Irish Financial Review

How to save €1,000 in 90 days…just in time for Christmas

With 3 months to go ‘till Christmas, it might seem a little too early to be thinking about what to buy, but nothing could be further from the truth. In reality, you have just enough time to save yourself from taking on a pile of expensive debt!

Planning for Christmas is central to reducing the cost of borrowing

Christmas is an expensive business. Irish families are estimated to spend a whopping €2,000 or more on Christmas. For a select number of families, Christmas may be a breeze but for many, it can lead to significant overspending. And to make matters worse, for those that borrow to pay their way, Christmas will cost a whole lot more when the expense of interest charges are added on, regardless of whether they borrow from their bank, credit union or through the convenience of a credit card. In fact, on this point, if they use a credit card to fund their way, that €2,000 Christmas spend will cost an additional €2,800 in interest charges alone (based on an 18% rate of interest, 2.5% / €5 minimum payment threshold). In other words, Christmas 2018 won’t end up costing €2,000; it will actually cost €4,800. And to put the icing on the cake, it could take up to 24 years to repay meaning that Christmas 2018 would still be part of the family budget in 2,042. Ouch!

So, best to invest a little time and look for ways to save some cash! With 3 months to go, time is on your side! Here goes:

Dine for less – If you eat out, STOP! It’s killing your budget!  Breakfast, lunch, dinner or all of the above! Here, it’s easy to save €7 per day on just lunch and snacks by bringing a packed lunch. So, cut down, cut out and cut back on snacks, lunches and eating out. At 5 days per week, that’s an easy saving of €420 over the next 3 months!  

Wipe out the waste – Irish households are estimated waste between €400 – €1,000 per year on unused food. So, let’s split the difference and call it €700. On a monthly basis, this works out to €58.33. Multiply that by 3 months and it could add a significant €175 in your Christmas fund.

You are over half way to your €1,000 Christmas goal. Keep it up!

Claim your rights – every year, hundreds of millions of Euro on medical expense refunds go unclaimed. The reason: people simply don’t file. And the value of those refunds is estimated to be worth between €130 – €300 per household. Families could be looking at an easy €200 refund. For your Christmas fund, you are now coasting to €795 saved!  

Drive for less – Irish motorists drive about 17,000km per year. So, if we just apply the benefit of shopping around for lower fuel prices, the average driver could save in the region of €50 over a 3-month period by simply using one of the online fuel comparison sites that display petrol and diesel prices locally, regionally and nationally. You have just driven your savings up to €845.

Reduce the booze – Alcohol (and other spending). According to the Central Statistics Office, the average Irish household spends about €28 per week on booze and cigarettes. So, while we are not advocating total abstinence, we are suggesting a 50% reduction which would net savings of about €168 over the 12 weeks to Christmas. Nice! It also means the Christmas fund is now a cool €1,013. You have reached the goal.

But there are still more ways to save

Moderate the gambling – As a nation, Irish people lose on average €470 per adult per year. This works out to about €118 over a 3-month period which if doubled is a crazy €236. In fact, that gambling loss statistic relates to online gambling, not monies spent on National Lottery gambling. Here, a simple play in the National Lottery costs €4. For families that play twice per week, this adds up to an additional €96. If two people in the household play, the figures and potential savings top a whopping €192. So, if we factor all gambling spends families could save a massive €428 over that 3-month period.

Total savings potential for Christmas = €1,441. 

Check the gaming – this is not a new phenomenon but it is a relatively un-discussed one.  Recently, while assisting a family with their chronic lack of available funds, they said they felt constantly “broke”. After examining their Income and Expenses details, I pointed out that the monthly spend of between €300 – €500 on online gaming was the cause of their ongoing financial difficulties. It was a spend they found difficult to wean their children off, which is why they were hopeful their bank would extend mortgage forgiveness. They didn’t!

Making money and spending visible – the trick to good money management is through making spending visible. It is easy to forget what we spend if we fail to carry out periodic checks on how we spend. At a minimum, an annual spending review is a great way to check how we manage our money. It is especially important if there are important financial goals.

An Post mortgages – a business model that requires a lot of scrutiny!

By Frank Conway

An Post is reported to be a conduit for a potential mortgage underwriter.

Whether or not mortgages costing 1% or less than existing lenders actually launch here in sufficient scale to make a real difference is eagerly anticipated by consumers, Government and a host of other stakeholders.

 

The mortgage approval process is complex and carries risks for borrowers and lenders.

It’s just about 20 years since Bank of Scotland (Ireland), BOSI entered the Irish market to lots of fanfare. Back then, there was similar demand for mortgage competition.

BOSI came prepared. Armed with its “tracker” mortgage arsenal, the UK lender meant business. Through the broker network, BOSI quickly gained market share and disrupted the market with what was the closest thing to “below cost selling”. Consumers and commentators loved it. The tracker phenomenon became part of folklore reaching icon status with the “I don’t know what a tracker mortgage is” in a series of awareness campaigns promoted by the Financial Regulator.

It was a Cinderella moment. New arrival makes good for all. Except of course, it wasn’t to be.

