Managing My Money

Week 4: Debt and Borrowing - Part 1, Episode 7

Share Radio & Open University Business School

'Luck is what you have left over after you give 100%''.

Langston Coleman

Welcome

to Managing My Money presented by Glen Goodman and Annie Weston

Debt, and paying interest

Martin Upton

explains how personal debt has nearly quadrupled to £1,500,000,000,000 over the past twenty years

'A reality wake-up call'

Sources of debt

• Credit Cards
• Bank Overdrafts
• Personal Loans
• Payday Loans
• Student Loans
• etc ..

Seventy year history of debt since WWII

• Home ownership, fuelled by mortgages
• Credit cards: a banking innovation
• Many other forms of personal debt
• Also: public sector debt, to fund welfare state

Mechanics of debt

• Principal: what you borrow
• Interest: regular cost of using the money
• Repayment: either as regular instalments, or at the end
• Compensation for risk of lending to you, and inflation

The hidden cost of compound inflation & compound interest 

Compounding -

how a Home Improvement Loan for £5,750 turned into a debt of £384,000 over 15 years

Read the small print -

check on what basis you're paying interest - e.g. daily or annual - it can make a big difference

Setting Interest Rates

• Bank of England
• Monetary Policy Committee
• Linking interest rates to inflation expectations
• Andrew Bailey, B of E Governor

Nominal and Real Interest Rates

Next:

Listen to Part 2 of Week 4 on Share Radio - then take the Week 2 quiz/test. As you take each week of the course, your results will build up on your personal dashboard.

Managing My Money

is broadcast by Share Radio and is based on the Open University Business School online course of the same name.

Your presenters are Glen Goodman and Annie Weston.