Made of Money

Now at half-past two, it's time for the latest news and sport from Newsbeat

-with Adina Campbell.

-And X Factor runner-up Rebecca Ferguson talks to us...

'I'm reporter for Radio 1, and whenever I hear about money,

'it's usually bad news. Since the credit crunch,

'everyone seems to have difficulties with dosh...

'and I'm not made of money, either.

'Research shows that if we don't look after our money, our health,

'happiness and relationships all suffer.

'But you don't need to be rich to be happy and healthy - just in control of your cash.

'So, with the help of a few friends,

'I'll show you some simple tips to help you plan your spends...'

-It feels so good.

-'..shop around for bargains...

-'avoid debts...'

-Oh, no!

'..and try to save.'

Learn how to do these

and you might just get the life of your dreams,

and who doesn't want that?

TILL RINGS

Nearly half of all 20- to 29-year-olds in the UK

ended up overdrawn on their bank accounts in 2011.

So, keeping control of your monthly finances is vital,

and not just for you and me, but for my colleagues at Radio 1 and 1Xtra.

I am notoriously bad with money.

Even now, what I do is,

I kind of give myself pocket money each month, in a different account.

I mentally budget.

I know roughly when my bills are coming,

and they are priority before you look at a thing you really want.

If you put that the top of your list, your budget goes out the window.

One thing that a lot of people don't do is saving for socialising,

so if you then put maybe 5% away for going out and having a good time,

then you get into the mindset of knowing that you will treat yourself

but you have also got a certain amount of money saved for other things as well. Not going too crazy.

So, what should we be doing to keep track of our spending?

One thing experts recommend is drawing up a budget.

A budget is designed to make you think about how much money

you've got coming in, whether it's pocket money or even a job,

and then think about what you're spending that money on.

So, if you've got more going out than you have coming in, you've got a problem.

The biggest mistake people make is not to do one.

The second biggest mistake is to try and look over too narrow a period,

at just a snapshot of your finances, rather than thinking,

how much am I going to spend right across the year,

and how do I make sure that in those months where I'm not spending as much,

I'm putting some aside for the times when I will really need the cash?

All good advice, but what does it actually mean to you?

Meet Katherine. She is 19 and a student with a weekend job.

She's got some money coming in,

but needs a bit of help working out where it all goes.

-Now, Katherine, do you feel in control of your finances?

-I don't.

By the end of the month, my money has just gone.

I feel like I waste a lot of money on things.

I feel like I spend a lot of money in places where I could be a bit more economical.

How much money do you have coming in every month?

I've usually got about £650 coming in.

-Shall we start writing this down, then?

-Sure.

So, let's look at Katherine's budget.

Her incomings total £645 per month,

but what about her outgoings?

-Let's work out bit by bit exactly where your money is going every month.

-OK.

So, getting to uni.

As well as her travel costs,

Katherine has other expenses like food, clothes and nights out.

In total, it's £617,

leaving just £28 a month to spare.

How do you feel about knowing you've only got a small amount to play with?

I would really like to cut back on a few of the things that aren't completely necessary,

so I would have a window for any unexpected costs.

What Katherine has to do now is separate expenses she can't cut,

like travel and accommodation,

from those she can, like nights out, lunches

and a student's best friend - coffee.

If you decide not to go out one weekend,

that would save you about £40. You think you could do that?

Yeah, I could do that.

You're spending £100 on lunches - that's about £25 a week.

-Could we see that, maybe, on one or two days of the week, you take in your own lunch?

-Yeah.

And do you feel like you need your coffee a day?

-Because some people, they can't really survive without their morning coffee.

-I do.

I could bring a flask with me.

That would probably maybe take about...

-..£10 off that.

-£10? OK.

Using the library could take £10 off Katherine's book budget

and she could trim £15 from her clothes costs.

After cutting down on non-essentials,

her outgoings have reduced from £617 to £522.

That's increased her spare cash by £95,

giving £120 a month to take care of any unexpected costs.

TILL RINGS

So, Katherine now has an extra £95 in her hand.

It feels so good.

It feel so much better knowing that I'm going to have a bit extra aside.

A lot extra aside, by the looks of it.

Your incomings and outgoings change as you go through life.

Whether it's pocket money, student loans or a pay packet,

it's not just about the money you have coming in.

It's about controlling what's going out.

But how is it working in practice for Katherine,

two months after we first met with her?

I find myself spending money on a lot less things that I don't need

and, yeah, I've been keeping to the budget for the most part.

