisation which compiled the information for Asda.

Recent research by Aviva showed that only 1 family in 4 would be able to raise £100 of disposable income within a week, if the family lost its main income due to redundancy or illness – and with 31% of UK households dependent on a sole breadwinner, 16% of people said that their personal finances were such that they would be forced to sell their tv to raise additional finance.

*Sources: Asda Income Tracker, uSwitch.com, Aviva

It really is ‘horses for courses’, when considering the various types of mortgage!

The tracker mortgage

In a tracker mortgage, the mortgage is anchored to the Bank of England base rate, plus your lender’s margin on top. This means that with mortgage interest rates currently at 0.5% and a typical lender’s margin of 3%, a tracker product might offer you a mortgage with a 3.5% interest rate.

Many tracker deals come with a tie-in period of 2,3 or 5 years, during which your lender cannot change their margin and your mortgage can rise only as and when the Bank of England raises the base rate.

Rises in the base rate happen in 0.25% increments, and experts are predicting that it is very unlikely that mortgage rates will rise significantly before the closing months of 2010 at the earliest, and that they will rise slowly even then.

Currently the best trackers are, on average, 1.5% lower than the best fixed rates. It would take a substantial rise in bank rates for a borrower who takes a tracker to be worse off than one who opts for a fixed rate.

The drawback to buying into a tracker deal is the set-up fee, and also the exit fees if you decide to change.

Furthermore, during your tie-in period with a tracker mortgage, it is the Bank of England and not your lender who controls your mortgage repayment.

Another consideration is that, while a shorter-term 2-year tracker may seem attractive in the current low-interest climate, a longer-term tracker of 5 years could leave your mortgage repayment sailing upwards if bank rates nudge back towards previous levels of around 5% by 2015.

SVR and fixed-rate mortgages

The other types of mortgage, such as SVR mortgages and fixed-rate mortgages, each offer particular characteristics that may be valued by some mortgage borrowers.

For those who wish to avoid the tracker mortgage’s set-up and exit fees, for example, opting for their lender’s Standard Variable Rate (SVR) mortgage involves no set-up charges or exit charges. This is because you come to the end of your tie-in period and default on to your lender’s SVR, rather than ‘buy into’ it as a new deal. The SVR mortgage also leaves you free to make a low-cost switch to another product in the coming years.

Many mortgage borrowers, and first-time buyers in particular, value the security of knowing that their mortgage repayments cannot rise beyond a certain maximum level.

For those wishing to cap their potential mortgage repayments and have the security of knowing they have a payment they can afford, no matter what the Bank of England does next year and beyond, then a fixed-rate may be the mortgage of choice.

More than 1m householders have had to use a credit card for rent payments or mortgage repayments in the last 12 months, according to the data published today by housing charity Shelter*.

Shelter found that a credit card had been used by 6% of all UK residents making regular housing or mortgage payments. As there are approximately 17.3m householders in the UK paying rent or mortgage repayments**, Shelter has concluded that just over 1m is the relevant national figure.

This expensive payment method is likely to have been a last resort for most mortgage holders, which also indicates that they may already be struggling with their personal finances.

In that case, making mortgage repayments ‘on the plastic’ is extremely risky, as credit card companies are not subject to the same rules as mortgage lenders, and can obtain a ‘charging order’ from the courts to force defaulters to sell their home.

A ‘charging order’ transforms credit card debt, which is an unsecured loan not attached to any concrete asset or property, into a secured loan with your home as the security.

Once the charging order is obtained, a credit card company can than move on to obtain a possession order that forces a homeowner to sell their home and repay their credit card debt.

While cases of actual repossessions are still relatively rare, data from Citizens Advice showed that in the period from 2000 to 2008, the use of charging orders to recover debt increased by over 7 times, and that around three-quarters of applications for charging orders are approved by the courts.

*Source: YouGov poll for Shelter published January 2010 covered 2022 adults in the UK
**Source: Survey of English Housing/Scottish House Condition Survey/Living in Wales (Welsh Assembly)

Reduced ink consumption can also result in significant financial savings, with Ecofont’s manufacturer, the Dutch marketing firm Spranq, claiming that a company with 5,000 employees could save over £100,000 a year on its printing costs.

