0:00:02 > 0:00:05Now at half-past two, it's time for the latest news and sport from Newsbeat
0:00:05 > 0:00:10- with Adina Campbell.- And X Factor runner-up Rebecca Ferguson talks to us...
0:00:10 > 0:00:13'I'm reporter for Radio 1, and whenever I hear about money,
0:00:13 > 0:00:17'it's usually bad news. Since the credit crunch,
0:00:17 > 0:00:21'everyone seems to have difficulties with dosh...
0:00:21 > 0:00:23'and I'm not made of money, either.
0:00:23 > 0:00:28'Research shows that if we don't look after our money, our health,
0:00:28 > 0:00:31'happiness and relationships all suffer.
0:00:31 > 0:00:36'But you don't need to be rich to be happy and healthy - just in control of your cash.
0:00:36 > 0:00:39'So, with the help of a few friends,
0:00:39 > 0:00:43'I'll show you some simple tips to help you plan your spends...'
0:00:43 > 0:00:46- It feels so good. - '..shop around for bargains...
0:00:46 > 0:00:49- 'avoid debts...'- Oh, no!
0:00:49 > 0:00:51'..and try to save.'
0:00:51 > 0:00:53Learn how to do these
0:00:53 > 0:00:55and you might just get the life of your dreams,
0:00:55 > 0:00:57and who doesn't want that?
0:01:01 > 0:01:04TILL RINGS
0:01:08 > 0:01:12Nearly half of all 20- to 29-year-olds in the UK
0:01:12 > 0:01:17ended up overdrawn on their bank accounts in 2011.
0:01:17 > 0:01:21So, keeping control of your monthly finances is vital,
0:01:21 > 0:01:25and not just for you and me, but for my colleagues at Radio 1 and 1Xtra.
0:01:26 > 0:01:29I am notoriously bad with money.
0:01:29 > 0:01:31Even now, what I do is,
0:01:31 > 0:01:35I kind of give myself pocket money each month, in a different account.
0:01:35 > 0:01:37I mentally budget.
0:01:37 > 0:01:40I know roughly when my bills are coming,
0:01:40 > 0:01:44and they are priority before you look at a thing you really want.
0:01:44 > 0:01:47If you put that the top of your list, your budget goes out the window.
0:01:47 > 0:01:51One thing that a lot of people don't do is saving for socialising,
0:01:51 > 0:01:55so if you then put maybe 5% away for going out and having a good time,
0:01:55 > 0:01:58then you get into the mindset of knowing that you will treat yourself
0:01:58 > 0:02:03but you have also got a certain amount of money saved for other things as well. Not going too crazy.
0:02:03 > 0:02:06So, what should we be doing to keep track of our spending?
0:02:06 > 0:02:10One thing experts recommend is drawing up a budget.
0:02:10 > 0:02:13A budget is designed to make you think about how much money
0:02:13 > 0:02:16you've got coming in, whether it's pocket money or even a job,
0:02:16 > 0:02:20and then think about what you're spending that money on.
0:02:20 > 0:02:24So, if you've got more going out than you have coming in, you've got a problem.
0:02:24 > 0:02:26The biggest mistake people make is not to do one.
0:02:26 > 0:02:30The second biggest mistake is to try and look over too narrow a period,
0:02:30 > 0:02:32at just a snapshot of your finances, rather than thinking,
0:02:32 > 0:02:35how much am I going to spend right across the year,
0:02:35 > 0:02:39and how do I make sure that in those months where I'm not spending as much,
0:02:39 > 0:02:43I'm putting some aside for the times when I will really need the cash?
0:02:43 > 0:02:47All good advice, but what does it actually mean to you?
0:02:47 > 0:02:51Meet Katherine. She is 19 and a student with a weekend job.
0:02:51 > 0:02:53She's got some money coming in,
0:02:53 > 0:02:57but needs a bit of help working out where it all goes.
0:02:57 > 0:03:00- Now, Katherine, do you feel in control of your finances?- I don't.
0:03:00 > 0:03:03By the end of the month, my money has just gone.
0:03:03 > 0:03:06I feel like I waste a lot of money on things.
0:03:06 > 0:03:10I feel like I spend a lot of money in places where I could be a bit more economical.
0:03:10 > 0:03:14How much money do you have coming in every month?
0:03:14 > 0:03:18I've usually got about £650 coming in.
0:03:18 > 0:03:21- Shall we start writing this down, then?- Sure.
0:03:21 > 0:03:24So, let's look at Katherine's budget.
0:03:24 > 0:03:28Her incomings total £645 per month,
0:03:28 > 0:03:30but what about her outgoings?
0:03:30 > 0:03:35- Let's work out bit by bit exactly where your money is going every month.- OK.
0:03:35 > 0:03:37So, getting to uni.