I'm hoping to save up and get festival tickets for the end of the year

so, fingers crossed, that I've saved up enough for that.

TILL RINGS, COINS CLATTER

# Morning It's another pure grey morning

# Don't know what the day is holding when I get uptight

# And I walk right into the path of a lightning bolt... #

No-one likes to just throw away money,

and when we don't have much cash in the first place,

it's even more important to make the most of the money we do have.

Well, that's the theory, but do we actually do it in practice?

And how good are you at shopping around for the best bargains?

I'll go around the supermarket for ages,

adjusting my list, things I really need and don't need, two-for-one offers, that kind of thing.

I've made myself into a bargain-hunter.

I used to love bargain-hunting in New York,

but when I do it in London, it's like... It just looks weird.

"Aren't you Trevor Nelson? Why are you looking for a bargain?"

It's a cliche, but look after the pennies and the pounds will look after themselves,

and it's important that when money does come in that you still remain quite frugal in certain ways

and that you are careful, because then you see the money that you do make

really start to make a difference.

Meet Jack and Leanne.

They're both students in Stirling living in university halls,

which means it's up to them to get all their own grocery shopping,

and that isn't easy on a tight budget.

This is a typical load of shopping for them,

and I reckon they could save some money here.

Do you say that you're quite taken in by brands, or would you

opt for the cheaper version?

I'd probably say I'm quite taken in by brands.

Would you actually shop around to find the cheapest price, or would you just walk into shop and buy it?

I'd just do that. It's a lot easier.

If you're driving as well - saves petrol.

-So it's all about convenience for you?

-Yeah, definitely.

-Jack, would you say you're the same?

No, I usually try to shop around, to be honest. See what's cheapest.

Shopping around for cheap prices is one way to save money, but maybe

the most important way is to compare something called the unit price.

The unit price is the cost of a fixed amount of something.

In the supermarket, every kind of product has its own unit price.

It might be based on one orange, 100g pasta or 100ml of water.

It appears at the bottom of price tags on the shelves,

and by comparing the unit prices,

you can quickly decide which product is the best value for money.

So did Jack and Leanne ever look at the unit price?

-That usually helps in finding the cheapest options.

-What about you, Leanne?

I don't really take that into consideration when I'm shopping.

If I like something, I normally buy it.

I think there's probably more money that I can save.

If Leanne shopped a bit more like Jack,

she could reduce her £40-a-week food bill,

so we're taking her to a supermarket to try

and save some money by tracking down the cheapest unit prices.

Two ways to do that might be buying in bulk and changing brands.

First up, it's the healthy stuff, the broccoli.

This one here is 2.99 per kilo, but this 2.20,

so I'm going to go for this one.

'Pre-packed broccoli costs £2.99 here,

'but buy it loose and it's only £2.20.

'A quick look at the unit price has already got Leanne the best bargain.'

-Right, I'm going to go for this.

-So is that bit cheaper?

-Yeah.

You just need to work out if it's cheaper to buy a bigger...

-So, maybe go for a two or four-pint, as opposed to a one-pint?

-Yeah.

If I got this, I could share it with my flatmates, so it works out cheaper.

-So you're making more of a saving by getting two pints?

-Yeah.

Those ones are cheaper. Shove them in the trolley.

They bought six eggs before, but now they're buying ten.

-You've actually gone for a 10-pack?

-Yeah, it's better value.

'Buying in bulk has reduced their unit price from 25p to 19p per egg.

'Only buy in bulk if you'll use it all,

'and be careful of offers like buy one get one free, known as a BOGOF.

'The price is sometimes put up just before the offer begins,

'so it's not always the best value.

'If the unit price is too high, say bog off to that BOGOF.'

-That is...

-48.8.

-Yeah. How much is the one on the end there?

-Only 24.

-'Now Leanne is looking for mayonnaise.'

-Going to go for that one?

-I think I will.

'She is going for a supermarket own brand, not a household name,

'which halves the unit price

'from 48p to 24p.'

-Are you going to be brave, Leanne? Try something different?

-Exactly.

'Leanne's bought five items that originally cost £8.89.

'But has she made a saving?'

Leanne, all of this cost you £8.02,

and before, you spent just under £9,

so you've made a little bit of a saving, but bearing in mind,

you've got more milk, you've got four more eggs and you have more cheese.

-How do you feel about how much you've saved today?

-That's good.

It's a good lesson to know that I can actually save on my shopping every week.

There's always something cheaper.

Always look at the unit prices as well.

If Leanne had bought the same amount as her original shopping,

based on the unit price, she would have saved £2.22.

