James Daley: Bank profits soar thanks to apathy
Saturday 21 January 2006
In a few weeks' time, the British media will once again join forces to hammer the country's largest banks for generating the kind of obscene multibillion-pound profits that scream of excess. The logic is straightforward - if companies such as HSBC are managing to clear more than £10bn a year, an awful lot of people must be getting ripped off.
While this is an argument with which I have a certain degree of sympathy, we, as consumers, cannot ignore our own part in boosting the bottom lines of the UK's financial-services groups. For every bank that makes a slice of profit by charging extortionate fees or exorbitant interest rates, there is a consumer who is paying up rather than taking their business elsewhere.
The UK has possibly the most competitive financial- services market in the world. Thousands of pounds can be borrowed at 0 per cent for months at a time; the best savings accounts pay higher interest than the base rate; and the top mortgages come with free legal fees, valuations and more, while still managing to charge a reasonable rate.
Although some of these types of offers can be found in other countries, the reason why introductory deals are so impressive in the UK comes down to one simple fact - British financial consumers are immensely apathetic. Banks, insurers and lenders are all too aware that once a customer is in the door, there is a high chance that they will stay for a long time.
Once the 0 per cent period on our credit card is over, most of us hang on to pay the expensive APR that follows. One-in-three people with a mortgage pays their lender's standard variable rate (typically, some 50 per cent higher than the market-leading deals) simply because they forgot to switch when the last offer came to an end. And millions of us are also paying unnecessary charges for going overdrawn or not making payments on time, only because we don't keep a close enough eye on our bank balances.
A new survey published this week revealed that almost three-quarters of 25-34-year-olds in Britain do not have a proper handle on their finances. Although they may know that they have some debt, and maybe even some savings, too, when it comes to knowing how much interest they're paying, or having any kind of long-term financial strategy, there is a worrying lack of both knowledge and regard.
Part of the problem, at least, is that financial education is so scarce in our schools - and always has been. And while the parents of today's baby-boomer generation were relatively thrifty, and much better at teaching their children the value of money, finance has not played such a big part in children's upbringing in the years since.
Furthermore, the financial marketplace has changed hugely in the last few decades. Although numerous initiatives have recently been concocted to help today's school children, real progress has been slow. The personal-finance qualifications that are now available are currently only offered in a few dozen schools. But at least the situation here look set to improve.
For today's adults, on the other hand, there is a much bigger problem. Not only is financial literacy generally poor, but many people's financial expectations in terms of investment and retirement are unrealistic. It is here that the regulators and the Government should now be putting their efforts. Many of the necessary resources are already available online, but not only do they need promoting, but many people need to be given some new motivation to take an interest. Making people understand just how much they need to save for a decent retirement is often a very effective way to focus minds.
In the meantime, however, the responsibility lies with us each individually.
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