Personal financial management

One thing that has become fairly clear as much of the world slipped into recession over the past two or three years is that the way we manage money has to change. Of course we have heard much about the mismanagement of financial matters by some of the world’s top banks, and we also know (in Ireland in particular) how unrealistic property investments can subvert the entire economy.

What we don’t perhaps say often enough is how this spirit of financial mismanagement has over recent years permeated everything, including personal finances. By 2004 personal debt in Ireland had exceeded disposable income, and credit card debt had risen to €1.8 billion. More recently in the UK, during the second quarter of this year banks had to write off a staggering £2.1 billion of bad credit card debt – just in one quarter.

In the meantime in the United States, a recent report listed some of the extraordinary ways people build up credit card debt, including a woman who spent $30,000 of money she didn’t have on a premium rate telephone hot line offering psychic services.

It is perhaps worth noting that the spirit of financial mismanagement, gambling and reckless business decisions that have crippled some high profile banks are nothing more really than the spirit of personal mismanagement that can be witnessed all over the place, writ large. This isn’t about people struggling to make ends meet and spending more than they had because they had no option, this is about people doing crazy things with their money and building up crazy debts.

It is clear enough that the world’s financial systems need to be overhauled; but this might usefully take in the way in which people are allowed or encouraged to manage their personal finances.

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One Comment on “Personal financial management”

  1. Vincent Says:

    The banks are buying money for credit cards at say 4% and are lending at 18-20 or even 26%.
    They have factored in the bad-debt into their numbers.
    The real question is not the debt default but whether the ratio of profit is good for their customers for there is ever the notion that they are pricing in factors which held little relationship to the APR they were charging.
    Why charge you the same as say someone just above the minimum wage, the risk is not the same. And if they are charging those they know can pay in order to play some Pro Bono community rating card with those the are far more risky. Why then are the APR so darn high.

    And Moral hazard my eye, the reason the high profile banks are high profile is that they went out of their way to push credit much like the fag companies pushed cigarettes. For heavens sake, I was recruited at 13 to AIB while at high school.


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