0:03:37 > 0:03:39As well as her travel costs,
0:03:39 > 0:03:44Katherine has other expenses like food, clothes and nights out.
0:03:44 > 0:03:47In total, it's £617,
0:03:47 > 0:03:50leaving just £28 a month to spare.
0:03:50 > 0:03:53How do you feel about knowing you've only got a small amount to play with?
0:03:53 > 0:03:58I would really like to cut back on a few of the things that aren't completely necessary,
0:03:58 > 0:04:02so I would have a window for any unexpected costs.
0:04:02 > 0:04:07What Katherine has to do now is separate expenses she can't cut,
0:04:07 > 0:04:09like travel and accommodation,
0:04:09 > 0:04:12from those she can, like nights out, lunches
0:04:12 > 0:04:15and a student's best friend - coffee.
0:04:15 > 0:04:19If you decide not to go out one weekend,
0:04:19 > 0:04:22that would save you about £40. You think you could do that?
0:04:22 > 0:04:24Yeah, I could do that.
0:04:24 > 0:04:28You're spending £100 on lunches - that's about £25 a week.
0:04:28 > 0:04:33- Could we see that, maybe, on one or two days of the week, you take in your own lunch?- Yeah.
0:04:33 > 0:04:35And do you feel like you need your coffee a day?
0:04:35 > 0:04:40- Because some people, they can't really survive without their morning coffee.- I do.
0:04:40 > 0:04:42I could bring a flask with me.
0:04:42 > 0:04:44That would probably maybe take about...
0:04:45 > 0:04:48- ..£10 off that.- £10? OK.
0:04:48 > 0:04:52Using the library could take £10 off Katherine's book budget
0:04:52 > 0:04:55and she could trim £15 from her clothes costs.
0:04:55 > 0:04:58After cutting down on non-essentials,
0:04:58 > 0:05:03her outgoings have reduced from £617 to £522.
0:05:03 > 0:05:06That's increased her spare cash by £95,
0:05:06 > 0:05:11giving £120 a month to take care of any unexpected costs.
0:05:11 > 0:05:13TILL RINGS
0:05:16 > 0:05:19So, Katherine now has an extra £95 in her hand.
0:05:19 > 0:05:20It feels so good.
0:05:20 > 0:05:24It feel so much better knowing that I'm going to have a bit extra aside.
0:05:24 > 0:05:27A lot extra aside, by the looks of it.
0:05:27 > 0:05:31Your incomings and outgoings change as you go through life.
0:05:31 > 0:05:35Whether it's pocket money, student loans or a pay packet,
0:05:35 > 0:05:38it's not just about the money you have coming in.
0:05:38 > 0:05:41It's about controlling what's going out.
0:05:41 > 0:05:45But how is it working in practice for Katherine,
0:05:45 > 0:05:47two months after we first met with her?
0:05:47 > 0:05:52I find myself spending money on a lot less things that I don't need
0:05:52 > 0:05:55and, yeah, I've been keeping to the budget for the most part.
0:05:55 > 0:05:59I'm hoping to save up and get festival tickets for the end of the year
0:05:59 > 0:06:02so, fingers crossed, that I've saved up enough for that.
0:06:06 > 0:06:08TILL RINGS, COINS CLATTER
0:06:09 > 0:06:12# Morning It's another pure grey morning
0:06:12 > 0:06:15# Don't know what the day is holding when I get uptight
0:06:15 > 0:06:19# And I walk right into the path of a lightning bolt... #
0:06:19 > 0:06:21No-one likes to just throw away money,
0:06:21 > 0:06:24and when we don't have much cash in the first place,
0:06:24 > 0:06:27it's even more important to make the most of the money we do have.
0:06:27 > 0:06:31Well, that's the theory, but do we actually do it in practice?
0:06:31 > 0:06:35And how good are you at shopping around for the best bargains?
0:06:38 > 0:06:40I'll go around the supermarket for ages,
0:06:40 > 0:06:45adjusting my list, things I really need and don't need, two-for-one offers, that kind of thing.
0:06:45 > 0:06:47I've made myself into a bargain-hunter.
0:06:47 > 0:06:49I used to love bargain-hunting in New York,
0:06:49 > 0:06:52but when I do it in London, it's like... It just looks weird.
0:06:52 > 0:06:55"Aren't you Trevor Nelson? Why are you looking for a bargain?"
0:06:55 > 0:06:59It's a cliche, but look after the pennies and the pounds will look after themselves,
0:06:59 > 0:07:04and it's important that when money does come in that you still remain quite frugal in certain ways
0:07:04 > 0:07:07and that you are careful, because then you see the money that you do make
0:07:07 > 0:07:09really start to make a difference.
0:07:13 > 0:07:15Meet Jack and Leanne.
