Irish Financial Review

Not understanding PCP deals is just the beginning

A report carried in the Irish media today shows that Irish consumers don’t really understand PCP contracts. That is just the beginning!

Irish consumers also don’t understand:

  • Mortgages
  • Cost of credit
  • Investing
  • Pensions
  • Personal credit reports
  • The list goes on and on!

When it comes to money in general, Irish consumers score poorly across a broad range of measures when compared to many other European countries; PCP contracts are just the tip of the iceberg!

Irish consumers are particularly bad at asking questions in respect to money. For example, on areas of retirement planning, most fail to challenge investment advisers when it comes to the use of language, investment options, rates of return as well as  fees and charges. Separately, on everyday purchases using credit cards, many do not understand the enormous cost of using the minimum payment which can double the cost of purchases.

Financial confusion

Broadly, the core issue comes down to financial confidence; Irish consumers simply lack it in buckets. And who could blame them? At a recent pensions and investment seminar, the language used by the speakers was foreign, cryptic and confusing. Financial terminology that should be confined to the back-room of product development was used as a form of assault-and-disarm tactic:  PRSA, AVC, ARF, AMRF, BOB, the list went on and on. By the end of the 45-minute talk, the bobbing heads of the audience was more an expression of terminology numbness, not understanding and agreement.

Starting early

Financial education is key to preparing all citizens for a life with money. At its core must be language that is simple. For example, instead of using cryptic terminology to explain say pensions, a more engaging alternative would be to begin by explaining them as long-term savings and building on the complexity of choices available. This is how I approach the topic and it always works.

Financial confidence

Financial education also offers an opportunity to develop financial confidence, that is the willingness of people to challenge those that may deliberately or otherwise be inclined to over-rely on cryptic financial terminology…and this is the key to greater consumer understanding of setting and achieving their own financial goals and managing their money more effectively.

Frank Conway is a Qualified Financial Adviser and founder of, the financial education group. 

If inflation picks up, what is the impact on your retirement plans?

Inflation is defined as a general increase in prices and a decrease in purchasing power.

Factoring for inflation is key to retirement planning

For anyone nearing retirement, the threat of inflation presents a nightmarish scenario; fixed income being eroded in purchasing power value.

A majority of financial advisers across Ireland approach retirement from a financial accumulation perspective but not enough focus is placed on the devastating impact of inflation. And while inflation has been extremely muted in recent decades, it is something that always lurks in the shadows. To some degree, we all benefit from inflation as it represents a functioning economy; the European Central Bank targets inflation of about 2% as its key measure.

Across the world, especially in developed countries, inflation is an economic weapon that could be deployed to create a financial escape hatch for municipal authorities trapped by unattainable pension obligations. Without it, they will be forced to raise taxes, redirect funds from current spending or default in the years and decades ahead.

But back here to Ireland, what if inflation did tick upwards and become a more prominent feature of our day-to-day lives.

The decreasing value of today’s money in the future

Let’s say you have €40,000 on deposit with a bank or credit union today. You leave it on deposit because you cannot get a mortgage to purchase an investment property and you don’t fully understand stock-markets, bonds, mutual funds or alternative investments or the risk they carry. It takes a lot of working hours to accumulate €40,000 from net income. So, deposits are cash, cash is king and you can get it when you need it. Or that is what you tell yourself. But in reality, cash in this case is a leaking ship that is sinking in value. Here’s why.

Let’s say for a moment that inflation is running at 2.5%. This means the value of your money is eroding at 2.5% per year. So, in the first year you have that €40,000 on deposit, you lose €1,000 of it through inflation. If you had taken that €1,000 and burned it, you would see that loss immediately but because inflation is a silent killer of the value of money, you don’t notice it. It’s like natural gas; we can’t smell it or see it but it has a devastating impact all the same.

Each year, that pot of money falls in today’s value.

If we consider the value of the money over a 20-year period, the loss continues and the purchasing power value of that €40,000 in today’s terms continues to fall each year.

The value of €40,000 in today’s terms will fall to just €24,410 in 20 years time if inflation remains at 2.5%. In other words, in 20 years time, that money will only buy you what €24,410 would buy you today. It would be the equivalent of walking into a shop today, handing over €40,000 to purchase €24,410 worth of goods and receiving no change.

Inflation is a corrosive force on the value of money and it is what every money manager worth their keep should be striving to counter if they really do put the financial wellbeing of their clients first.

If inflation rises to 3%, what happens then?

Using that same €40,000 example, if inflation were to rise to 3%, the value of today’s money falls to just €22,147 or in percentage terms, it decreases by 45%. In other words, the value of the money decreases by almost half.

OK, but how much will you need in the future?

This should be a major concern for anyone remotely considering their future financial needs.