Scaled up, that could cut her costs by £10 a week,

so, to save the most when you shop, forget about brands,

ignore the offers and stick to the best unit price.

If you let them sell to you without being questioning, without being demanding,

you WILL get ripped off.

Not necessarily scammed, but you'll end up paying too much for things and buying things you don't need.

Remember, their job is to make money from you. That's why they advertise.

Your job is to try and get the maximum value out of the money in your pocket.

TILL RINGS, COINS CLATTER

Whether it's a student loan,

credit card shopping or cash borrowed from a friend,

more than two-thirds of 18- to 24-year-olds owe some form of debt in the UK.

So, where are we borrowing all this money from,

and why are people giving it out in the first place?

Many people take on debt in the form of credit.

You ask a bank, credit card company or someone else for money,

they check you out, and if they are happy, you get the cash.

But the money isn't yours to keep.

So, after a while, you need to pay it back.

Normally, the company that gave you the money wants to make a profit.

They do this by charging you interest,

so taking out credit usually costs you extra money.

But why would anyone want to do that?

Credit can be a way to buy things you couldn't otherwise afford,

like a car. Michelle is 19 and a student rep in Paisley.

She drives 10 miles a day to college in her mum's car, but now it's time for buy her own.

Today, we're on a fact-finding mission to the local car auction

where Michelle hopes to find out just how much a car

will set her back, and whether she'd have to take out credit on top of her savings

to be able to pay for it.

So, what would be the main use of the car for you, then?

I'd mainly be using it for travelling from my house to my college.

I think it'd also have to be fuel efficient as well.

I don't have hundreds of pounds to spend each month on petrol.

And cheap. Definitely, again, it has to be cheap. I'm a student.

I have no money.

-So, this is a no-no?

-Definitely.

-Definitely not. This is quite a small car.

I have far too many friends that have this car. I cannot be copying them.

Oh, oh, oh! Sorry. I need to have a nosy at this.

-You want to have a look at this one?

-I need to have a nosy at this.

-This would set you apart from your friends, wouldn't it?

-I do like a wee Beetle.

-Do you think you could really afford this, though?

-Probably not, and that upsets me.

-We can always see in the auction... It may surprise you.

-Yeah.

-AUCTIONEER:

-Volkswagen Beetle.

..50... 850. 950.

950. 955. 1,000 bid.

BIDDING CONTINUES INDISTINCTLY

Most of the cars Michelle liked went for more than £1,000,

so the next thing to work out is where she could borrow the money from

and interest that she would have to pay back on that amount.

First of all, we've done some research and we know

that your bank offers a typical APR.

Any idea what an APR is?

I want to say the A stands for "annum", or something, but I don't know.

You're nearly there. Its annual percentage rate.

Basically, APR means the amount of interest you pay back over a year

for the money you've borrowed.

It's based on the amount that's still owed.

At the start of the loan, you paying quite a lot

because you're paying interest based on the full amounts.

Near the end of the loan, where you don't owe as much,

you're only paying interest on that smaller amount.

-You know that your typical bank loan would be about 23.9 APR.

-OK.

So, we've got a calculator here online to work out how much

we'd be paying back every month. First question - what does it say?

-Enter the amount of the loan.

-So, how much are you looking to borrow?

-We'll go for the minimum, which would be... 1,000 did you say?

-Yes.

And the APR is...

-23.9?

-23.9.

-So, how much would you be paying back in total interest?

-£134.

-Does that sound good?

-It's OK.

-It's not bad, is it?

-How much would you be paying back every month?

-£94.50.

-Do you think you could afford that?

-I could try.

I could try very hard.

£1,000 is a small amount to a bank,

so they set a high APR of 23.9% to help them cover their costs.

Over 12 months, Michelle would pay back a total of £1,134.

There are other ways we can actually borrow some money as well.

-There are credit cards. How do you feel about credit cards?

-No.

I'm not a credit card person at all.

I'm just absolutely terrified that I would rack myself into so much debt.

Michelle is right to be cautious.

Unlike a bank loan, you can dip into a credit card again and again,

and it can be tempting to keep spending more on it.

You need to be really disciplined or a small amount of credit

could spiral into a much bigger debt.

Even though you're not that keen on credit cards,

-the APR on an average credit card is 17%.

-Oh! Lower than banks?

-Does that come a bit more appealing?

-A little bit.

But I am still just terrified I would rack it up into ridiculous amounts of debt.

I will still have a nosy.

-So, how much is the total interest?

-Ooh! £94.

So that is cheaper than the bank.

