Personal debts are reaching 'unmanageable levels' in the UK according to new research.
A new study has expressed particular concern about a widening gap between 'financially savvy' customers and other groups of borrowers, who, unable to handle their borrowing, are becoming dangerously indebted. As the reformed Consumer Credit Act deadline draws nearer the government should concentrate on educating consumers.
Research from accountants Ernst & Young claims that instead of a gradual increase in general financial awareness across all consumer groups, the market is seeing a dangerous polarization that is contributing to the rise in overall credit debt levels. This rise has come despite recent increases in base rates, which indicates that the government has, so far, been unsuccessful in trying to contain a growing mountain of public debt.
The government and financial services industry are currently working towards this autumn's implementation deadline for the reformed Consumer Credit Act. One of the drivers behind the reform is concern about the levels of consumer over indebtedness. The proposed changes are promising a 'fairer, more transparent' market. However, the government has acknowledged that reform should come from both ends of the consumer-borrower spectrum. Just as credit providers are being urged to lend responsibly, so should consumers make an effort to borrow with more responsibility.
The problem of inadequate financial literacy among certain customer groups has already been highlighted during the consultations. The government has announced its intention to improve the financial education of the nation through a range of programs, including financial lessons in schools, life-learning programs for adults and a range of financial education and advice materials produced by both the FSA and the OFT. In addition, the FSA has published a statement of principles for the development of a national Strategy for Financial Capability, which is currently in the consultation process.
These initiatives are encouraging and the government should put particular effort into ensuring they are successful. Consumer behavior will play an important part in determining just how effective some of the new regulation provisions will be. It is vital that not only lenders but also their customers are ready for the October deadline.
Source: Datamonitor
