Consumers are really feeling the pinch, the cost of ordinary and essential items such as food, petrol/diesel, electricity and gas have soared in the last 12 months. Inflation has been at or near 5% since December 2006. Like the Trocaire ad about climate change, the surge in the cost of living is affecting everybody but not equally. People on low and fixed incomes are under huge pressure.
That was borne out by the recent initial report on financial capability by the Financial Regulator (FR). They define financial capability "as a broad measure of the knowledge, skills, attitudes and behaviours necessary to manage personal finances and to choose and make appropriate use of financial products"
Now I have been critical of the FR on some issues, but I want to praise them for this piece of work. Even though it is an initial report, it looks like being a very useful report. However it is vital that the findings are used to guide the work of the FR over the coming years.
Simply Red and Simply Sung...Money is too tight to mention!
The key findings of the report are;
- 37% of consumers are having some degree of difficulty keeping up with bills and credit commitments.
- 60% and 66.2% respectively of recently divorced and separated people have some degree of difficulty keeping up with bills and credit commitments.
- 13% have found themselves in financial difficulty (3 or more months behind payments with regular commitments) in the last 5 years.
- 27% of consumers have no idea how to make a complaint to a financial services firm and 26% say they only have some idea of how to complain.
- 25% of respondents or their partners have experienced a large drop of income in the past three years.
- 53% would strongly agree or tend to agree that they would trust the advice of financial advisers and accept what they recommend.
- 63% would strongly agree or tend to agree that they have a clear idea of the what financial products they need without consulting a financial adviser.
- Only 36% understood that the value of a tracker bond would be directly affected by stock market performance.
Interesting stuff, but what does it all mean or what can be done you might ask.
Well its clear that many people are finding it hard to make ends meet. It's important that they know there are excellent services out there that can help such as the Money Advice and Budgeting Service who can assist if people have debts and are struggling to make ends meet. They cannot give you money, but they can help you manage your income better and draw up a reasonable plan to pay off debts. I know some people may find it difficult to accept they have a problem but its a free and in my experience good service.
Perhaps the FR and MABS could link up and run a publicity campaign.
Also people still don't know how to complain or perhaps if they have a valid complaint. Thats a worry. One thing the FR could do is to publicise the consumer protection code and make sure lots of copies are available in all financial institutions. They already have a very good summary, called the little red book which should be circulated widely. Consumers should know that the code says that financial institutions have to act in the best interests of customers.
Despite all the publicity and contoversy over the last decade about wrongdoing and misselling (and even in the last few weeks concerning older people) by financial institutions and advisers, its clear many people (up to 53%) still find dealing with finance and financial institutions challenging and appear to be saying they trust what they tell them. That's disturbing, because recent evidence has suggested that front line staff are under pressure to sell you products which may not always be in the best interests of the consumer. Would you go into a garage and tell the salesman that you want to buy a car and let them decide what is good for you. No you wouldn't and the same should apply to financial products, consumers should always get some advice and/or a second opinion.