Daniel O’Brien | Opinions Editor
The shortcomings of the payday loan industry are well documented and, for the most part, obvious and uninteresting. For those needing a refresher, such firms offer loans to those unwelcome elsewhere, either due to low income, bad credit, or more often both. A necessary result of this business model, though, is that payday loans charge a far higher rate of interest to account for their increased risk. The problems that ensue are largely predictable.
What’s far more interesting is the story, documented by BBC earlier this month, of an unemployed 20-year-old student who got caught up in this mess. Elliott Gomme lied on his loan application, in order to secure £120 for a holiday, because his bank would not offer him overdraft (his account was empty). A few months later, he now owes more than £800. His story isn’t unique either as more people are looking for a payday loan consolidation service to help them than ever.
If you’re keeping count, there are at least three things majorly wrong with that story, arguably none of which are the fault of the lending company. Lying about income or employment status, in any context, is wrong and often illegal. Spending £120 on a holiday when you have literally no money is fiscally irresponsible. And procuring that money through a loan, knowing that you have no current or future source of income, is at the very least dumb, if not morally wrong. It’s the equivalent of borrowing money from a friend with the knowledge that you will never pay them back. It’s also known as stealing.
But somehow Mr. Gomme has convinced both himself and a reputable mainstream news outlet that he is the real victim. “They were ringing me every day,” he says. “They were telling me how much I owe and that there was added interest,” he continues, seemingly unaware that this is exactly how loans work. If you are in the same boat as Mr. Gomme, it may be worth having a read of your online payday loans guide, so you understand what you are signing up for before you take out a loan.
As a demographic with disproportionate financial responsibilities relative to experience handling money, reckless mistakes are both common and potentially devastating for students.
I apologise if this all sounds unfairly critical of the man in question. The reality is that this story accurately reflects the financial illiteracy of most students, not just the one unfortunate soul who made headlines. And although the problem is apparent, the solution may be far more difficult to find.
Students are notoriously vulnerable to certain types of marketing, e.g. anything based on the idea of low prices. But as a demographic with disproportionate financial responsibilities relative to experience handling money, reckless mistakes are both common and, as shown above, potentially devastating.
One problem is that such mistakes are far less obvious than we might assume. For example, if Club A is offering 3 Jaegerbombs for a tenner (or any other amazing drinks deal), that is not a logical reason to go out that night if you didn’t already intend to do so. Rather, it’s a reason to choose Club A over Club B if you’ve already planned on going out. Otherwise, you’re not getting a bargain on drinks. You’re getting ripped off to the tune of an entry fee plus drink costs (both pre- and in the club), along with the inevitable taxi ride home. One or two nights of this in a single week means any chance at successful budgeting has been lost.
Students should know that their ability to manage money will be at least as important as their degree for future career success.
Students are by now well aware of the struggle to spend responsibly while enjoying some of their last years of relative freedom. But how much are we to blame for this situation? Personal finance education is hardly a fixture of primary or secondary education, and at third-level it is almost non-existent. Where such classes do exist in American high schools, they are too often viewed with disdain: meant for those directly entering the workforce and not suitable for those attending college.
Equally troubling is the low rate of success such programs face even when they are implemented. Virtually all academic literature on the subject has concluded that spending on financial literacy education makes little difference in long-term outcomes. The thinking is that financial behaviour is similar to eating habits, easy to criticise and difficult to change. But the implications of that conclusion are worrying.
Financial literacy is one of the more prominent ways in which wealth and income inequality perpetuates itself. While it’s fun to imagine the children of the uber-rich spending irresponsibly, it may be more helpful to remember the upper middle class families passing on knowledge of stocks, bonds, and 401k’s. Young people from less affluent backgrounds often have less exposure to such concepts. Like with weight and eating habits, that doesn’t mean the cycle is unbreakable, just that certain parts of society are vastly disadvantaged in where they start off.
Financial literacy is one of the more prominent ways in which wealth and income inequality perpetuates itself.
Universities are useful for transferring academic knowledge fairly, in the sense that all admitted students are taught the same thing, regardless of social class or income. But they often shy away from attempting to equalise cultural capital, i.e. the types of knowledge linked with a higher standing in society. It is often seen as too difficult or even undesirable for them to do so. Some admirable attempts are made at Trinity through things like the Career Advisory Service, which offers classes on job interviews, CV writing, etc., but such programs fail to get at the heart of the issue.
All students face new financial and academic challenges upon entering university, but they rarely weigh these challenges equally. Whether through formal education or simply promoting financial awareness, we should ensure that students know their ability to manage money will be at least as important as their degree for future career success.
Illustration by Caoilainn Scouler for The University Times.
