As part of our week-long series Ireland's Squeezed Middle, CONOR POPEpresents the first of a series of survival guides: how to take control of your finances
WITH WAGES falling, taxes rising and some gloomy economists predicting that we have at least 20 years of austerity ahead of us, is it any wonder most of us feel pretty glum when we look at our finances. While it is not true to say “we all partied” during the boom, it is certainly true to say we all have the hangover.
While there are no magic bullets with which we can slay the debt monster and few ways most people can dramatically increase their income while simultaneously reducing their outgoings, there are simple steps which many people can take in order to regain control of their finances.
And, if the money experts are to be believed, the feeling that you are taking steps to regain control can be enough to make you feel more optimistic about the future. And a little bit of optimism would go a long way in Ireland right now.
People are terrified of letting the health insurance that they believe protects them and their families from the intolerable waiting lists of the public system lapse. However, with prices increasing as often as three times in a single year, many consumers who are seriously strapped for cash are starting to think they have no alternative but to abandon policies which may be costing families in excess of €2,000 a year.
A recent survey by the Irish League of Credit Unions found that 9 per cent of those polled said they would be forced to abandon their health insurance this year because they could no longer afford it. An even more depressing 31 per cent said that if prices increased again this year, they would no longer be able to afford it.
While the situation is bleak, it is not as bleak as many people assume, according to Patrick Brennan of Irish Health Insurance, a consultancy which helps people plot their way through the complexities of the Irish insurance system. He says there are many ways in which people can save money and ensure they have, broadly speaking, the same level of cover without being forced to cough up money they no longer have for it.
The key, says Brennan, is to examine the policies forensically, to be prepared to pay excesses to get access to certain hospitals and strip out the elements of policies which are either not essential or do not represent value for money.
“During the boom years a lot of people looked at their policies and decided they wanted something back, so more and more day-to-day benefits came on stream. People wanted cash back for GP visits and other extras so policies were tailored to meet that demand. What people who are looking to make savings should do is leave aside the add-ons and focus on good hospital cover,” he says.
If someone is happy to take on an excess for in-patient care in the private and high-tech hospitals and is willing to cover a €2,000 shortfall should they need certain orthopaedic procedures, then they will be able to see the cost of a policy fall from more than €1,400 to around €800 a year, Brennan says.
He gives another example of an even greater saving that can be made. The VHI’s Forward Plan Level 2 offers money back on GP visits costs a pretty hefty €2,055 for an adult. That same level of cover, albeit with a requirement to pay the first €2,000 for orthopaedic care and an in-patient excess for day cases and overnights in private hospitals of €75, is available with Aviva for €974. A couple taking out such a policy will save over €2,100 in a single year – or the cost of the orthopaedic shortfall (which may never be needed once your joints are in good shape) in just 12 months.
“I think it is important that people remember they may never have to pay an excess. Today the message is all about how crazy the prices are but there is still good value to be found if you know where to look.”
Even Brennan, who is an expert, accepts that looking can be very hard. In the 1980s when the only player in the game was the VHI, there were maybe six or seven different policies people could choose from. They went from A to E and a child could work out the differences.
Today there is around 200 different policies on the market and Brennan says the system has become a “nightmare to navigate”.
He points out that by doing some research and asking the right questions of the right people and focusing on excesses and exclusions, a lot of money can be saved.
Psychologist Mark Harrold thinks a lot about money and how we spend it. And he says that one of the reasons we are collectively struggling to come to terms with our new reality is that both the good times and the bad times were so unexpected and so unprecedented.
He held a stress management course in Malahide, Co Dublin late last year along with a colleague and expected 30 people to walk through the doors. On the night, 170 stressed-out people signed up, with dozens of others left out in the cold because there wasn’t even standing room left in the large conference room where the event took place.
In the past, Harrold wrote extensively about how Irish consumers were coping with their new-found wealth and now he is concerned with how we are coping with the loss of that wealth.
“Many of us have had to give up certain things and for some, these possessions, whatever they might have been, were inextricably connected to their sense of self-worth and status which is why it has been so traumatic,” he says.
Harrold believes that consumers are struggling to accept that many of the things they took for granted – multiple foreign holidays, regular nights out, new cars, shopping in high- end supermarkets – are gone and quite possibly gone for good.
“In addition to having to recalibrate our expectations, we are struggling to deal with the constant gloom in which we are told that not only are we going to have to pay for this but so are our children,” he says.
When Harrold was a child in the 1960s and 1970s, his family used to travel from the Navan Road in Dublin to holiday in their granny’s house in Malahide and they were happy to do that. Without getting all Monty Python on folk, he had it tough compared to his own children, so maybe that should be acknowledged and people should be upbeat that however bad it is, we’re not taking cattle boats to England and spending our holidays in tents in unfortunately named towns like Boyle and Killmucridge?
Yes and no, he says. He believes that in spite of the bust, things are certainly better for this generation than they were for past ones, but he also says people can be forgiven for not willingly accepting that their future will be filled with the bleakness of times gone by.
“What we don’t have and what we never had, we don’t miss but the middle-classes in Ireland can very easily remember what they had five years ago and the standard of living did rise dramatically as did our expectations. People assumed we would have all the trappings of an affluent society forever and that hasn’t been the case.”