0:07:15 > 0:07:19They're both students in Stirling living in university halls,
0:07:19 > 0:07:23which means it's up to them to get all their own grocery shopping,
0:07:23 > 0:07:26and that isn't easy on a tight budget.
0:07:28 > 0:07:30This is a typical load of shopping for them,
0:07:30 > 0:07:33and I reckon they could save some money here.
0:07:35 > 0:07:38Do you say that you're quite taken in by brands, or would you
0:07:38 > 0:07:40opt for the cheaper version?
0:07:40 > 0:07:42I'd probably say I'm quite taken in by brands.
0:07:42 > 0:07:47Would you actually shop around to find the cheapest price, or would you just walk into shop and buy it?
0:07:47 > 0:07:49I'd just do that. It's a lot easier.
0:07:49 > 0:07:51If you're driving as well - saves petrol.
0:07:51 > 0:07:56- So it's all about convenience for you?- Yeah, definitely. - Jack, would you say you're the same?
0:07:56 > 0:07:59No, I usually try to shop around, to be honest. See what's cheapest.
0:07:59 > 0:08:03Shopping around for cheap prices is one way to save money, but maybe
0:08:03 > 0:08:07the most important way is to compare something called the unit price.
0:08:09 > 0:08:13The unit price is the cost of a fixed amount of something.
0:08:13 > 0:08:17In the supermarket, every kind of product has its own unit price.
0:08:19 > 0:08:26It might be based on one orange, 100g pasta or 100ml of water.
0:08:26 > 0:08:28It appears at the bottom of price tags on the shelves,
0:08:28 > 0:08:30and by comparing the unit prices,
0:08:30 > 0:08:35you can quickly decide which product is the best value for money.
0:08:36 > 0:08:39So did Jack and Leanne ever look at the unit price?
0:08:39 > 0:08:43- That usually helps in finding the cheapest options. - What about you, Leanne?
0:08:43 > 0:08:47I don't really take that into consideration when I'm shopping.
0:08:47 > 0:08:49If I like something, I normally buy it.
0:08:49 > 0:08:51I think there's probably more money that I can save.
0:08:51 > 0:08:54If Leanne shopped a bit more like Jack,
0:08:54 > 0:08:56she could reduce her £40-a-week food bill,
0:08:56 > 0:09:00so we're taking her to a supermarket to try
0:09:00 > 0:09:03and save some money by tracking down the cheapest unit prices.
0:09:03 > 0:09:07Two ways to do that might be buying in bulk and changing brands.
0:09:07 > 0:09:10First up, it's the healthy stuff, the broccoli.
0:09:10 > 0:09:14This one here is 2.99 per kilo, but this 2.20,
0:09:14 > 0:09:16so I'm going to go for this one.
0:09:16 > 0:09:18'Pre-packed broccoli costs £2.99 here,
0:09:18 > 0:09:22'but buy it loose and it's only £2.20.
0:09:22 > 0:09:26'A quick look at the unit price has already got Leanne the best bargain.'
0:09:26 > 0:09:29- Right, I'm going to go for this. - So is that bit cheaper?- Yeah.
0:09:29 > 0:09:32You just need to work out if it's cheaper to buy a bigger...
0:09:32 > 0:09:36- So, maybe go for a two or four-pint, as opposed to a one-pint?- Yeah.
0:09:36 > 0:09:39If I got this, I could share it with my flatmates, so it works out cheaper.
0:09:39 > 0:09:42- So you're making more of a saving by getting two pints?- Yeah.
0:09:42 > 0:09:45Those ones are cheaper. Shove them in the trolley.
0:09:45 > 0:09:48They bought six eggs before, but now they're buying ten.
0:09:48 > 0:09:52- You've actually gone for a 10-pack? - Yeah, it's better value.
0:09:52 > 0:09:57'Buying in bulk has reduced their unit price from 25p to 19p per egg.
0:09:57 > 0:10:00'Only buy in bulk if you'll use it all,
0:10:00 > 0:10:04'and be careful of offers like buy one get one free, known as a BOGOF.
0:10:04 > 0:10:08'The price is sometimes put up just before the offer begins,
0:10:08 > 0:10:10'so it's not always the best value.
0:10:10 > 0:10:14'If the unit price is too high, say bog off to that BOGOF.'
0:10:14 > 0:10:16- That is...- 48.8.
0:10:16 > 0:10:21- Yeah. How much is the one on the end there?- Only 24.
0:10:21 > 0:10:25- 'Now Leanne is looking for mayonnaise.'- Going to go for that one?- I think I will.
0:10:25 > 0:10:29'She is going for a supermarket own brand, not a household name,
0:10:29 > 0:10:31'which halves the unit price
0:10:31 > 0:10:33'from 48p to 24p.'
0:10:34 > 0:10:38- Are you going to be brave, Leanne? Try something different?- Exactly.
