Credit unions are a very  good choice. Their loans are designed to be affordable. Members can be encouraged to save as they make repayments. Some unions offer financial education and other support.

Loan sharks are disastrous. Their loans are illegal, very expensive and very difficult to pay off. Rather than help, they offer intimidation and threats of violence.

How much is the difference in the cost of the loan? Andy Doylend, from Circle Anglia, a provider of affordable housing, takes the example of loans to fund Christmas spending. Borrowing from a credit union instead of a loan shark could save a  typical low income household £500 in debt repayments, he says. “More than enough to fund the whole of Christmas 2010 as well.”

The Financial Inclusion Centre has estimated that £29 million in illegal doorstep loans were taken out over the holiday. It calls it the worst Christmas in a generation for this type of borrowing.

The centre estimates the average amount borrowed by households to cover Christmas at around £288. Interest rates of loan sharks can be around 825 per cent, with some as high as 1,500 per cent. A typical borrower will pay off £820. Many will take at least 56 weeks to repay their loan. A large number of Britain’s poorest households will still be paying off this year’s debt as next Christmas approaches
An estimated 200,000 households a year borrow from loan sharks. That is a 22 per cent rise over the past three years.

Why is business booming for loan sharks?  The simple answer is lack of known alternatives, made worse by the credit crunch. Doorstep lenders – legal ones, who specialise in home loans to low-income families – were affected as other lenders were. One company, London Scottish Bank, went bust. Another, Cattles, scaled back its operation and massively reduced the loans it made.

That created the vacuum that the loan sharks moved to fill.

Loan sharks do not generally target young people. Their victims are usually householders on estates, with young families. But young people will be targeted by them when they get older and take on responsibilities. Which makes now a vital time to learn about the risks, and build up a habit of saving and affordable borrowing – of which credit unions are the best option.

Two moves for anyone working with young people:

• help them explore credit unions. The best starting place is the Association of British Credit Unions. The search page tells you what is available in your area.
• let them know about loan sharks. A good place is the government’s loan shark website.

Scrap child trust funds, says Carl Emmerson, deputy director of the Institute for Fiscal Studies. The analysis, from a widely respected think-tank, is that the scheme’s cost is small, but not insignificant. Emmerson floats the idea of ending the payments – two of £250 so far, more to low-income families. Parents save or invest the money on behalf of a child, who can use the money at age 18.

Emmerson’s argument is that the trust funds do two things. They give 18 year olds money they otherwise wouldn’t have. And they provide a chance for learning about savings and investments – a practical form of financial education.

On the second point, he says let schools take on the financial education.

And on the first, he accepts that scrapping the scheme would leave 18 year olds worse off. He could hardly deny it. But he suggests that the cuts in public expenditure needed in the government’s spending plans would leave them worse off in other areas during their childhood. Cuts to tax credits or to pre-school education could reduce their quality of life and future life chances more than scrapping the child trust fund would.

It’s an argument.  It seems to be popular with the press, who never really liked the idea of giving young people money. And it’s certainly going to be a serious issue as the public expenditure cuts start to become real and hard choices have to be made.

Some points:

• Schools are hopeless at financial education. Trying to improve any organisation’s performance from truly appalling to averagely mediocre is not a sound use of resources. Even if that minimal improvement could be achieved, which for schools is doubtful.
• In any case, the trust funds improve parents’ financial education – which schools could not do. Since young people gain a large proportion of their knowledge and understanding from their families, it is not wise to cut it.
• How is a young person from a low income family supposed to take an interest in learning about savings vehicles if there is no prospect of having any money to save? What would be the point?
• Yes, there are any number of ways that public money could be spent on adults – tax credits and pre-school learning – that might advantage children and young people indirectly. But none is any kind of substitute for having your own cash to determine what to do with.

It is deeply depressing that, when budgets get tight, the one small measure that gave money directly to young people, under their control and their choice, is the first to be considered for ditching.