The collapse of Lehman in the US and the ensuing global credit crunch exposed financial truths everywhere. Below cost selling in the mortgage market collapsed under the weight of economic reality. And when the financial reality of tracker mortgages hit the drainage ditch, BOSI bolted!

Rather than stick around and work with struggling families, the UK lender high-tailed it out of Ireland for the warm embrace of the UK homeland. Granted, it did get some stick over there for its failed business model but having introduced an unsustainable mortgage market here in Ireland, bolting proved easier than sticking around for the long-term.

Today, there is a renewed call to “take on the banks with competitive mortgages”. Last year, Sparkasse, the Germany public banking network was reported to be exploring entry into the Irish market. Editorials in some national media wrongly stated the German mortgage giant was contemplating mortgages that would severely disrupt existing Irish lenders. But the reports were wrong. Sparkasse quickly poured cold water on the idea of introducing German-based mortgage rates into the Irish market. Their top people pointed out that universal pricing did not exist even in Germany, that mortgage costs varied depending on “local conditions”  and that “local factors would need to be built into the pricing model”; the Germans proved too savvy to fall for this old pricing trap.

Regardless of whoever enters the Irish market via An Post, if they enter at all, they need to carry out extensive due diligence. This will require in-depth analysis of the risks and not merely an expanded version of a glance across the Competition and Consumer Protection Commission (CCPC) website for today’s mortgage rates. Like an iceberg, the mortgage market carries a complex set of risks that endlessly lurk below the waterline; get it wrong and an entire business model can be sunk. Get it right and one might still be lucky to squeeze out a profit…after a lot of years!

Mortgage competition is healthy. Perhaps in the Sparkasse business model, there is possible solution; a State bank! But for now, simply defining the future of a robust and competitive mortgage market through the lens of rates and APR’s puts us all at risk of repeating the mistakes of the past. It is not competition we need, it is sustainable competition!

Frank Conway is Founder of MoneyWhizz, the financial literacy initiative, a Qualified Financial Adviser and former mortgage underwriter. 

Educating college students on their personal credit profile

It’s nearly there!
Finally, the long-awaited Central Credit Register is about to take another step forward as the primary source of credit and credit repayment information across the State.
For those of you that may not be fully familiar, the Central Credit Register is the new credit reporting database that was set up following the Irish bailout and intervention here by the so-called Troika (The EU Commission, European Central Bank and IMF). It essentially was designed to replace (and duplicate) the work of the Irish Credit Bureau, the only other consumer credit reporting database in the land. For the Troika, the ICB was unacceptable as the sole provider of credit data since it was owned by the credit providers (banks, credit unions etc).
The CCR is being managed by Italy based Crif, who up to now have been a junior partner of sorts in the data management of the ICB, where it provided credit scores to Irish banks. Credit scores have become the linchpin of modern credit analysis for lenders, employers, landlords, car insurance and even hospitals through the delivery of a simplified, condensed 3-digit summary code of how we all manage credit. In Ireland, the CCR says it has no plans to provide credit scores, but it doesn’t need to; other firms can! Companies like Crif and Fair Isaacs (FICO) are world leaders in this space. They can take all available credit data and condense it down to that 3-digit summary of how people pay their bills and if they have made recent loan enquiries or even, if there have been changes in the way they repay their loans.
Beginning September 30th:
  • All lenders considering consumer loan applications of €2000 or more will be obliged to enquire on the Central Credit Register for a credit report.
  • Credit reports are available free of charge for consumers.
  • Credit reports include information on credit cards, mortgages and overdrafts and personal loans since 30 June 2017.

 

Central Bank of Ireland

All lenders considering loan applications of €2000 or more will be obliged to enquire on the Central Credit Register for a borrower’s credit report. In addition lenders may obtain credit reports if borrowers seek to restructure a loan, are in arrears on any loan repayments, or are seeking a loan under €2,000.

Lenders have been submitting information on credit cards, mortgages overdrafts and personal loans to the Central Credit Register monthly since 30 June 2017. Credit reports are available free of charge for consumers (subject to fair usage), and will contain information on these types of loans.

Moneylenders and local authorities have been able to submit information to the Central Credit Register since March 2018 and may also now make enquiries. Information on hire purchase and Personal Contract Plans (PCPs) will be included once legislation has been amended.

The Central Bank is committed to serving the public interest by safeguarding monetary and financial stability and working to ensure that the financial system serves the needs of the economy and its customers over the long term. The Central Bank uses the Register to get better insights into the overall level and patterns of lending in the economy.

Information on lending to businesses has been submitted to the CCR since 30 March 2018. Business loans will be included on credit reports once data quality can be assured.

National Education Programme

MoneyWhizz, the financial literacy initiative based here in Ireland is teaming up with leading 3rd level institutions on the significance of developing and maintaining a positive personal credit profile. A series of talks and guides have been prepared to educate them on the growing importance of their personal credit profile

Lessons include:

  1. What personal credit reports are
  2. The data they collect
  3. The time period credit data is maintained
  4. The difference between a credit report, credit profile and credit score
  5. Ways and means of protecting a personal credit profile
  6. How credit data can be used and applied in Ireland and beyond (USA, EU, UK, Canada, Australia).

For further details, please visit www.moneywhizz.org

 

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