Funding the future...
Charlie Weston on how parents can keep their finances in check
EIGHT out of 10 parents say the cost of getting children prepared for going back to primary and secondary school is a significant burden, according to the findings of a recent Irish League of Credit Unions survey. Top of the list are school uniforms followed by books and school lunches.
What is key is that an overwhelming majority of household budgets are being placed under enormous pressure resulting in about a third of Irish parents finding they have little option but to borrow money in order to make ends meet and cover back-to-school costs, said Frank Conway, founder of MoneyWhizz.org, the financial literacy initiative, and editor of the Irish Financial Review.
For those that are forced to borrow money, it is essential that they do so as cost effectively as possible to ensure that items which they could not afford in the first place don't end up costing them a lot more in the long run through debt, he said.
The following are some practical steps recommended by Mr Conway that families can take to ensure they keep their finances in check during the back-to-school period:
1 They must build up a rainy-day fund. This is only possible if families constantly review how they manage their day-to-day expenses and look to reduce costs. For example, personal income and expenditure sheets will deliver families visibility of how and where they spend their money; these can serve as a basis to question those costs. This ranges from the cost of car fuel, kids snacks, smoking, insurance, gas and electricity... the list goes on. Questioning the costs and finding ways to reduce or even eliminate them will mean that fewer families have to turn to debt (and moneylenders) when the back-to-school crunch arrives.
2 If debt is required, they should pay off the full amount as soon as possible. This is critical. If we use the example of a school uniform that costs €250 and it was purchased using a credit card and the family repaid using only the minimum payment, that same school uniform will cost much more. How much more? Well, try close to 100pc more if the rate of interest on the credit card is 19pc and the minimum monthly payment is 2pc of the outstanding balance. The lesson here is the longer families take to repay debt, the more that debt will cost in interest payments.
3 Remember to maintain a good credit history as this will ensure families have the best chance of accessing the cheapest borrowings in the market. There is a new credit reporting system coming to Ireland called the Central Credit Register. It will see all creditors across Ireland reporting their borrowers into this new system, including credit unions. Remember, there is no hiding place if families do not pay back their debt on time.
4 Fees and charges - avoid them. In that same Irish League of Credit Unions survey, some families said they would have difficulty paying household bills. If this also includes late payments on debt, this will incur a range of late fees and charges which can add up really quickly and when combined with interest charges, make any borrowings punitive.
5 Time - give enough time to shop around for the best back-to-school deals. Some families are really disciplined in this area and those that are usually spot the best deals when they come along. The best shopping tricks combine online and high street. Yes, as kids we all hated the back-to-school ads but now that the shoe is on the other foot, with costs still rising, bring on the ads, bring on the deals and bring on the savings.
Planning ahead is key and recognising the deals when they appear is, well...priceless, Mr Conway said.