The ‘Ecofont’ system is a subscription package that ‘drills holes’ in your normal fontface, eliminating between 20-25% of the ink from your printout by leaving tiny, circular unprinted areas peppered over the letters and characters you use. As the holes are smaller than the eye can see, this has no affect on the legibility of your text.

You can punch environmentally-friendly holes in your favourite font for €15, which provides you with a 3-year licenced download of your font’s eco-variation.

Try before you buy

You can also download a trial ecofont to try the system out. The free-of-charge single font, based on the Bitstream Vera typeface, is available at the website ecofont.eu.

The ideal point sizes for using ecofonts is 10-11 point, roughly the size used in most newspapers and magazines. For lettering larger than this (headlines and larger print) Ecofont is unsuitable, as the tiny holes in the font become visible. In this case, the software senses that the font is too large, and does not add the holes.

The government is finally recognising that our children are never too young to learn the very basics of good financial planning, saving, and general ‘money sense’.

Personal finance education will become part of the set curriculum in England’s primary schools in 2 years’ time, as part of the government’s plans to broaden out the teaching of personal finance already taking place in secondary schools.

From September 2011, the current schools’ personal finance education budget of £60m will rise by £30m to enable the programme to cover the 4-11 age group. The initiative will come under the government’s Personal, Social, Health and Economic education (PSHE) programme.

Separately, £11.5m has been allocated to support personal finance education in schools by paying for materials and also to fund training so that teachers have the skills and confidence to teach financial education well, according to Matt Hopkinson, a spokesman for the Department for Children, Schools and Families.

In addition to learning the basics of understanding money, saving and planning to make their money last, primary school children will become involved ‘in more hands-on projects like setting up a business inside school, work-shadowing a local industry figure, solving real business problems,” according to Matt Hopkinson. That having been said, schools will also have the freedom to tailor the programme to suit their own students.

The primary school scheme will build on the current success of the scheme at secondary school level, according to Matt Hopkinson. “Our strategy to get schools teaching the values of enterprise has been an unqualified success. Over 90 per cent of secondary schools provide enterprise for all pupils at Key Stage 4. Three years ago, fewer than half did.”

The Office of Fair Trading (OFT) has decided not to pursue further its attempt to investigate the fairness of bank overdraft charges on current accounts, following a Supreme Court judgement against it last month.

While a continued investigation into bank charges by the OFT would have limited scope and low prospects of success, the OFT will continue to express significant concerns about the level of charges, which bring banks an estimated £2.5bn per year, about a third of their personal current account revenues.

With some banks charging £35 for an inadvertent or unauthorised lapse into overdraft, the OFT had declared that any bank charging more than £12 should be required to justify its charges in public.

A further indication of the true cost to a bank of processing an unarranged overdraft came earlier in the year, when the state-owned Royal Bank of Scotland (RBS) dropped its bank charges to a standard fee of £5.

More than a million refund claims for bank overdraft charges that were frozen in July 2007 now have little hope of success.

The challenge to the Office of Fair Trading’s investigation was led by a group of institutions who presented their case to the Supreme Court. They were Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, RBS and Nationwide.

Childcare  workers and hospital cleaners generate more real value for society than bankers and advertising executives, according to a new report by the economics think-tank New Economics Foundation (NEF).

The report uses a specific economic approach* which looks at the social, environmental and economic impact of certain professions, to decide if they create or destroy value through the work they do.

NEF came to the following conclusions about the good, the bad, and the downright ugly in our society.

The Good

The Childcare Worker: for every £1 she is paid, she generates £7-£9.50 of value, both by releasing parents to continue working and by the social benefit to children of learning opportunities outside the home.

The Hospital Cleaner: by providing a valuable service promoting hygiene standards and health, he also contributes towards wider health outcomes. For every £1 he is paid, over £10 in social value is generated.

The Waste Recycling Worker: processing and preventing waste, enabling and promoting recycling, and encouraging re-use of materials all contributes to reducing carbon emissions. For every £1 paid in wages, he generates £12 of value for society.

The Bad

The City Banker: the earnings he takes and the profits he generates come at a huge cost, because of the damaging social effects we have seen as a result of the City’s financial activities. On his salary of between £500,000 and £10m, the City banker destroys £7 of social value for every pound he is paid.

The Ad Executive: his work creates insatiable aspirations and stress, fuels high consumer spending and indebtedness, and causes dissatisfaction, social damage and over-consumption. Top ad execs destroy £11 of value for every £1 they generate.