When the Taoiseach Enda Kenny went to Davos and told an audience of our European cousins (or overlords) that the problem with Ireland’s economy was that “people went mad borrowing” in a system that spawned greed, went out of control and crashed, people went berserk. Kenny was practically lynched by political opponents, Liveline callers and tabloid news editors upon his return despite the fact that there was more than a grain of truth in what he said. Granted personal debt is not the biggest crisis we are dealing with but it is certainly a major problem.
Many of the people who are drowning in a sea of personal debt are like rabbits caught in the headlights and have absolutely no idea what to do.
They have no idea how much money is coming in, where the money that is coming in is going and who needs to be paid first. And, crucially, who can be put on the long finger.
This is where the Money Advice and Budgeting Service (Mabs) comes in. The demographic of people contacting the service has broadened considerably in recent years, according to spokesman Michael Culloty. He says someone trying to get their head around their failing finances needs to stop panicking and make a plan.
“The first thing we do is give people a spending diary and send them away for a month after which they will have a good idea where their money is going and what is left when all essential spending is taken care of,” he says.
Once people know what they have to spend on their debts they must prioritise.
Food, utilities and rent or mortgage are the big three after which people can start focusing on unsecured debt. Too frequently, people get their priorities all wrong and pay off their credit card debt first simply because those companies are the ones who are most aggressive in pursuing those in arrears.
“Once people have a plan they should contact their creditors and make proposals on repayment plans. This puts people back in control,” says Culloty. He suggests contact is limited to post or email because there is a power imbalance when such contacts are made over the phone or face-to-face.
“The debtor is feeling ashamed and vulnerable and can often not be given time to reflect if conversations about repayments take place over the phone.”
Many people when drawing up spending plans leave out trips to the pub or visits to the zoo with the kids but Culloty points out that essential spending does include an element of socialising – a fact highlighted by the Standard Financial Statement that banks make people, who are applying to restructure their loans, fill out.
“If your budget is too tight and does not include any kind of social outlet then it will not be fit for purpose and will ultimately break,” he says.
The average Irish family spends around €10,000 a year in supermarkets. The average Irish family throws out around a third of the food it buys. The maths is very simple: by buying less and by shopping more carefully, Irish families could save thousands of euro each year.
They could save themselves even more by being smarter about where and what they buy says Fiona Looney who set up smartshopper.ienearly five years ago. The site checks the prices on 250 commonly-purchased products each week and highlights where the best value is to be found.
It also carries details of special offers and promotions from all the main supermarkets and allows subscribers (who pay €11.99 a year) to print off their own shopping list which displays where the best deals can be found week to week.
“Consumers should have no loyalty when it comes to supermarkets,” Looney says. “The average Irish family could easily save themselves €2,000 a year by being smarter with their weekly shop.” She says the most canny shoppers go in search of everyday non-perishable goods which are on special and then buy in bulk.
“The other trick is to make lists and then stick to them and resist buying stuff that you don’t need,” Looney says.
She says that for people to make real savings, they would probably need to spread their shopping over three or four of the big supermarkets every week. This all sounds like a lot of hard work but Looney says the savings are worth it.
“There has also been a shift in the range on quality on offer in the German supermarkets in the past couple of years,” she says.
Then there is the option of switching from brands to own-brand. By switching just a handful of products people can save themselves a packet.
A two-litre container of milk with a recognisable brand name costs around €2.19 while two-litres of own-brand milk in SuperValu costs €1.49.
So if you go through two litres daily – hardly excessive for a family – by making that one simple switch you can save yourself €219 each year. On milk alone.
Frank Conway is the Money Coach or at least is the man behind moneycoach.ie. Business, he says, is good, with a lot of people coming through the door up to their eyeballs in debt and struggling to make ends meet. He also finds himself being something of a confessor to people embarrassed by their inability to pay their bills.
“People seem to be afflicted with enormous guilt because they can’t pay their bills and that is just adding to the stress,” he says. “People need to remember that a lot of what has happened to them has been way beyond their control. It is not that people won’t pay their bills, it is that they can’t pay their bills and there is a big difference there. It is okay to be in a difficult situation.”
He says that while he has a lot of time for Mabs, it does not serve the squeezed middle-class as well as it might, perhaps because it is already overworked.
He says that while it is difficult to save money on a mortgage – largely because moving from company to company is now next to impossible – people who can’t make their repayments do have options, including interest-only for a period, extending the length of a mortgage and taking a mortgage holiday.
“I know that consumer advocates will say that all of these options ultimately end up costing more and they are right but for some people, it is about getting from month to month right now”.
When it comes to insurance products he believes there is more scope for saving money. He says the key thing is for people to understand the policies they have and to always ask if they meet a need and represent value for money. People, he says, rarely “analyse the components of their insurance policies” and those who want to get their finances in order “need to know and understand exactly what it is they are paying for and review the need to pay for it.”
When it comes to shopping around, Conway believes there is more competition in the life insurance market than ever and people could knock between 10 and 20 per cent off their annual insurance bills by making a few calls.
Conor Pope’s Recession Survival Guide continues all week in our series Ireland’s Squeezed Middle