0:10:38 > 0:10:42'Leanne's bought five items that originally cost £8.89.
0:10:42 > 0:10:44'But has she made a saving?'
0:10:44 > 0:10:48Leanne, all of this cost you £8.02,
0:10:48 > 0:10:51and before, you spent just under £9,
0:10:51 > 0:10:54so you've made a little bit of a saving, but bearing in mind,
0:10:54 > 0:10:58you've got more milk, you've got four more eggs and you have more cheese.
0:10:58 > 0:11:01- How do you feel about how much you've saved today?- That's good.
0:11:01 > 0:11:04It's a good lesson to know that I can actually save on my shopping every week.
0:11:04 > 0:11:06There's always something cheaper.
0:11:06 > 0:11:08Always look at the unit prices as well.
0:11:08 > 0:11:12If Leanne had bought the same amount as her original shopping,
0:11:12 > 0:11:15based on the unit price, she would have saved £2.22.
0:11:15 > 0:11:20Scaled up, that could cut her costs by £10 a week,
0:11:20 > 0:11:23so, to save the most when you shop, forget about brands,
0:11:23 > 0:11:26ignore the offers and stick to the best unit price.
0:11:26 > 0:11:30If you let them sell to you without being questioning, without being demanding,
0:11:30 > 0:11:31you WILL get ripped off.
0:11:31 > 0:11:36Not necessarily scammed, but you'll end up paying too much for things and buying things you don't need.
0:11:36 > 0:11:40Remember, their job is to make money from you. That's why they advertise.
0:11:40 > 0:11:44Your job is to try and get the maximum value out of the money in your pocket.
0:11:48 > 0:11:51TILL RINGS, COINS CLATTER
0:12:00 > 0:12:03Whether it's a student loan,
0:12:03 > 0:12:05credit card shopping or cash borrowed from a friend,
0:12:05 > 0:12:10more than two-thirds of 18- to 24-year-olds owe some form of debt in the UK.
0:12:10 > 0:12:13So, where are we borrowing all this money from,
0:12:13 > 0:12:16and why are people giving it out in the first place?
0:12:16 > 0:12:19Many people take on debt in the form of credit.
0:12:19 > 0:12:23You ask a bank, credit card company or someone else for money,
0:12:23 > 0:12:26they check you out, and if they are happy, you get the cash.
0:12:26 > 0:12:28But the money isn't yours to keep.
0:12:28 > 0:12:31So, after a while, you need to pay it back.
0:12:31 > 0:12:35Normally, the company that gave you the money wants to make a profit.
0:12:35 > 0:12:38They do this by charging you interest,
0:12:38 > 0:12:42so taking out credit usually costs you extra money.
0:12:42 > 0:12:45But why would anyone want to do that?
0:12:45 > 0:12:49Credit can be a way to buy things you couldn't otherwise afford,
0:12:49 > 0:12:53like a car. Michelle is 19 and a student rep in Paisley.
0:12:53 > 0:12:58She drives 10 miles a day to college in her mum's car, but now it's time for buy her own.
0:12:58 > 0:13:02Today, we're on a fact-finding mission to the local car auction
0:13:02 > 0:13:05where Michelle hopes to find out just how much a car
0:13:05 > 0:13:10will set her back, and whether she'd have to take out credit on top of her savings
0:13:10 > 0:13:12to be able to pay for it.
0:13:12 > 0:13:14So, what would be the main use of the car for you, then?
0:13:14 > 0:13:18I'd mainly be using it for travelling from my house to my college.
0:13:18 > 0:13:21I think it'd also have to be fuel efficient as well.
0:13:21 > 0:13:25I don't have hundreds of pounds to spend each month on petrol.
0:13:25 > 0:13:28And cheap. Definitely, again, it has to be cheap. I'm a student.
0:13:28 > 0:13:31I have no money.
0:13:32 > 0:13:36- So, this is a no-no? - Definitely.- Definitely not. This is quite a small car.
0:13:36 > 0:13:39I have far too many friends that have this car. I cannot be copying them.
0:13:39 > 0:13:42Oh, oh, oh! Sorry. I need to have a nosy at this.
0:13:42 > 0:13:45- You want to have a look at this one? - I need to have a nosy at this.
0:13:45 > 0:13:49- This would set you apart from your friends, wouldn't it? - I do like a wee Beetle.
0:13:49 > 0:13:53- Do you think you could really afford this, though? - Probably not, and that upsets me.
0:13:53 > 0:13:57- We can always see in the auction... It may surprise you.- Yeah.
0:13:58 > 0:14:01- AUCTIONEER:- Volkswagen Beetle.
0:14:01 > 0:14:04..50... 850. 950.
0:14:04 > 0:14:06950. 955. 1,000 bid.
