Poor debt management is to blame for insolvencies

2009 saw record-breaking personal insolvency statistics in the UK, with over 134,000 people filing for bankruptcy or entering into an IVA or debt relief order.

Statistics from APACS found in 2008 that Britain has more credit cards than people and in 2009 the average credit limit on plastic was over £5000 per person. Our consumer-driven society has been too happy for quite some time. We buy things without even having the money. We see. We want. We put plastic. The recent recession that strangled the country for 18 months made credit no longer so easy to come by. So those living on credit, paying off existing debts by taking on more, suddenly found themselves unable to make the payments. Contrary to the common misconception that debt hits low-income families the hardest, it was the number of professionals in the middle class demographic that experienced the fastest growth when it came to personal insolvencies. This is largely attributed to their higher credit limits and a general tendency to spend a little more indulgently. The credit crisis meant that these people found themselves unable to borrow more money and, despite being a group that we would normally consider perfectly capable of paying debt, they were unable to make the payments in several cases. This, in turn, led thousands of people to seek formal debt restructuring.

So how do we solve our money mismanagement problems? Well, the British government thinks it has the answer. It recently announced that children from the age of five will receive money management lessons in schools as part of the mandatory national curriculum. Will this solve our problem? Well, it certainly can’t do any harm, can it? Previously, 16- to 18-year-olds could simply drop out of school without having had a single money management lesson and were sent into a world where credit is all too accessible. How can these people be expected to manage their money when they have never had to learn about it before? Perhaps the new government incentive will lead to a much smarter generation in finance in the years to come.