en-us http://backend.userland.com/rss Your Friends @ Myvesta.org.uk (stever@myvesta.org) myvestaukblog_archive.html stever@myvesta.org 114306204128579641 So why do Britons hate their banks to be successful? HSBC this week reported record profits, reaping £11.9 billion last year. Cue wailing about excess, accusations of fat-cattery and calls for a windfall tax on banking profits.

HSBC is a global bank producing huge profits on which our pension funds gorge themselves. Surely its success should inspire a satisfied glance towards our pensions and a flutter of pride in a UK company being a global commercial power. Instead, the bank is on the defensive, sending out missives to reassure us that it has been nice this year as well as profitable. So what? Banks are not charities. HSBC’s profits are utterly unrelated to poverty in Africa. It is not the responsibility of Sir John Bond, the chairman, to ensure that the world is a better place before he has the temerity to unveil bumper profits.

All Britain’s big banks racked up strong profits growth, almost £34 billion between the big five. Much of this income is derived from overseas — only 20 per cent of HSBC’s profits are generated in the UK. But a sizeable proportion of all the banks’ profits is down to our apathy and our willingness to buy duff products with huge profit margins because someone at the bank tells us we need them.

How telling it is that the Competition Commission this week intervened in the store card market. In a rational Universe, the cards would have disappeared the moment that consumers realised they were being fleeced by interest rates of 30 per cent. But £2.3 billion is still outstanding on store cards.

The big banks are wise to our insatiable appetite for hopeless products. Overpriced loans, standard variable rates on mortgages, payment protection insurance (PPI) that pays out only when the Moon is in conjunction with Mars — we lap them all up. The Office of Fair Trading is investigating PPI worth an estimated £5 billion a year to the banks, after complaints that it is expensive and mis-sold.

Is it any surprise that we act so irrationally as soon as a financial decision looms? If we are willing to decry the very profits that we help to generate, while simultaneously hoping for decent growth on pension funds, then rational thought has clearly had its day.

Start them young to avoid a life of crippling debt

A TACTIC employed by the banks to great effect is to catch customers young and keep them for ever. Offer a student a free iPod to open an account and he’ll be a customer for life. But the battle for youth’s financial heart is becoming two-sided.

The Financial Services Authority (FSA), the chief City watchdog, this week launched the next stage of its project to improve the financial literacy of young people. The FSA’s mission to educate as well as to regulate has been criticised in the past, and at first glance the criticism is justified.

The grand idea is to encourage organisations with links to young people to be more “proactive” in communicating “financial capability pointers”. It is tempting to dismiss the project as baseless rhetoric, but the regulator is limited by funding and reach in what it can do. Its strategy will be to provide seed capital, training and advice to higher education institutions willing to push financial literacy. A pilot scheme at Roehampton University set up seminars, one-on-one tutorials and a range of other events to encourage students to control their finances.

The flaw in the FSA’s plan is that it depends on the support of universities and charities that work with the unfortunately named Neets (young people not in education, employment or training). But the alternative, a direct campaign to reach young people, would be costly and probably ineffectual. It’s painful enough watching politicians trying to be down with the kids; the idea of the regulator attempting it does not bear thinking about.

Carefully selected statistics accompany the FSA’s glossy vision document, jostling for space alongside pictures of kids having, like, fun, you know, in a financially literate but cool kind of way. One statistic is wrenching: 19 per cent of 22 to 24-year-olds have short-term debts of more than £5,000. As we report on pages 6-11, soaring debt, the runaway housing market and a dearth of savings are all issues for a generation that faces the prospect of higher taxes to fund the long retirement of the baby-boomers. Any attempts to equip young people with the skills to mitigate these problems must be welcomed.


Antonia Senior, Personal Finance Editor - The Times