Credit Crunch - does it affect you?

‘Credit crunch’ is a phrase you hear a lot these days – but what does it mean and how might it affect you? We also have information about: Money saving tips Fun for free Credit Crunch Christmas Plus, links to some useful websites.

When banks are predicting a problem with the economy they respond by:

• Reducing the number of loans, or ‘credit’ available for people.
• Or by making it more expensive to get this credit from the bank by increasing interest rates

This is called a credit crunch

Experts think the credit crunch happened for two reasons:

1. Banks and Building Societies lent too much money to too many people who were unable to pay it back.  In particular people with big mortgages found they were unable to make their repayments as it was more than they could afford.  As a result of this mortgage repayments were missed and some banks lost a lot of money.
2. People are spending too much money on things they can't actually afford such as new cars, plasma screen television and even iPhones.  In order to pay for these expensive purchases people are having to borrow money in the form of loans and credit cards.

Here are the figures:

• One in ten parents of 16-18 year olds in the UK say they have stopped lending money to their children.
• One in six parents of 11-15 year olds say they have cut the amount of cash available for purchases outside of their children's normal allowance.
• Around 21 per cent of parents are encouraging their teens to save or get a part time job.

On the positive side:

• More than 70 per cent of 16 to 19 year olds said they saved money each month.
• More than 50 per cent said they followed a budget and tried not to get overdrawn.

(Information from an opinion poll carried out for the Department for Innovation, Universities & Skills (DIUS))

There has been some talk of the possibility of there being a recession, but what is a recession and what does it mean for everyone?

A recession happens when people are not spending money and as a result companies make less profit and have to lay off staff.  As more people lose their jobs they spend even less money and so the country makes less money through the taxes we pay when we spend and the taxes we pay when we work.

A recessions can mean high unemployment, fewer jobs, higher prices on goods such as food and shops and business closing.