Granny O'Keeffe made a remarkable social ascent from her childhood in a Liverpool orphanage to retirement in a cosy semi-detached in the suburbs, and passed on one gem of financial wisdom to her offspring. "I may have been poor," she said, "but I've never been a penny in debt." Some of the wisest minds in history have offered similar advice. "Neither a borrower nor a lender be," warns Polonius in Hamlet. "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness," calculates Dickens's Mr Micawber before being carted off to debtors' prison. "Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
If these wise old birds are right, then modern Britain is on the verge of an awful lot of misery. Brits, emboldened by low interest rates and easy access to credit, now accept living it up on borrowed cash as a way of life. In September, we borrowed a record £10.7bn, with £168.4bn in consumer debt still outstanding. We owe an average £5,000 each, not counting mortgages. Consumer debt is rising by 14 per cent every year, and levels of personal debt are rising twice as fast as income.
So concerned is the government that in October 2000 it set up a task force on tackling over-indebtedness. Its first report noted a "cultural change in society", from a "save first, spend later" approach to one of "borrow now and repay later". The governor of the Bank of England, Mervyn King, added his voice to the growing chorus when he announced the first interest rate rise in four years this month, remarking sternly: "Everyone needs to think carefully about the amount of debt they can afford."
The financial services industry is most to blame for creating a credit culture. The task force report linked indebtedness to an "overt trend in marketing towards emphasising the ease, speed and scale of credit availability, and offering incentives and inducements to borrow". Such tactics, it argued, present a misleading picture of easy money; the practice "runs counter to the message that borrowing needs to be thought about, earned and repaid".
Last month, the House of Commons Treasury select committee questioned five bank chief executive officers about misleading credit offers and high rates of interest. During the hearing, the Barclays CEO, Matt Barrett, admitted that he advised his own children against borrowing on Barclaycard because it was "too expensive". Meanwhile, the Royal Bank of Scotland was found to have sent an application form for a gold card, which carries a £10,000 credit limit, to a dog called Monty.
Dog-lovers need not worry that their profligate pets might be similarly targeted. British law is about to catch up with reality, though it has taken a while; the select committee commented on the "snail's pace" at which the Department of Trade and Industry's white paper on consumer credit was proceeding. Britain has experienced aggressive marketing of credit since the 1990s, when US financial service providers invaded the market. But while American borrowers are well protected by consumer laws, Britain has only the antiquated Consumer Credit Act 1974. Gerry Sutcliffe, the minister for competition and consumers, has assured the Treasury select committee that the forthcoming white paper will encourage "responsible lending".
Young people may well feel confused by the government's recent attempts to talk down the virtues of borrowing. Those who want to go to university have no choice but to accumulate debts of thousands of pounds before they acquire any experience of the financial pressures of adult life. Can they afford it? How would they know? Graduates now run up average debts of £12,500, and may soon count themselves lucky - Barclays Bank recently predicted that by 2010, university-leavers will owe £33,708 on average.
Today's young borrowers have thrust upon them a "buy now, pay later" philosophy. They are told not to think of it as getting into debt, but as investing in the future. "Students are in a good position to take on debt, and the improved prospects for graduate earnings mean they will be able to pay it back later," says Malcolm Hurlston, chairman of the Consumer Credit Counselling Service (CCCS), Britain's biggest debt advice charity. "We aim to empower people to spread their earnings over their lifetimes by using credit." Nor should today's students try to save their pennies by living on cold beans and cheap beer. Hurlston advises that "the social aspects of university are among the most important". Professor Andrew Oswald of Warwick University agrees. "Enjoy part of your future earnings now," he advised the National Union of Students conference last year, and encouraged young people to invest in the "hedonism" of university before they confront the responsibilities of adult life.
Unsurprisingly, many young people experiencing their first taste of independence find this idea appealing. "When I was a student I didn't think twice about spending money on clothes and going out," says Kathy, a recent graduate now working to pay off her £5,000 credit card bill (on top of a £12,000 student loan and £2,000 overdraft from university).
Her friend Lottie had a £2,000 bill on her credit card even before starting university and went on to spend her student loan and overdraft - and then was forced to apply for a hardship grant. "I was working full-time in my gap year and my bank was happy to give me a huge limit." Both women agree that easy access to credit at an early age did not encourage them to think carefully about borrowing - "Once you're £2,000 into your overdraft, £100 here or there doesn't make that much difference" - but their logic is consistent. Well, you could count a £100 party frock as an investment in the future. What if your future husband is at the party?
Once the suntan has worn off, however, and the clothes have gone out of fashion, how do young people feel about living first and paying later? "It worries me, but at least now I've faced my debts and I'm working towards paying them off," says Lottie. "The worst feeling is when you try not to think about it but you know it's there." Both say that their choices post-university have been influenced by feeling pressured to pay back debts. "I'm doing my present job because the salary will allow me to pay off my overdraft and credit card debts," says Kathy. "If it hadn't been for that, I would have gone on to do a Masters." Credit culture may create the illusion of "empowerment", but sooner or later young debtors find their options rather limited.
Hurlston set up a student advice hotline because he realised that young people were feeling trapped by their debts. "It worries me that many students consider dropping their courses due to worries about debt - it would be much wiser to do the course and worry about repayments in later life."
The National Audit Office found last year that teenagers who chose not to go into higher education gave "money worries" as the main reason. And the fear of debt affects other lifestyle choices. A study by the Prudential published on 17 November shows that debt worries are increasingly causing young people to continue living in the parental home. These "Kippers" (short for "Kids in Parents' Pockets Eroding Retirement Savings") are giving debt repayment priority over independence or following their career dreams, or even enjoying a responsibility-free early adulthood.
The financial insecurity felt by many young people sets them apart from their parents and grandparents, for whom such levels of debt would have come much later in life, if at all. The broadcaster and writer Joan Bakewell recalls that money was not her priority when she graduated in 1954. "I stood back and thought: What would I like to do with my life? We got jobs we liked - money didn't impinge on that choice."
The indebted twentysomethings of today are paradoxically less free than their counterparts of 50 years ago. They are learning that easy credit can have the opposite effect to empowering them.