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

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.