The cost of borrowing: How financial education can help alleviate the problem
As widely reported on the BBC recently, The Financial Conduct Authority (FCA) has published the outcomes of their high-cost credit review in the UK. This important publication aims to highlight the cost of borrowing and control the costs associated with certain forms of it. The report builds on the previously announced and enacted measures to contain the charges associated with payday lenders.
Areas of concern in the credit market
This latest review recognises that controls need to go beyond payday lenders alone. The announcement focuses on several other key areas of concern in the credit market:
- Home-collected credit
- Catalogue credit and store credit cards
The reality is that any or all of the above options are most likely to be used by those that can least afford the (often exceptionally high) charges associated with lending. Borrowers can therefore often find themselves trapped in a spiral of high-credit charges from which escape is very difficult indeed.
Is high-cost credit an issue for employers?
The use of high-cost credit is (by definition) a problem primarily for the worker and his/her family, yet this issue can also have unexpected implications for the employer as well. Employees with money troubles are likely to be more distracted – and by extension less engaged – during the working day. This therefore has serious implications for productivity.
For some employers this might be a relatively minor problem, but certain employment types (for instance hospitality and agriculture) are traditionally low wage sectors. So employers in these disciplines might find that significant numbers within their workforce are trapped within the high-credit spiral.
Avoiding high-cost credit: how financial education can help
The measures presented by the FCA are of course very welcome. Yet they will take time to implement. And by definition they only address the issue of credit charges after the need for such borrowing becomes necessary.
The reality is that prevention is often more effective than cure. What is needed is to educate and inform UK workers so that more can avoid getting caught in the jaws of high-cost credit in the future.
So this is yet another reason why financial education remains such an important option as part of an Employee Benefits package. Providing such an offering to the workforce is a relatively low-cost option for employers, but can be hugely beneficial for employees. This in turn should lead to less financially distracted employees – which is good news for productivity and financial bottom line.
For more information about our financial education services please speak to one of our local experts.
Steve Herbert is Head of Benefits Strategy at Jelf