Monthly Archives: November 2006

Losing Money Every Day

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Posted by Lloyd Morgan on November 22, 2006 – 2:32 pm
Filed under Everything Else, Money

Now that I’m a bona-fide working man, I’ve recently been thinking about whether or not to increase my minimum, compulsory payments to the Students Loan Company (SLC) to pay off my Student Debt. Now this debt is no meagre sum – a fair bit over £10,000 – and at recent projections will take me several decades to pay it off (if I pay the minimum and never receive a pay rise).

Currently it is compulsory to make payments to the SLC to pay off this loan when you earn over £15,000 per year. The payment you must make is 9% of your wage, over the £15,000 threshold. So, if you earn £20,000 annually (pre tax) you must pay 9% of £5,000 a year - £450. For most, this will be paid in monthly instalments throughout the year using the ‘Pay as you Earn’ system (PayE) – you don’t need to do a thing to pay off the minimum.

The SLC student loan does not gather interest though – you may think it does when you look at your annual statement, but what you’re actually seeing is the debt increasing with inflation - calculated using the Retail Price Index.

The SLC loan is guaranteed to only increase at the rate of inflation – for life. This means that the government or the SLC are not making any money from the loan* - it is the cheapest form of debt available. (The UK government has similar WWII debts, and this link explains them and also gives some information on paying off student loans.)

If your bank account gives you interest higher than the rate of inflation, you’ll actively be making money when your funds are in your account doing nothing, so if you were to use this money to pay off an inflation-only loan, you’ll be missing out on the interest your money will earn you whilst it is in your bank account.

Here’s an example:

You owe friend A £5. Friend B owes you £5.
Friend A is not charging you anything while you owe him money but you have 10 days to pay off the debt at a minimum rate of £0.50 a day. You are charging friend B £0.25 a day whilst he is in your debt, regardless of by what amount. You have no money.
Friend A is the SLC loan, friend B is your bank.
Is it better to:
a) Take £5 off friend B on the first day and give it to friend A to be totally debt free?
b) Make friend B pay you £0.50 a day (£0.25 interest and £0.25 of the debt) and pay this directly to friend A daily?
The answer is the second option, as you will pay off friend A’s debt in 10 days (you’re paying the minimum) but over the period of friend B paying back his debt to you (20 days), you will actually end up with an extra £5 in interest.

So, what are we supposed to do? The answer is simple: pay off your student loan at the minimum rate as long as your regular bank account gives you interest at a higher rate than that of inflation. If your bank does not provide you with an interest rate higher than the inflation rate? Change your bank now! If you don’t you’re actually losing money every day.

Student Loans Company
Government WWII Debts
MoneySavingExpert - Should I Pay Off My Student Loan?
Bank of England (Inflation Rate Information)

*It’s not strictly true that they are not making money from these loans. You see, the inflation rate (RPI) is set by the Bank of England on a monthly basis but the SLC inflation rate is set annually (March of each year). If the rate is high when the SLC rate is set and then drops dramatically (as it did in the 2005-2006 academic period) the loan is increasing at a rate higher than that of inflation because interest is charged daily on the SLC loan.
What does this mean to you? Just make sure that your bank is paying you interest over the rate of inflation (as set in March of that year) and you’ll be OK.

Cheap Food Nation

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Posted by Lloyd Morgan on November 22, 2006 – 11:12 am
Filed under Everything Else, Food, Politics

The Sierra Club is America’s oldest, largest and most influential grassroots environmental organisations whose aim is simply to protect communities and the world as a whole. Bimonthly they publish a free online magazine on a wide range of topics. This month they concentrate on how the world looks at food.

I recommend having a read of it, whether you agree with their sentiment or not, as the information provided is pretty useful. Just substitute ‘America’ for ‘Britain’ as we’re not far behind. Contents include:

  • Cheap Food Nation, written by Eric Schlosser (author of Fast Food Nation and Reefer Madness), is especially interesting. He notes that “Americans spend a smaller percentage of their income on food than any other nation, but it costs [them] dearly”;
  • Produce to the People discusses how Farmer’s Markets and Community Gardens are starting to challenge convenience and fast-food stores;
  • From Cotton to Collards concentrates on Alabama’s Farmers Market Authority who are connecting consumers and farmers with a ‘Buy Fresh, But Local’ campaign in order to target obesity;
  • Ten Ways to Eat Well, Secrets of the Supermarket, Truth in Labelling and the other articles are also well worth a read.

    • The one that struck me the most and left a lasting impression was the last page of the magazine, comparing how different countries consume food. It shows four pictures, each of a family with a week’s worth of food:

    Guetemala
    Cuchumatán, Guatemala

    California
    California, USA

    China
    Beijing, China

    Mali
    Kouakourou, Mali

    Don’t just look at the foods, their apparent quality and packaging - take note of the number who must share this food.

    Well, this lunch-time I’m off to the market to get some shopping. I suggest you do the same.

    The Greatest Truth

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    Posted by Lloyd Morgan on November 7, 2006 – 10:26 am
    Filed under Everything Else

    It seems that I seldom have a complete day or even a complete weekend to myself. In the last 9 months I’ve had approximately two, maybe three, full weekends to do what I would like with. Every other has had some kind of commitment filling it up. I’m not saying that I had no option but to do these things, but I am saying that it would have been foolish to have ‘got out’ of these things.

    Do you realise how that feels? You don’t appreciate how lucky some of you are to actually feel bored on a weekend - I didn’t until now! Being bored is something to treasure as one day you too will be busy and forget what being bored feels like. I would just like the opportunity to be bored so that instead I could sit down and read a book, waste some time on the Internet, play a game or maybe, just maybe, have a lie-in.

    I’m not going to say I’m not complaining, because I am! You have to realise though that I’m not the type to throw myself on my sword when things get a bit hard. Instead, certain things have turned me into one of those “it could be worse” kind of people that you all hate.

    Here’s a quote from a great book:

    Life is difficult.

    This is a great truth, one of the greatest truths. It is a great truth because once we truly see this truth, we transcend it. Once we truly know that life is difficult - once we truly understand and accept it - then life is no longer difficult. Because once it is accepted, the fact that life is difficult no longer matters.

    Most do not fully see this truth that life is difficult. Instead they moan more or less incessantly, noisily or subtly, about the enormity of their problems, their burdens, and their difficulties as if life were generally easy, as if life should be easy. They voice their belief, noisily or subtly, that their difficulties represent a unique kind of affliction that should not be and that has somehow been especially visited upon them, or else upon their families, their tribe, their class, their nation, their race or even their species, and not upon others. I know about this moaning because I have done my share.

    Life is a series of problems. Do we want to moan about them or solve them? Do we want to teach our children to solve them?

    Discipline is the basic set of tools we require to solve life’s problems. Without discipline we can solve nothing. With only some discipline we can solve only some problems. With total discipline we can solve all problems.

    - M . Scott Peck, The Road Less Travelled