Payday loans were making the headlines again last week and, once again, it was for all the wrong reasons. The debt charity, Money Advice Trust, reported that its helpline had received almost double the number of complaints about such loans from the previous year. Since 2007, when the financial crisis began, complaints have risen by over 4,000 per cent – a figure not dissimilar to the interest rates charged on such loans. Another debt charity, StepChange, reported that the problem of payday loans was growing fastest among those under 25, with the average amount of payday loan debt at this age being £1,375.
All of this continues to highlight the growing need for better financial education in the UK. Our current economic difficulties are hitting the young particularly hard and so it should be no surprise that many of them are struggling to make ends meet. However, taking out payday loan is only going to lead to many of them getting even deeper into debt.
It is vital that any form of financial education provides young people with the means to build independent lives for themselves. It is up to them to make the difficult decisions that will affect their careers, finances and homes, but they can only do that with confidence if they have been properly prepared and have an understanding of the consequences each separate decision may have.
The fact that payday loans are becoming more prevalent among the under-25s demonstrates quite clearly that we have failed quite spectacularly to provide an effective financial education for this generation. The Office of Fair Trading has issued warnings to the industry over its poor practices and is undertaking investigations into several payday lenders – hardly signs of endorsement for this area of financial services.
If we are to make good on the proposals to include financial education on the National Curriculum, we need to ensure that young people are given a broad range of skills that enable them to see beyond a basic understanding of APR rates and repayment dates and to understand the impact such decisions will have on their lives overall. Hopefully, that will mean far less young people opting to take out payday loans.