Here’s the figures in perspective. The savings needed in the spending plans are estimated at £26 billion. Scrapping the child trust fund could save £0.5 billion. That’s less than two per cent of the target. But the loss to someone born today, of £500 that they might have had aged 18 will be total – 100 per cent. It’s not a proportionate share of the cuts.

Easton also has a link to the data in an excel file, which is very useful. Good to see the problem being well illustrated. Depressing, though, as an indicator of the recession’s impact on the vulnerable young.

That’s not surprising to anyone who talks regularly to young people about money. But it challenges widespread assumptions that young people are a reckless, spend-now generation that accepts debt as way of life. That stereotype isn’t true, and isn’t helpful.

I’ve just been flicking through a market research report carried out last month for financial service organisations by Ci Research. It surveyed just over 450 young people, aged 16 to 26. Findings are:

• Some 71 per cent are fairly or very uncomfortable with debt. They see it a something to be avoided or taken on only as a last resort.
• Just 4 per cent say they are very comfortable with debt, accepting it as a fact of life.
• Of those aged 18 and over, 62 per cent don’t have a credit card.
• The majority (78 per cent) say they are keeping a consistent eye on their finances. Interestingly, there are no significant sub-group variations by age, tenure, gender, region, education status or attitudes towards debt

This is valuable because it seems to be sound research for the financial industry. This isn’t a third sector organisation trying to get attention for its crucial work. It isn’t a quick & dirty survey cobbled together by a PR company designed to attract the eye of clueless hacks writing personal finance pages. If it is what the industry uses for planning, it is worth listening to.

So what are the implications for those trying to help young people with their finances?

I’d suggest that it is not worth putting a lot of energy into changing most young people’s attitude to debt. Trying to scare people who are already averse is not empowering. Better perhaps to concentrate on building skills. Help in finding ways to keep track of income and spending in a way that works for them – and practising them till they become second nature – might be what most young people most need.

Like this:

Let’s take an example. Laura, aged 9, signs up to a toy website so that she can make a Christmas list to send to all her friends and relatives. Already, she’s made public the sorts of toys she likes. This information, along with her personal information, will be stored in a database. The host site now knows just what toys to advertise to Laura and they may well also be able to send adverts to Laura’s mum and dad, aunt and uncle, and granny and grandpa if she’s given their details too.

The data she provides can be used with information gathered from tracking software placed on Laura’s computer  by the host site and companies advertising on the site.

After signing up to the Christmas list, Laura will find herself increasingly tempted to buy stuff she sees during her 1.9 hours a day on the computer because someone now knows she likes soft toys in pink; someone now knows she talks endlessly to her friend Carla about her pet rabbit; someone now knows she has a new Nokia mobile phone; someone now knows she always clicks on the big flashing adverts; someone now knows she can easily be lured away from the site she’s on with a more exciting offer; and someone now knows she’s a nine-year-old girl who lives in Luton. Someone now knows rather a lot about Laura and knows the right buttons to press in her mind. Legally, Laura has probably agreed to “someone” knowing all this by ticking a tiny box at the end of a very long, boring privacy statement which she hasn’t read and wouldn’t understand even if she did.

All this and more from a forthcoming book, Consumer Kids: How big business is grooming our children for profit by Ed Mayo and Agnes Nairn. There’s interesting insights, for instance, into how the www.dubit.com website works by giving teenagers the chance to turn their opinions into cash.

The book is published by Constable & Robinson on January 29 at £8.99.There’s a long taster article on the Times website.

It points out that 11 to 14 is the age range when most young people move from idealistic to more realistic ambitions. A key finding is that:

Young people are more likely to achieve positive outcomes when they develop ambitious, achievable aspirations, combined with the self-esteem, self-efficacy, information and inspiration they need to persevere towards their goals.

Can’t argue with that. But I still sense that the role of money and proper, broad, financial education is massively understated. In deprived communities, role models are few. There’s not much inspiration. Kids don’t have the information or self-belief to set goals in the form of achievable, and legal, ways of earning sufficient for their realistic aspirations.