0:14:06 > 0:14:09BIDDING CONTINUES INDISTINCTLY
0:14:11 > 0:14:15Most of the cars Michelle liked went for more than £1,000,
0:14:15 > 0:14:19so the next thing to work out is where she could borrow the money from
0:14:19 > 0:14:22and interest that she would have to pay back on that amount.
0:14:22 > 0:14:25First of all, we've done some research and we know
0:14:25 > 0:14:29that your bank offers a typical APR.
0:14:29 > 0:14:30Any idea what an APR is?
0:14:30 > 0:14:34I want to say the A stands for "annum", or something, but I don't know.
0:14:34 > 0:14:37You're nearly there. Its annual percentage rate.
0:14:37 > 0:14:41Basically, APR means the amount of interest you pay back over a year
0:14:41 > 0:14:43for the money you've borrowed.
0:14:43 > 0:14:45It's based on the amount that's still owed.
0:14:45 > 0:14:48At the start of the loan, you paying quite a lot
0:14:48 > 0:14:51because you're paying interest based on the full amounts.
0:14:51 > 0:14:54Near the end of the loan, where you don't owe as much,
0:14:54 > 0:14:57you're only paying interest on that smaller amount.
0:14:59 > 0:15:04- You know that your typical bank loan would be about 23.9 APR.- OK.
0:15:04 > 0:15:09So, we've got a calculator here online to work out how much
0:15:09 > 0:15:13we'd be paying back every month. First question - what does it say?
0:15:13 > 0:15:17- Enter the amount of the loan.- So, how much are you looking to borrow?
0:15:17 > 0:15:21- We'll go for the minimum, which would be... 1,000 did you say?- Yes.
0:15:23 > 0:15:25And the APR is...
0:15:25 > 0:15:28- 23.9?- 23.9.
0:15:31 > 0:15:38- So, how much would you be paying back in total interest?- £134.
0:15:38 > 0:15:41- Does that sound good?- It's OK. - It's not bad, is it?
0:15:41 > 0:15:46- How much would you be paying back every month?- £94.50.
0:15:46 > 0:15:49- Do you think you could afford that?- I could try.
0:15:49 > 0:15:51I could try very hard.
0:15:51 > 0:15:54£1,000 is a small amount to a bank,
0:15:54 > 0:15:59so they set a high APR of 23.9% to help them cover their costs.
0:15:59 > 0:16:05Over 12 months, Michelle would pay back a total of £1,134.
0:16:05 > 0:16:09There are other ways we can actually borrow some money as well.
0:16:09 > 0:16:13- There are credit cards. How do you feel about credit cards?- No.
0:16:13 > 0:16:15I'm not a credit card person at all.
0:16:15 > 0:16:19I'm just absolutely terrified that I would rack myself into so much debt.
0:16:19 > 0:16:21Michelle is right to be cautious.
0:16:21 > 0:16:24Unlike a bank loan, you can dip into a credit card again and again,
0:16:24 > 0:16:27and it can be tempting to keep spending more on it.
0:16:27 > 0:16:30You need to be really disciplined or a small amount of credit
0:16:30 > 0:16:33could spiral into a much bigger debt.
0:16:33 > 0:16:36Even though you're not that keen on credit cards,
0:16:36 > 0:16:41- the APR on an average credit card is 17%.- Oh! Lower than banks?
0:16:41 > 0:16:44- Does that come a bit more appealing? - A little bit.
0:16:44 > 0:16:48But I am still just terrified I would rack it up into ridiculous amounts of debt.
0:16:48 > 0:16:50I will still have a nosy.
0:16:51 > 0:16:54- So, how much is the total interest? - Ooh! £94.
0:16:54 > 0:16:56So that is cheaper than the bank.
0:16:56 > 0:17:01Providing Michelle can pay it back in one year, a credit card with an APR of 17%
0:17:01 > 0:17:06could cost less - that's £1,094 over 12 months.
0:17:06 > 0:17:08So, if you do take out a credit card,
0:17:08 > 0:17:11you've got to make sure you can commit to the repayments,
0:17:11 > 0:17:14make sure you pay off as much money as you can as quickly
0:17:14 > 0:17:18as possible, so that debt is not a burden on your finances.
0:17:18 > 0:17:21- There's another option.- OK. - Brace yourself for this.
0:17:21 > 0:17:24- Have you heard of a payday loan? - Yes.
0:17:24 > 0:17:27The idea is you borrow a small amount
0:17:27 > 0:17:31and you'd have to pay back the whole amount the month after.
0:17:31 > 0:17:34If I told you the average payday loan
0:17:34 > 0:17:38is something like 300% APR,
0:17:38 > 0:17:40what would your reaction be?
0:17:44 > 0:17:48So, the total interest...
