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Case Studies

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Managing money

Managing money can be quite challenging! From time to time, we consume products and services before we pay for them – and can at times forget about the bill. Some bills are paid quarterly, and when it unexpectedly drops in the letter box, it can destroy the monthly budget. Keeping track of income and expenses is necessary to manage money effectively.

Anna, a 12 year-old girl learnt this the hard way. One day, Anna went shopping and saw a pair of leggings, a CD and some hair wax for herself. She couldn’t resist and bought all three items with her pocket money. Upon arriving home, Anna’s mother told her that there was a bill from a music magazine subscription. Anna had forgotten all about the bill, and although the bill was issued to her mother because Anna herself was too young to subscribe, she now had to pay for the next three months’ magazines.

Managing money is about managing income and expenses and being aware of fixed and variable expenses. You only have a certain amount of money. Managing money is about making choices and prioritising what you spend your money on. Making a monthly budget gives an idea of how much money you have at your disposal and helps avoid additional fees for unpaid bills or late payments.

Consumer knowledge

Payment methods have become more varied and today cash may not always be the best means of payment for products and services.

Paying with a mobile phone was exactly what an 13 year-old horse enthusiast did when she, in just three weeks, spent a full year’s pocket money using her mobile phone. All she did was pay for virtual horse accessories, buy hay in an interactive stable and bid for horses on a virtual auction on a website. At one time, she owned 100 virtual horses. They all had to be trained and fed. In the virtual horse website, the users pay for virtual products and services with the “local” currency ‘horse coins’ that can be bought via SMS. In just three weeks, the girl bought 22 SMS’s at £10 each.

It all adds up! Children often have difficulties understanding the value of money especially growing up in a world with so many cashless transactions. The concept of small payments adding up can be an eye-opener to them.

Savings and loans

It has never been easier to set up quick loans! Thanks to quick consumer loans, irresponsible lenders and instalment payment solutions, consumers can buy almost anything they want - instantly. However, the trouble is that usually the annual percentage rate on quick loans is extremely high.

18-year-old Thomas was flicking through the pages of a magazine as he was waiting for the train to get home. On the back of the magazine, there was an advertisement for a small laptop computer costing £500. Thomas thought that it was super cool and that it would be perfect to bring along when travelling by train every day. Unfortunately, he didn’t have any money and his birthday was not for another 6 months. Too bad. Thomas forgot about the laptop until he saw, a few days later, a ‘Buy it now – pay later’ advertisement for the exact same laptop in a shop window. There, it read that the laptop did not have to be repaid for the first 6 months. After that, the laptop would only cost £17.90 per month for 48 months. Thomas clearly visualised himself accessing the internet, chatting online with friends and watching movies on the train. Thomas decided to buy the laptop and pay for it later once he had received some money for his birthday. However, after repaying £17.90 for 48 months, Thomas ended up paying an extra £359.20 in addition to the £500 that the laptop actually cost totalling £895.20.

It can be quite challenging to find out the actual cost of loans. The above-mentioned advertisement for loans is misleading! If you go over the numbers, the APR is 18%, which is extremely high compared to alternative loan options. At first glance, loans seem attractive but without financial literacy and understanding of APR, young people can end up owing more money than they are able to pay back, or choosing this option without realising the total cost.

Making Money

Money is necessary to accommodate needs and wants. The more money you earn, the more you can afford to buy or save. However, your net income does not necessarily increase proportionally with your working hours. If you exceed your personal allowance rate, you have to pay tax.

Peter, aged 17, dropped out of a Further Education College a few weeks into the term, as he decided he was not quite ready to continue his studies. Peter decided to spend the rest of the year working before starting college again the following year. This way, he could save up to buy a used car for his 18th birthday. Peter got a part-time job at a supermarket in the city, and started working long hours. He was eager to receive his first payslip for his first month of very hard work. However, Peter got a big surprise as he discovered that some of his hard earned money had been deducted in income tax.

Peter hadn't paid any attention to the fact that he would have to pay income tax. Peter knew about tax but, in his mind, it was something only parents had to pay!