If we take someone today that requires an annual income of €40,000 to live, to have a home, pay for day-to-day living costs, in order to enjoy the same standard of living in 20 years time, assuming for inflation at 2.5%, they will need €65,544.

For someone still in employment, that might be achievable through wage inflation. However, for anyone in retirement, on a fixed income, even if they are financially comfortable today, they face the real prospect of a fall in living standards. Don’t be fooled by those that might argue that mortgages will be repaid and kids will have all flown the nest and become financially independent. In reality, other life factors come into play; health is a major one.

What if inflation is greater than projected, how much will be needed?

If inflation rises to 3%, that €40,000 you need today grows to €72,244 in 20 year’s time.  If you need €50,000 today, at 3% inflation, you will need €90,305. The numbers only go one way, up!

Future proofing

The future will always present risk. Some of it can be mitigated through financial planning. For example, the biggest financial risk in retirement comes with the cost of medical care, one can have medical insurance but there will be out-of-pocket expenses which can add up and drain a fixed income depending on the medical condition. Across the world, authorities are recognising the impact rising healthcare costs are having on public and private services. A major factor in those costs derive from lifestyle health issues, including obesity, diabetes, high blood pressure and heart disease; health issues that are easy to manage and control through diet and exercise.

For those seeking a relatively comfortable life in retirement, they need to consider what they can plan for. When it comes to their financial needs, they must factor for inflation and at current returns, placing money on deposit will not keep pace with modest levels of inflation; investing can, provided it is managed efficiently. They should also bring their long-term health situation into their plans and look for ways of limiting a potential financial black hole.

Frank Conway is a Qualified Financial Adviser and Founder of

Simple steps to managing back-to-school costs

For back-to-school costs, debt is not the main issue, it’s how debt is managed!

Managing back-to-school costs is essential

It’s that time of year and with many of the leading consumer brands airing their back-to-school offers, parents will find it hard to escape that the season of spending is upon them.

According to a number of timely surveys, the cost of back-to-schools can range from €1,000 to €1,300 per child depending on whether they are primary or secondary school students. In fact, some of the reports succeed in painting a financially distressed situation for lots of hard-working parents across Ireland.

Raising children is expensive, there is no escaping that.

But what can make the overall cost a lot higher is how debt to cover the cost of back-to-school is managed.

Understanding and minimising the cost of debt

For example, if a parent borrows just €500 on a credit card to cover some of the cost of the back-to-school purchases, if those are repaid quickly, the cost of interest can be minimal, perhaps as little as €20 or €30 if repaid over 3 – 4 months.

However, if the €500 debt is repaid using a minimum payment option, the total cost of interest will be much higher. In fact, it could cost close to another €500 in total interest charges and take anywhere up to 7 – 10 years to repay in full depending on the type of credit card, the total cost of interest and the minimum payment stipulations.

When it comes to moneylenders, the APR quoted (this is the real cost of money expressed on an annual basis) is expensive. Even those regulated by the Central Bank of Ireland quote APRs’ close to 200%; personal loans typically cost about 12% APR. For some families, these are the only options available because they may not have the credit history to qualify for a personal loan, overdraft or credit card. If moneylenders are used, it is important those loans are repaid on time in order to ensure against late fees and penalties which can push up the cost of borrowing significantly.

Planning is key!

Ultimately, planning is the key to managing back to school costs. For parents, it is the central to ensuring they have sufficient money saved to cover all of the back to school expenses and avoid the use of credit to bridge any gaps. But in order to put a sound savings plan in place, it is important that parents identify how much they need to save each month and for how long. If for example, they can save €50 per month, it will take 20 months to save €1,000. If they can save more, it will take less time.

Pinching the pennies

For parents that are facing the back to school crunch, some simple tips they need to keep in mind:

  1. Use credit wisely – overdrafts and credit cards are among the most accessible forms of credit available to parents. If they need to use them, ensure they stay within their credit limits.
  2. Pay on time each month – if they don’t, this can impact their personal credit scores.
  3. Repay sooner than later. When it comes to credit card debt, if borrowers can repay over a few months as opposed to using the minimum payment option, they can cut the cost of interest substantially.
  4. Claim back where they can – annually, an estimated €700 Million in medical expenses tax relief goes unclaimed by Irish people. It is a simple process to reclaim so for families that have not done so, reclaim where they are entitled.
  5. Use book rental and shop early – Many schools operate very successful textbook rental schemes to managing the cost of books in primary schools. Additionally, for parents, it is also essential they shop early for uniform, clothing, footwear and other stationary costs; last-minute pressure buying can mean missed value and increased shipping costs if forced to buy from online or remote sellers.

Back-to-school time is expensive for all parents but with planning and careful management, those costs can be managed to ensure parents do not pay over the odds.

Frank Conway is founder of, the financial education initiative. He works with parents, students and schools across Ireland in the promotion of better money habits.

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