Apple Pay has now arrived in the UK. Paypal has now outgrown eBay. Visa Europe is said to be in talks to be bought back by its larger sibling Visa Inc. In short, digital payment systems are big business in every sense of the phrase.
Notwithstanding this, cash is still very much a part of life around the world. Is it, however, headed the way of the penny farthing bicycle?
Certainly there has been a push against cash in recent times. A UK MP has already suggested paying benefits on restricted-use payment cards.
The Danish government is considering allowing retailers to refuse to accept cash for payment. Meanwhile the French government has lowered the amount vendors are legally allowed to accept in cash for any single transaction.
Let’s look at three areas which concern us all and see where cash stands against digital payment methods.
From morning coffee to supermarket shopping and paying utility bills, there are all sorts of everyday purchases people make time after time. Some of these purchases are now impossible to make with cash. If you get your supermarket shopping online, then you need to pay online.
Some of these purchases penalize those who want (or need) to pay with cash. For example, pay-as-you-go utilities are notoriously more expensive than other tariffs.
Of course, there are still plenty of purchases where it is possible to pay with cash. In fact in the face-to-face environment, there are some places which essentially penalize people for paying by other means. Some retailers (generally smaller ones) put surcharges or other fees on card payments. Others insist on a minimum transaction amount before they will accept card payments. Some retailers only accept cash. The march of the payment cards, however, continues and shows no sign of slowing.
Cash is essentially an anonymous payment method. This makes it an attractive target for thieves. The means by which people can be relieved of their cash vary from subtle pickpocketing to brutal mugging and armed robbery. As with all violent crimes, the victims can experience lasting psychological shock and/or physical injury or even death.
Digital payment methods (such as payment cards) can be traced back to their owner. This reduces their attractiveness to traditional thieves. They can, however, become a target for fraudsters. Fraudsters aim to gain access to online bank accounts and digital payment methods to use them for their own purposes. If they succeed, the consequences for their victim can range from mild inconvenience to full-scale ID theft.
So the question becomes: “Overall, is online banking safer than using cash?”
Arguably the answer is yes. Online banking does not have the same physical security risks as cash does. It does have some risks, but the banks and payment companies have been working hard to reduce these. For example banks have introduced card readers for some transactions. Payment companies have introduced chip cards and schemes such as Verified by Visa.
Individuals can also take steps to protect themselves by running security software on internet-linked devices. This includes phones and tablets as well as computers.
The anonymity of cash is an issue for national security as much as personal security.
To begin with, “cash-in-hand” transactions have become strongly associated with tax evasion. Given that it is tax revenue which funds the police and armed forces, its loss could quite reasonably be considered a security issue.
Similarly cash provides a straightforward method for under-the-counter transactions to take place. For example, shoplifted goods can be sold face to face for cash. Admittedly they can also be sold online, via portals such as Gumtree and eBay, but that does at least create some element of traceability.
The UK has now experienced deflation for the first time since records began in 1996. The Office for National Statistics believes that the last time the UK experienced deflation was in the 1960s.
This was so long ago that you may well be asking yourself “What exactly is deflation and what does deflation mean for our economy?”.
Inflation v Deflation – What’s The Difference?
In very simple terms, inflation is when the overall cost of living goes up and deflation is when the cost of living goes down. The word overall is important because prices of different items can go up and down at different times.
How Is The Overall Cost Of Living Measured?
There are two main measures used for determining changes in the cost of living. The older method is called the Retail Price Index (RPI). This was introduced in June 1947. The newer method is called the Consumer Price Index (CPI) and was introduced in 1996.
Both systems use an “average basket of goods” to keep track of how much “average consumers” are spending. In other words, they select a range of items which they think most people need (or want) to buy. They then track the prices of these items.
There are, however, important differences in what they track. For example, the RPI includes the cost of housing (including the impact of Council Tax) but the CPI doesn’t. They also use different methods for calculating the average.
Summing all this up in a nutshell, the CPI is almost always lower than the RPI.
Can Inflation Be Managed?
It’s the Bank of England’s job to try. The BoE runs the Monetary Policy Committee. This has the job of achieving exactly 2% inflation per annum.
Of course, that’s a difficult job so the Bank gets a bit of breathing space. The government accepts inflation of between 1% and 3% per year.
If, however, inflation goes either higher or lower, the BoE is called upon to explain itself. The Governor of the Bank of England, must provide a public, written explanation of why it missed its target.