Providing Michelle can pay it back in one year, a credit card with an APR of 17%

could cost less - that's £1,094 over 12 months.

So, if you do take out a credit card,

you've got to make sure you can commit to the repayments,

make sure you pay off as much money as you can as quickly

as possible, so that debt is not a burden on your finances.

-There's another option.

-OK.

-Brace yourself for this.

-Have you heard of a payday loan?

-Yes.

The idea is you borrow a small amount

and you'd have to pay back the whole amount the month after.

If I told you the average payday loan

is something like 300% APR,

what would your reaction be?

So, the total interest...

£250! Uh-huh... Oh, my God!

Which works out to be how much of the actual...?

That's a quarter of the actual loan. That is ridiculous!

With a payday loan, Michelle would need to pay £250 extra after just one month.

If she didn't pay it back on time, the interest rate

and payments could climb into thousands.

-So, an option for you?

-Definitely not. No.

So, you are left with credit cards or a bank loan.

Credit cards work out better than I'd thought.

I'd just need to be good and hide it each month.

Just use it once, then hide it and never use it again.

Based on the APR alone, a credit card could be the cheapest option for Michelle this time.

But if she takes on this debt,

she needs to make sure she has the money AND the discipline to pay it all back.

Michelle might not have her own car yet, but by finding out all the facts first,

she's taking the driving seat with her finances.

Some good, simple rules.

Debt is bad if you can't afford to repay it and you haven't budgeted for it.

Debt is bad if you're borrowing money you don't need to borrow, you could do it a different way,

and debt is bad if it's frivolous.

You're not going to get any value out of it,

it's going to leave you with nothing except someone chasing you for the money afterwards.

Taking on debt in the form of credit is part of everyday life,

and for many people, the thought you can buy now and pay later is too difficult to resist.

So, it's easy to be tempted by credit,

especially if we don't pay attention.

Meet Karen. She's 21, works in a cafe and is a keen shopper.

For winter, that's pretty good.

Karen's debt problem began

when she went shopping to buy this suit for a job interview.

-What happened to you a few months back?

-Well, it was just...

-I went to buy a suit. I had 120 quid saved up.

-OK.

I went up to buy it and the woman was like,

"Do you want a store card with it?" Because I didn't have one. "Yeah, why not?"

A store card is not given to you by a bank.

It's actually given to you by a shop.

You'll see them advertised whenever you go into a high-street shop.

The shop does the same as the bank does - it gives you credit for spending in store.

Now, they also charge you an extra amount

if you don't pay back that amount on time.

-They have really nice tops in here.

-Avocado shaving cream?!

Store cards and credit cards allow you to buy stuff without

shelling out your own money to begin with.

But they can end up costing you more in the long run.

I got the suit then got the card.

She did the credit check, and everything.

I handed over the money.

"You don't need to pay for this now."

"What? Oh, my God, this is amazing!" I went and bought loads of other stuff with the money,

because I didn't have to pay for the suit right then.

-Did you think you are just getting the suit for free, then?

-No.

I knew I was going to have to pay for it but I just thought at the time,

"Oh, this is great. I can pay it off whenever."

About six weeks later, I got the letter through saying, "So, you owe us £120 for the suit."

I didn't really know what to do because I had no money to pay it. No money in the bank.

I took the letter, put it in a drawer and just kind of forgot about it.

When these letters came through, did you not think,

"I've got to sort this out. These are letters demanding that I pay up"?

Yeah, but I thought, because I didn't have any money,

that they couldn't take it until I'd got some, and then I could pay it off.

I didn't think they could take the money out my bank without any money being in there.

It can be like getting a lovely big voucher to go into that shop,

but actually, that isn't free money. You WILL have to pay that back,

and if you do fall behind on those payments,

you're going to have to pay even more than you would on a credit card, on a mortgage,

on almost every other type of debt.

I had no idea we had to pay interest.

I thought it was just you paid that money for the suit and you paid that money back.

The suit was 120, maybe plus about £20 or £30 more

on the interest rate.

But as well as the interest,

the bank charged her for being overdrawn, then, a month so later,

the company took another payment out of her account.

The bank then charged her for being even more overdrawn, and so on.

The £30 that they tried to take out originally for the first payment,

and then plus maybe about £50 more in bank charges.

As Karen ignored the demands for money,

the cost of her £120 suit crept up to over £200.

How did you end up solving the problem in the end?

I solved it with a really embarrassing chat with my mum.

-What was your mum's response like?

-She shouted at me for a bit. Said I was irresponsible.

Should've told her that I'd got a credit card and finally offered... Helped me out.

