A tale of two nephews

Observations on debt

I have two nephews of roughly equal ages, in their early twenties. One is £17,000 in debt; the other has no debts. The reason why one has no debts is not due to his financial probity or juvenile acumen - it is that his parents tear up the letters from credit card companies. They feel free to do this because he has Down's syndrome. That might not make him a very good credit risk, you might think, but, as he is over 18, he is increasingly a target for finance companies that would like to take the waiting out of wanting and give him tens of thousands of pounds of debt on a rainbow array of cards.

What is stopping him from applying for priority handling? The possibilities are dazzling. With money-back offers, it would actually pay him to add another card to his wallet, so that he could make money the more he spends, at roughly 15 per cent interest.

He has his own bank account, which is in the black, and he has the skills to fill in the application forms and return them in the Freepost envelope. So if he did not live at home he could be out spending right now, with no possibility of ever paying off the debts he would incur.

The indebted nephew was in the opposite situation. Instead of receiving guidance to the effect that it might not be a good idea to be heavily in debt before he was out of his teens, he was told by the government, no less, that the only way he could get an education was by borrowing. The government even arranged the loan. It was an obvious next step for him to cover living expenses during his student years by incurring further debts with credit cards at absurd rates of interest.

Britain's higher education is, we have recently been told, the most expensive in Europe and about to get dearer. The implication is that more and more young people will run up debts in this way, with official encouragement, and will remain in debt well into their twenties and after. And some of them, perhaps quite a lot, will be unable to pay the money back. The lenders know this: figures from the big banks in the past month show that their provision for personal bad debt is up by more than 20 per cent on last year.

There has to be a way out of these "unperforming debts", as the banks call them. Bankruptcy is an obvious route, and one that an increasing number of the under-thirties are taking, although the consequences for their creditworthiness will haunt them long into the future. Even insurance companies asked for a simple car-insurance quote now inquire: "Are

you currently the subject of a bankruptcy order or have you ever been bankrupt?"

Moralists might well say that getting into trouble - for example, receiving a visit from the bailiffs - will teach the young a sense of responsibility. But who is going to teach responsibility to the credit card companies that lend where there is insufficient income to repay the debt? One possibility is the market solution: finance companies that lend irresponsibly should fail as bad businesses. They made loans they have little chance of recouping and they do not deserve to survive alongside more responsible companies.

When the credit card companies pursue my indebted nephew, his family does not tell them where he is. They take the view, which they express volubly, that no company which has sold its products so recklessly deserves to be helped.

This is unusual behaviour for my family. We were not brought up evading debt collectors and it does not come naturally to us to run away from debt. Indeed, when I was young it was regarded as courting shame to incur debt of any kind. However, I was not brought up in a world in which teenagers were expected to make financial decisions that would affect the rest of their lives, while banks and finance companies were free to bombard them with irresponsible offers.

This article first appeared in the 29 August 2005 issue of the New Statesman, President Hillary: can she do it?