I wish there were more initiatives explicitly focusing on this. Young people need practical financial awareness and help in exploring realistic visions of their future earnings and spending. In the paper, the main references to the ways money can help are tax credits and EMA. Not knocking them. But they’re not enough.

Aspiration and attainment amongst young people in deprived communities

The yuletide economics of Joel Waldfogel show that when you give someone a present, about a sixth is wiped off its value. That’s because the value the recipient places on it isn’t as high as the amount you paid for it. Waldfogel called it the deadweight loss of Christmas.

The research ignores sentimental value – which some would say is the whole point of present-giving. This has led some people to conclude that economists are miserable so-and-so’s who don’t deserve presents.

This is may be true. But Waldfogel certainly knows that sentiment is important in present-giving. Setting it aside means that he was just trying to measure precisely what plenty of people have noticed – there’s a gap between the satisfaction we get from presents we buy for ourselves, as against those bought for us by others.

Waldfogel calculates that gap at 18 per cent – which is pretty large. It suggests we are not very good at identifying what someone else really wants, what they really value.

Why is that? Are some people better at choosing presents than others? Do young people think a lot of money is wasted on gifts? Do they ever look at their presents and say, I’d rather have had the money? Why don’t more people give tokens or cash- what is the downside?

There are no easy routes through the minefield of present-giving. Exploring it, and working out some answers, is a vital life-skill. It also feels like pretty advanced financial and emotional literacy – useful in a world where few people score highly.

Jolly good show.

Some questions are not answered. Or even asked. One is, how many young peope tried to open a basic bank account and failed? How many were discouraged by long delays or the attitudes of bank staff? How many were rejected for not having the right ID or evidence of status?

It would also be useful to know how many of the new accounts were opened by people coming down the banking system’s ladder, rather than getting a step up on it. Bankrupts, people with county court judgements against them, as well as those with bad credit histories, are likely to be among those opening basic bank accounts.

So the figures may not represent success in giving individuals an entry into a system which they hope to upgrade from. They may be more a measure of those obliged to downgrade—indicating retreat, not progress.

Sadly, his speech to a youth parliament earlier this week was far too heavy on the maths. “Financial literacy must become a comprehensive part of the maths curriculum,” he said.

He’s simply wrong. Maths lessons are the wrong place for financial literacy for a heap of reasons:

• They won’t reach everyone—arguably missing those who need help most.
• It confuses confidence with arithmetic with skills of managing money. They are quite different.
• Maths teachers want to teach maths, not personal finance. The curriculum is full.
• The idea that maths teachers are well placed to help young people with, say, the psychology of money, is illogical in theory and ludicrous in reality.

But don’t take my word for it, Mr Clegg. Here’s what Ofsted said earlier this year.

There were shortcomings in developing personal finance education through mathematics lessons. The focus was mainly on using personal finance education as a context for applying mathematical skills, rather than on developing students’ financial skills and understanding. The mathematics required rarely extended beyond basic skills, and teachers missed opportunities for students to develop and apply more sophisticated mathematics. Teachers often lacked the skills needed to hold class discussions about aspects of personal finance education where there were no right answers.

From Developing financially capable young people.

Quite.

Only the BBC news online seems to be taking it at all seriously—reporting the experiences of young people who’ve been let down and the frustration caused. It quotes Nigel Robbins, principal of Cirencester College in Gloucestershire, “There’s no sense of anyone seeming to realise how much of a mistake has been made.It is disgraceful.” 

A google news search just finds a couple of regional papers—presumably more in touch with actual experiences locally than the nationals—who mention it. They include the Lancashire Telegraph’s report on Tesco stepping in with vouchers to help.

It’s not a good sign if the government’s social inclusion policy is delivered through supermarket handouts.

To its shame, the magazine Children and Young People Now hasn’t referred to it since an anodyne piece back in early September.