-Did you end up paying your mum back?

-Yeah, I did.

-Cappuccino?

-Yeah.

-'So, what are you spending habits like at the moment?

'Well, I get paid weekly, so it's just cash.'

I just deal with that every week and try and budget it.

I don't borrow money, I don't have an overdraft or anything.

I don't use cards at all.

If you are having problems with your money,

then it's always worth seeking help.

There are plenty of debt charities out there, there's the Citizens Advice Bureau.

There's no need to struggle on your own.

Always seek help if you do have debt problems.

TILL RINGS, COINS CLATTER

Staying on top of debt and spending is one way to make the most of your money,

but if you really want to be in charge, the best thing you can do is save.

But who thinks about saving when they're young?

Less than one-third of 16- to 24-year-olds in the UK have a savings account.

I wonder if my colleagues at Radio 1 and 1Xtra

have any good tips about how they've managed to save.

Try and not touch your money. If you don't physically have it, you can't spend it.

I've got a bit of money saved. I've had to stop the impulse buys and stuff like that,

so, start of the New Year, I will be able to buy a house.

If you are saving, there should always be a reason.

Even if it's like you're saving for the future or for a rainy day,

as long as you've got a goal and a motive, it always makes things easier.

There are loads of ways to save,

but how do you go from small amounts to stacks of cash?

My name is Nick. I'm aged 16 and I do a paper round every Sunday.

With the money I earn from it, I hope to buy a new bike.

My old bike's all right at the moment,

but I guess I could do with another one, just to help me get back uphill.

Make it more fun to go a bit faster.

Nick is at an ideal age to start saving.

With a clear goal and money coming in,

there are plenty of options open to him, so let's get down to business.

-Nick, you're 16.

-Yeah.

-Are you any good at saving?

I put money aside every now and then, so I guess you could say so.

Let's talk about your savings, then.

-You get £10 a week from your paper round?

-Yeah.

-OK, shall we write that down?

-£10.

-And £3 from my aunt, as well.

-OK.

-So...13.

But I put aside... maybe keep £5 just to spend during the week,

so I end up with 8.

So, £8 a week grows to savings of £416 over a year.

Nick could keep that safe under his mattress and it would stay the same.

He'd still have £416.

But if he put his money in a bank account,

he could make his savings grow.

That's because the bank will pay him

an extra percentage on his cash, called interest.

With a bank account earning 2% interest after a year,

Nick's £416 will earn an extra £8.32.

That's like an extra week's savings

without having to do an extra week's paper around.

So Nick's money has started working for him,

and every year, it works a bit harder because of something called compound interest.

Compound interest is where you earn interest on top of interest

in a savings account.

So, if you have £1,000 in year 1, and that's earning 10%,

then you'll earn £100.

So, in year 2, not only will you earn 10% on £1,000,

but that £100 that you earned in interest last year will also

earn 10% interest, so you'll get another £10 on top,

because 10% of £100 is £10.

Then, in year 3 of the savings account,

you'll earn interest on the interest on year 2, and so forth.

So how will Nick's money look after 10 years at 2% compound interest?

-How much do you think you'd probably make?

-Not too sure.

-I can tell you - it would be more than £4,500.

-Wow.

If Nick keeps up his weekly savings,

over ten years that 2% adds an extra £360 to his bank account.

That's the equivalent of 45 weeks' savings

without having to do 45 extra paper rounds.

And he could earn even more money if he took out an account with higher interest,

likely notice account. With this, you agree to give your bank 60 or 90 days' notice

if you want to take money out.

The advantage of this is that you'll actually get a slightly

better rate of interest - ie, you'll get more money from the bank

if you can lock it up for longer.

If Nick keeps saving £8 a week into a higher-interest account

that pays 4% and doesn't touch it,

it could add up to well over 6,500 by the time he's 30.

That's nearly £1,300 in interest for doing nothing.

So, Nick, we've done all of the figures, all the maths.

Any idea what plan of action you're going to take next?

I think I might just go and open a notice account.

With a notice account and compound interest building up,

Nick could soon be well on his way to that new bike.

If you've got cash, make it work for you.

Don't just put it under the mattress or in a piggy bank.

Get it in a high-interest savings account.

You're effectively lending the bank the money.

Make the money work for you. It will grow more quickly.

You lend it to them, they pay you interest on top.

It doesn't take much to stay on top of our finances.

Just a few simple steps can make all the difference.

And we don't have to be made of money to be healthy and happy,

but if we take control of the money we do have,

we might be halfway there.