The Ugly

The absolute villain of the piece, according to NEF, is:

The Tax Accountant: through her work assisting corporations and individuals to minimise tax, she sucks up valuable tax revenues that would have been available to benefit society. For that reason, NEF estimates she destroys £47 in value for every pound she generates.

*NEF based its evaluations on a method of analysis known as Social Return on Investment (SROI)

In the period from April 2008 to September 2009, advisers in the nation’s Citizens’ Advice Bureaux have dealt with 3.06m debt problems, compared with 2.71m benefits problems, 844,000 employment problems, and 633,000 housing problems. 

Debt and benefit problems continue to grow at 21% per year, the charity said. 

There are several key debt management strategies available to combat this crippling problem. 

Consumers can take out a debt consolidation loan which will clear several debts at once, replacing a number of repayments with a single monthly sum. This is particularly useful for someone who has various credit card, store card and other debts, at various rates of interest. 

In addition to consolidating those payments into one, it may be possible to arrange the loan with an extended repayment period, thus reducing your monthly outgoings at the same time. 

Taking a remortgage on your home can enable you to borrow based on the equity you have built up, and clear your debts by folding them into your new mortgage deal. 

Again, when dealing with high-interest debts such as credit cards, a remortgage can result in considerable savings each month. 

Debt Management Plan (DMP) 

With a debt management plan you work with a debt specialist to renegotiate the terms of your debt repayments with your creditors. 

This can significantly reduce your monthly outgoings, and relate your payments to what you can afford, rather than what was being demanded of you before.

However, a debt management plan is not a legally binding agreement, and the conditions covering your repayments can be changed at any time by your creditors. The debt management plan will also be noted on your credit record for 6 years. 

Individual Voluntary Agreement (IVA) 

An IVA is a legally binding compromise agreement which must be approved and accepted by your creditors. By agreeing to an IVA, your creditors are accepting that you will never be able to repay your debt in full. 

Under an IVA your creditors may well agree to write off the majority of your debt in return for your undertaking to repay the rest over 5 years. 

The IVA is binding on both sides, however, and you must ensure that you meet all your repayments, otherwise the IVA will fail. 

Home owners with endowment policies linked to their mortgage may be required to encash the policy and pay the proceeds to their creditors, or release part of the equity built up in their home, under the terms of their IVA.

Using analysis by professional psychologists, the AXA report* claims that “inertia, ignorance, and instant gratification” are the main obstacles to better financial planning.

For example, many “Peter Pan” Britons were better motivated to save for a holiday or a car, rather than making provision for the possibility of redundancy through income protection, the report said.

Reluctance to accept financial advice was worsening the situation, with 1 in 7 saying they would rather see a dentist than a financial adviser, according to AXA.

AXA behavioural specialist, Eugene Farrell, commented: “The study proves that resistance to money management runs deep and is seems that we may even be pre-programmed to stick our heads in the sand.

“What can we do about these feelings of helplessness and denial? One of the key principles  “is about getting people to admit that they may have a problem. In common with other troubling aspects of life, for instance excessive eating, drinking or gambling, being honest about the situation can provide the first important step to recovery - or in this case, the first steps towards improved finances.

“Above all, people should be prepared to get proactive, and to seek professional help if they are out of their depth.”

*Source: research carried out for AXA by YouGov and analysis of results carried out by Professor Karen Pine and Ben Fletcher, Head of Psychology, University of Hertfordshire

Under the Consumer Credit Act, credit card loan agreements must contain three key pieces of information:

• The amount or limit of credit agreed
• The rate of interest to be charged
• Details covering how the debt is to be repaid 

In addition, the original document can be ruled as invalid even if these details were included, if they have now been obscured because the document is illegible. 

The test cases follow a case in October this year where a debt collection firm failed to enforce its claim on a debt of £6,585 due to an illegible original. The case, which related to a debt on an MBNA credit card, was thrown out, not because the original data had not been correctly logged, but because it was no longer visible on the old and faded document. 

Where documentation is illegible, it fails to fulfil its function as a record of the terms of the agreement, and the courts are unable to grant an enforcement order to recover the debt. 

Lenders must also provide documentation to prove that the terms of the agreement were communicated to the borrower at the time, although many lenders have difficulty in doing so due to their own disorganised filing and administrative systems.