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Banks taken to account

You can often tell when a newspaper executive has come into collision with the dark forces of the financial services industry by the way his or her newspaper launches a “campaign” against a particular “sin” committed by its practitioners.

That may explain why, in recent weeks, one paper whose personal finance pages I edit has been running a campaign against extortionate bank charges. Equally, it may well not be the reason, after all as the issue is in the news at present.

Either way, I have spent a lot of time interviewing those affected and explaining in detail about how they have been ripped off.

One of the interesting things has been the average age of the bank customers I have been speaking to. Most are in their 20s, with only a few over 40. The only “thirtysomething” was a mature student studying for a professional qualification.

Almost without exception, what happens is that a young man/woman goes to college and runs up huge overdraft, most of it “free”. If charges are levied on an unauthorised overdraft, this tends to be sheepishly accepted as par for the course, the financial equivalent of your mum sending you to bed without being allowed to watch telly.

When students leave college, their problems are not over. They may find a job but the first few years in work are usually fraught, money-wise. They are probably not earning enough, yet still need to find dosh for things like rent plus sensible clothes, a car and other paraphernalia that 22 or 23-year-olds regard as vital.

It is at this point that the banks zero in. Forget all the old stuff about “counselling” and student advisers ready to discuss your budget, you are on your own. Step outside the overdraft parameters set by your bank and you get clobbered by heavy charges, many of them cumulative.

Let us not forget that in the meantime that the average former student is still carrying a huge debt overhang on which interest must now be paid. The result is that banks make piles of money from formerly cosseted students right into their 30s.

So it is no surprise that a report by uSwitch, the comparison service, found that over six million of Britain’s 18-29-year-olds – a staggering 71 per cent – have an overdraft facility on their current account, that their average balance is 650 in the red and almost two-thirds are regularly overdrawn, 30 per cent permanently.

Some of that can be laid at the door of the ex-students themselves. Many are incapable of managing their financial affairs.

But it is equally the case that the way the banking industry operates is also to blame. It makes its money by luring students into a dependent relationship while still at college and then extracts its pound of flesh many times over for a decade after they leave.

The result is a fascinating cultural shift – today’s generation of “twentysomethings” cannot afford to buy a property. They get married later, they have children later, they do not save for a pension because they do not believe they have the spare cash to do so.

What does that have to do with humble IFAs? Well, the consequence of this approach by the banks has an impact on the wider financial services industry in two ways.

One is that the first major experience of 20-year-olds with the world of personal finance is overwhelmingly negative.

The second consequence, happily, is more likely to benefit IFAs. As these same people move into their 30s and 40s, have some money available and do take financial planning more seriously, the one institution they are least likely to go to for advice on any financial matter is their bank.

Quite where that leaves the Government’s avowed wish to see banks selling zillions of stakeholder products to their hapless customers is a good question.

The good news is that it leaves the field open to you. Use it wisely.

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