It must also advise the government what it intends to do to get back on target. The BoE’s main tool for managing inflation is the use of interest rates. In very basic terms, raising interest rates encourages people to save. Lowering interest rates encourages people to spend.
Why Does The Bank Of England Try To Keep The Cost Of Living Going Up?
In very simple terms, deflation has much the same effect as waiting for the January sales to buy Christmas presents.
Customers assume (rightly or wrongly) that the item(s) they want will be cheaper after Christmas so they wait until then to buy them.
Extended periods of deflation can essentially become a time of Mexican standoff. Buyers get used to seeing prices dropping so they put off making purchases to get lower prices.
Unfortunately this can put producers (and retailers) out of business. Over the long term, this reduces supply and can stimulate inflation. In the short term, however, it can lead to painful redundancies.
Right now, for example, low oil prices are leading to layoffs in the oil industry.
So Is Deflation Automatically Always Bad?
That is an interesting question. It’s possible that some deflation on essential items such as food and utilities might actually be helpful. It would give hard-pressed families a respite.
It might even be enough to free up money for other purposes. For example, it might allow families to pay down debts. It might allow them to treat themselves to some non-essential purchases.
The question would be whether or not the end producers would be able to support deflation for any meaningful length of time. If not, then the pendulum could swing the other way towards high inflation – and cause a lot of pain in the process.
However it is eventually phrased on the ballot paper, the underlying question is essentially the same. “Should Britain stay in the EU?”
Sometime between now and the end of 2017, the great British public will be required to answer it. So, is the grass really greener on the other side of the EU fence? What would happen if the UK actually did leave the EU? Let’s look at some of the key points of EU membership and see how the UK might be affected in the event of a “Brexit”.
Free Movement Of Citizens
The free movement of citizens is a key part of the Maastricht Treaty and therefore of the EU. It is what enables Polish workers to come to the UK. It is also what enables British retirees to make their homes in sunnier climates. Polish workers compete against local job seekers. British retirees may need to make use of their host-country’s medical facilities. There are economic pros and cons to many aspects of EU membership.
There are also security issues to consider. The recent “I am an Immigrant” campaign stressed the positive contribution immigrants make to the UK. At the same time, British teenager Alice Gross is believed to have been murdered by Latvian builder Arnis Zalkalns. He already had a conviction for murder in his home country. The EU’s open-borders policy, however, allowed him to come to the UK regardless.
There have also been issues with Polish criminals organizing sham marriages with people who want UK residency.
Likewise, there are ongoing issues with the Eurotunnel being targeting by refugees living in France.
Free Movement of Goods, Capital And Services (AKA The Common Market)
Much has been made of the UK’s access to the single/common market. This allows the UK to export goods to the EU without import duties being paid by the recipient. Of course, it also allows other EU countries to export goods to the UK without paying import duties.
In fact it allows people from the UK to go on shopping sprees in the EU and bring their purchases back to the UK without paying customs duty. In the early days of the EU this led to the infamous “booze cruises”. These were trips made, usually to France, specifically to buy alcohol more affordably.
Small and light, cigarettes are also easily brought back from other EU countries where the purchase price is lower. Of course, this has implications for the NHS and its funding.
Like the free movement of citizens, there are pros and cons to the single market. It is also worth noting that the UK already trades on a global basis in any case. This demonstrates that it is quite possible to import and export without a free-trade agreement being in place.
The Single Currency
During the negotiations for the Maastricht Treaty, the basis for the modern EU, the UK opted out of the single currency.
It did, however, sign up to a clause in the treaty which requires EU members to aim for “ever closer union”. This is not just a statement of ideals. It is a legally-binding requirement. In very simple terms, the UK’s decision to keep the pound is directly contradictory to the principle of “ever closer union”.
This raises significant legal questions over the feasibility of the UK keeping the pound in the long term. David Cameron has stated that he aims to negotiate and opt-out to this requirement. The price of him achieving this may be giving up the UK’s veto in the EU. The price of him not achieving this may be the UK’s giving up the pound and adopting the Euro.
There is one topic that no one likes to think about – death. And yet, it is something that we must prepare ourselves for in order to take care of our loved ones and ensure family protection.
Making plans for the end of life is a vital task and one that, if not dealt with by each of us, falls to our families and next of kin to arrange.
There are two main tasks that everyone with dependents must undertake in order to protect their loved ones, arranging life insurance and writing a will. This article is a quick guide to help you explore the options available to you.
Why do I need life insurance?