0:17:48 > 0:17:51£250! Uh-huh... Oh, my God!
0:17:51 > 0:17:54Which works out to be how much of the actual...?
0:17:54 > 0:17:57That's a quarter of the actual loan. That is ridiculous!
0:17:57 > 0:18:03With a payday loan, Michelle would need to pay £250 extra after just one month.
0:18:03 > 0:18:05If she didn't pay it back on time, the interest rate
0:18:05 > 0:18:08and payments could climb into thousands.
0:18:08 > 0:18:10- So, an option for you? - Definitely not. No.
0:18:10 > 0:18:13So, you are left with credit cards or a bank loan.
0:18:13 > 0:18:16Credit cards work out better than I'd thought.
0:18:16 > 0:18:19I'd just need to be good and hide it each month.
0:18:19 > 0:18:22Just use it once, then hide it and never use it again.
0:18:22 > 0:18:27Based on the APR alone, a credit card could be the cheapest option for Michelle this time.
0:18:27 > 0:18:29But if she takes on this debt,
0:18:29 > 0:18:33she needs to make sure she has the money AND the discipline to pay it all back.
0:18:33 > 0:18:38Michelle might not have her own car yet, but by finding out all the facts first,
0:18:38 > 0:18:41she's taking the driving seat with her finances.
0:18:41 > 0:18:43Some good, simple rules.
0:18:43 > 0:18:46Debt is bad if you can't afford to repay it and you haven't budgeted for it.
0:18:46 > 0:18:51Debt is bad if you're borrowing money you don't need to borrow, you could do it a different way,
0:18:51 > 0:18:53and debt is bad if it's frivolous.
0:18:53 > 0:18:55You're not going to get any value out of it,
0:18:55 > 0:19:00it's going to leave you with nothing except someone chasing you for the money afterwards.
0:19:00 > 0:19:05Taking on debt in the form of credit is part of everyday life,
0:19:05 > 0:19:11and for many people, the thought you can buy now and pay later is too difficult to resist.
0:19:11 > 0:19:15So, it's easy to be tempted by credit,
0:19:15 > 0:19:18especially if we don't pay attention.
0:19:20 > 0:19:25Meet Karen. She's 21, works in a cafe and is a keen shopper.
0:19:27 > 0:19:29For winter, that's pretty good.
0:19:29 > 0:19:31Karen's debt problem began
0:19:31 > 0:19:35when she went shopping to buy this suit for a job interview.
0:19:35 > 0:19:39- What happened to you a few months back?- Well, it was just...
0:19:39 > 0:19:43- I went to buy a suit. I had 120 quid saved up.- OK.
0:19:43 > 0:19:46I went up to buy it and the woman was like,
0:19:46 > 0:19:51"Do you want a store card with it?" Because I didn't have one. "Yeah, why not?"
0:19:51 > 0:19:54A store card is not given to you by a bank.
0:19:54 > 0:19:57It's actually given to you by a shop.
0:19:57 > 0:20:01You'll see them advertised whenever you go into a high-street shop.
0:20:01 > 0:20:06The shop does the same as the bank does - it gives you credit for spending in store.
0:20:06 > 0:20:08Now, they also charge you an extra amount
0:20:08 > 0:20:12if you don't pay back that amount on time.
0:20:12 > 0:20:15- They have really nice tops in here. - Avocado shaving cream?!
0:20:15 > 0:20:18Store cards and credit cards allow you to buy stuff without
0:20:18 > 0:20:21shelling out your own money to begin with.
0:20:21 > 0:20:24But they can end up costing you more in the long run.
0:20:24 > 0:20:27I got the suit then got the card.
0:20:27 > 0:20:29She did the credit check, and everything.
0:20:29 > 0:20:30I handed over the money.
0:20:30 > 0:20:33"You don't need to pay for this now."
0:20:33 > 0:20:38"What? Oh, my God, this is amazing!" I went and bought loads of other stuff with the money,
0:20:38 > 0:20:41because I didn't have to pay for the suit right then.
0:20:44 > 0:20:47- Did you think you are just getting the suit for free, then?- No.
0:20:47 > 0:20:50I knew I was going to have to pay for it but I just thought at the time,
0:20:50 > 0:20:54"Oh, this is great. I can pay it off whenever."
0:20:54 > 0:21:01About six weeks later, I got the letter through saying, "So, you owe us £120 for the suit."
0:21:01 > 0:21:05I didn't really know what to do because I had no money to pay it. No money in the bank.
0:21:05 > 0:21:09I took the letter, put it in a drawer and just kind of forgot about it.
0:21:09 > 0:21:11When these letters came through, did you not think,
0:21:11 > 0:21:15"I've got to sort this out. These are letters demanding that I pay up"?
