The financial chickens are coming home to roost. Two sets of figures released yesterday should act as warning signals to Scots planning to head off for their customary weekend retail-therapy session. With personal debt in Scotland already standing at an average of nearly £9000 per person (excluding mortgage debt), more and more people are sliding into insolvency, according to government figures.
The financial chickens are coming home to roost. Two sets of figures released yesterday should act as warning signals to Scots planning to head off for their customary weekend retail-therapy session. With personal debt in Scotland already standing at an average of nearly £9000 per person (excluding mortgage debt), more and more people are sliding into insolvency, according to government figures.
While second-quarter personal bankruptcies in England and Wales appear to have levelled off, the figure for sequestrations (the Scottish equivalent) was up by more than 23% on the corresponding period of 2006. That translates as a record 38 Scots going bust every single day, the equivalent of nearly 14,000 a year, compared with fewer than 5000 in 1998. At the same time, statistics from the Council of Mortgage Lenders show a 30% rise in repossessions in the six months to June. At 14,000 this is still low by historical standards, but many experts fear it will spiral as recent interest-rate rises start to feed through into the economy. Among the most vulnerable are young couples, many of them already carrying student and store-card debts, who have overstretched themselves to get on the housing ladder; and older people who have consolidated consumer debts into a second mortgage or unsecured consolidation loan.
Forthcoming changes in the operation of Scottish bankruptcy law could result in many more Scots opting for sequestration. These include the introduction of land attachments to enable creditors to force debtors to pay up, and cutting from three years to one the period before a bankrupt is discharged.
Stung by the mounting level of bad debt and criticism that credit was too easy to come by, banks and other lenders are already tightening up the criteria for credit-card applicants and cutting the credit limits of spendthrift customers. The cumulative impact of these pressures is more and more Scots unable to service their debts. Though the typical debtor is someone on a low income pushed into financial crisis by an unexpected event such as unemployment or relationship break-up, many others are facing walls of debt built up over many years of simply failing to work out a budget and live within it.
It is too easy to blame financial fecklessness in a society shaped by a have-it-all celebrity culture and advertisers and stores selling the myth of "free credit". Better financial education to teach consumers the true cost of debt would be a good start. Four financial awareness advisers, working for Citizens Advice Scotland and funded by the Scottish Executive, are about to get to work in Glasgow, where three in ten people suffer from high levels of financial stress. Such initiatives are worth building on because prevention is easier than cure. The system of incentivising shop and bank staff to sell credit must also be challenged.
There is a need for greater regulation of equity-release schemes and consolidation loans, which too often trap the unwary with the false lure of easy money. Most of all, it is time that as a society we relearned the art of living within our means.