0:21:15 > 0:21:18Yeah, but I thought, because I didn't have any money,
0:21:18 > 0:21:22that they couldn't take it until I'd got some, and then I could pay it off.
0:21:22 > 0:21:26I didn't think they could take the money out my bank without any money being in there.
0:21:26 > 0:21:30It can be like getting a lovely big voucher to go into that shop,
0:21:30 > 0:21:34but actually, that isn't free money. You WILL have to pay that back,
0:21:34 > 0:21:37and if you do fall behind on those payments,
0:21:37 > 0:21:41you're going to have to pay even more than you would on a credit card, on a mortgage,
0:21:41 > 0:21:43on almost every other type of debt.
0:21:43 > 0:21:45I had no idea we had to pay interest.
0:21:45 > 0:21:49I thought it was just you paid that money for the suit and you paid that money back.
0:21:49 > 0:21:55The suit was 120, maybe plus about £20 or £30 more
0:21:55 > 0:21:56on the interest rate.
0:21:56 > 0:21:59But as well as the interest,
0:21:59 > 0:22:03the bank charged her for being overdrawn, then, a month so later,
0:22:03 > 0:22:07the company took another payment out of her account.
0:22:07 > 0:22:11The bank then charged her for being even more overdrawn, and so on.
0:22:11 > 0:22:18The £30 that they tried to take out originally for the first payment,
0:22:18 > 0:22:22and then plus maybe about £50 more in bank charges.
0:22:22 > 0:22:25As Karen ignored the demands for money,
0:22:25 > 0:22:30the cost of her £120 suit crept up to over £200.
0:22:30 > 0:22:33How did you end up solving the problem in the end?
0:22:33 > 0:22:36I solved it with a really embarrassing chat with my mum.
0:22:36 > 0:22:41- What was your mum's response like? - She shouted at me for a bit. Said I was irresponsible.
0:22:41 > 0:22:46Should've told her that I'd got a credit card and finally offered... Helped me out.
0:22:46 > 0:22:49- Did you end up paying your mum back?- Yeah, I did.
0:22:52 > 0:22:55- Cappuccino?- Yeah.- 'So, what are you spending habits like at the moment?
0:22:55 > 0:22:58'Well, I get paid weekly, so it's just cash.'
0:22:58 > 0:23:02I just deal with that every week and try and budget it.
0:23:02 > 0:23:05I don't borrow money, I don't have an overdraft or anything.
0:23:05 > 0:23:07I don't use cards at all.
0:23:07 > 0:23:10If you are having problems with your money,
0:23:10 > 0:23:12then it's always worth seeking help.
0:23:12 > 0:23:16There are plenty of debt charities out there, there's the Citizens Advice Bureau.
0:23:16 > 0:23:18There's no need to struggle on your own.
0:23:18 > 0:23:21Always seek help if you do have debt problems.
0:23:25 > 0:23:27TILL RINGS, COINS CLATTER
0:23:31 > 0:23:36Staying on top of debt and spending is one way to make the most of your money,
0:23:36 > 0:23:40but if you really want to be in charge, the best thing you can do is save.
0:23:40 > 0:23:43But who thinks about saving when they're young?
0:23:46 > 0:23:51Less than one-third of 16- to 24-year-olds in the UK have a savings account.
0:23:53 > 0:23:56I wonder if my colleagues at Radio 1 and 1Xtra
0:23:56 > 0:24:00have any good tips about how they've managed to save.
0:24:00 > 0:24:05Try and not touch your money. If you don't physically have it, you can't spend it.
0:24:05 > 0:24:09I've got a bit of money saved. I've had to stop the impulse buys and stuff like that,
0:24:09 > 0:24:12so, start of the New Year, I will be able to buy a house.
0:24:12 > 0:24:14If you are saving, there should always be a reason.
0:24:14 > 0:24:17Even if it's like you're saving for the future or for a rainy day,
0:24:17 > 0:24:21as long as you've got a goal and a motive, it always makes things easier.
0:24:24 > 0:24:26There are loads of ways to save,
0:24:26 > 0:24:29but how do you go from small amounts to stacks of cash?
0:24:33 > 0:24:37My name is Nick. I'm aged 16 and I do a paper round every Sunday.
0:24:39 > 0:24:43With the money I earn from it, I hope to buy a new bike.
0:24:43 > 0:24:46My old bike's all right at the moment,
0:24:46 > 0:24:49but I guess I could do with another one, just to help me get back uphill.
0:24:49 > 0:24:51Make it more fun to go a bit faster.
0:24:52 > 0:24:55Nick is at an ideal age to start saving.
0:24:55 > 0:24:58With a clear goal and money coming in,
0:24:58 > 0:25:01there are plenty of options open to him, so let's get down to business.
0:25:01 > 0:25:05- Nick, you're 16.- Yeah. - Are you any good at saving?
0:25:05 > 0:25:08I put money aside every now and then, so I guess you could say so.
0:25:08 > 0:25:10Let's talk about your savings, then.
0:25:10 > 0:25:14- You get £10 a week from your paper round?- Yeah.
0:25:14 > 0:25:17- OK, shall we write that down?- £10.
0:25:17 > 0:25:21- And £3 from my aunt, as well. - OK.- So...13.
0:25:21 > 0:25:27But I put aside... maybe keep £5 just to spend during the week,
0:25:27 > 0:25:29so I end up with 8.
0:25:31 > 0:25:36So, £8 a week grows to savings of £416 over a year.
0:25:36 > 0:25:41Nick could keep that safe under his mattress and it would stay the same.
0:25:41 > 0:25:44He'd still have £416.
0:25:44 > 0:25:46But if he put his money in a bank account,
0:25:46 > 0:25:49he could make his savings grow.
0:25:49 > 0:25:51That's because the bank will pay him
0:25:51 > 0:25:54an extra percentage on his cash, called interest.
0:25:55 > 0:25:58With a bank account earning 2% interest after a year,
0:25:58 > 0:26:03Nick's £416 will earn an extra £8.32.
0:26:03 > 0:26:05That's like an extra week's savings
0:26:05 > 0:26:08without having to do an extra week's paper around.
0:26:08 > 0:26:11So Nick's money has started working for him,
0:26:11 > 0:26:16and every year, it works a bit harder because of something called compound interest.
0:26:18 > 0:26:21Compound interest is where you earn interest on top of interest
0:26:21 > 0:26:23in a savings account.
0:26:23 > 0:26:29So, if you have £1,000 in year 1, and that's earning 10%,
0:26:29 > 0:26:31then you'll earn £100.
0:26:31 > 0:26:37So, in year 2, not only will you earn 10% on £1,000,
0:26:37 > 0:26:41but that £100 that you earned in interest last year will also
0:26:41 > 0:26:44earn 10% interest, so you'll get another £10 on top,
0:26:44 > 0:26:47because 10% of £100 is £10.
0:26:47 > 0:26:50Then, in year 3 of the savings account,
0:26:50 > 0:26:54you'll earn interest on the interest on year 2, and so forth.
0:26:54 > 0:27:00So how will Nick's money look after 10 years at 2% compound interest?
0:27:00 > 0:27:03- How much do you think you'd probably make?- Not too sure.
0:27:03 > 0:27:08- I can tell you - it would be more than £4,500.- Wow.
0:27:08 > 0:27:11If Nick keeps up his weekly savings,
0:27:11 > 0:27:16over ten years that 2% adds an extra £360 to his bank account.
0:27:16 > 0:27:20That's the equivalent of 45 weeks' savings
0:27:20 > 0:27:23without having to do 45 extra paper rounds.
0:27:23 > 0:27:27And he could earn even more money if he took out an account with higher interest,
0:27:27 > 0:27:32likely notice account. With this, you agree to give your bank 60 or 90 days' notice
0:27:32 > 0:27:34if you want to take money out.
0:27:34 > 0:27:37The advantage of this is that you'll actually get a slightly
0:27:37 > 0:27:41better rate of interest - ie, you'll get more money from the bank
0:27:41 > 0:27:43if you can lock it up for longer.
0:27:43 > 0:27:47If Nick keeps saving £8 a week into a higher-interest account
0:27:47 > 0:27:50that pays 4% and doesn't touch it,
0:27:50 > 0:27:54it could add up to well over 6,500 by the time he's 30.
0:27:54 > 0:27:57That's nearly £1,300 in interest for doing nothing.
0:27:57 > 0:28:01So, Nick, we've done all of the figures, all the maths.
0:28:01 > 0:28:04Any idea what plan of action you're going to take next?
0:28:04 > 0:28:06I think I might just go and open a notice account.
0:28:06 > 0:28:10With a notice account and compound interest building up,
0:28:10 > 0:28:14Nick could soon be well on his way to that new bike.
0:28:14 > 0:28:17If you've got cash, make it work for you.
0:28:17 > 0:28:20Don't just put it under the mattress or in a piggy bank.
0:28:20 > 0:28:23Get it in a high-interest savings account.
0:28:23 > 0:28:25You're effectively lending the bank the money.
0:28:25 > 0:28:29Make the money work for you. It will grow more quickly.
0:28:29 > 0:28:32You lend it to them, they pay you interest on top.
0:28:32 > 0:28:35It doesn't take much to stay on top of our finances.
0:28:35 > 0:28:39Just a few simple steps can make all the difference.
0:28:39 > 0:28:42And we don't have to be made of money to be healthy and happy,
0:28:42 > 0:28:45but if we take control of the money we do have,
0:28:45 > 0:28:47we might be halfway there.