Life insurance is a policy that is taken out to pay off any major expenses such as mortgages, outstanding debts or university fees for children if you die unexpectedly. There are two main types of policy, term insurance and whole life cover.
Term insurance is the more basic of the two types of cover and insures a person for a certain period of time and up to a certain value.
This type of cover will only pay out if you die within the specified period of the policy, and if you live longer, the premiums that you have paid into the scheme are non refundable.
You can take out decreasing term cover, meaning that over the years, the contributions you pay into the scheme lessen.
This makes sense as you pay off your mortgage month by month, the lump sum your loved ones would need if you unexpectedly died would be smaller. It also means that the policy will become more affordable over time.
Whole Life Policies
Unlike term insurance, whole life policies are not limited by time, they only expire when you do. As with the other types of policy, they pay out when you die, but you do not have to guess when that might be.
Generally, these policies cost more, but they offer the you more flexibility and don’t leave loved ones in serious financial hardship if you die following the policy’s expiry.
Why should I make a will?
With the advent of the internet, making or changing a will has become quicker and easier than ever before. If you have ever asked ‘How do I make a will?’, it is now easier and more straight forward to do than it has ever been.
A will is a simple legal document that states what should happen to your money and property after your death. If you die without one, your estate will be legally termed intestate.
This means that a loved one will have to apply for probate – the right to be the executor of the estate and decide what happens to your wealth.
There are legal guidelines for executors on how wealth must be shared out in this instance, but without your own will, you cannot be sure that your wishes will be carried out.
What could happen if I don’t make a will?
Writing a will can also limit the amount on inheritance tax that you are exposed to, meaning that if you die without one, the tax man might be able to take a considerable part of your estate.
Despite the importance of writing a will in order to protect your wealth when you die, a 2014 survey revealed that only 48 percent of adults in the UK have drawn one up.
This lack of planning might partly be due to the fact that people generally tend to avoid considering their own mortality. It might also be due to a lack of quality information about the problems dying intestate can cause.
Will Writing is not part of the Openwork offering and is offered in our own right. Openwork Limited accepts no responsibility for this aspect of our business which is not regulated by the Financial Conduct Authority.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen
As spring moves into summer, people can start to think about their physical shape and how good they look in their holiday clothes. How about also taking a few minutes to look at your financial shape? Making sure you’ve ticked off all the boxes in this 10-step check-list will help keep them looking good too.
- Make a Will
If you have any assets at all and there is anybody in life you love more than the Inland Revenue, make a will. Even if you are young and single with no dependants, make a will. If you do die unexpectedly, it can make life much easier for your loved ones. Will Writing is not part of the Openwork offering and is offered in our own right. Openwork Limited accepts no responsibility for this aspect of our business which is not regulated by the Financial Conduct Authority.
- Get Life Insurance
If you have anyone who depends on you financially, then life insurance should probably be high on your agenda. The bad news is that even young people can die unexpectedly. The good news is that it’s relatively unlikely so young people tend to get the best life insurance deals.
- Start Saving into a Pension
It’s never too soon to start saving into a pension. Later, however, is still better than never.
Saving into a pension has two big plus points. Firstly contributions attract tax relief. Secondly, those in workplace pensions can get additional contributions from their employer.
The fact that pensions have these benefits means it may be worth contributing to them even if you are still clearing debts.
- Clear high-interest debts
Mortgages, car loans and student loans are designed to be paid off over the long term. These types of loans tend to have relatively low interest rates.
Personal loans and credit card or store card debt is an entirely different matter. This kind of debt tends to be very expensive. Therefore it is generally best to pay it off as quickly as possible. If your credit rating is good, you may be able to get a 0% interest balance-transfer deal. This can help to freeze the amount of the debt instead of having interest added every month. Ideally you should pay off the debt before the deal comes to an end.
- Look at Moving Your Mortgage
A mortgage is a significant expenditure. Make sure you are getting the most suitable deal you possibly can. If you’re not, see if you can move to a new mortgage.
- Learn to Budget Properly
Look after your pennies and your pounds will take care of themselves. Little purchases can slip under your mental radar and have a significant impact on your finances.
You don’t need to stop making convenience or impulse purchases. You just need to know where your money is going. Then if you are looking for savings ideas, you know where to start trimming your expenses.
- Organise Savings Pots
Some bank accounts will allow you to tag your money for designated purposes. This can be a great way of keeping on top of your savings goals. For example you could have dedicated pots for holidays or Christmas.
- Get an ISA
ISAs are essentially tax-efficient accounts. They can be used for cash savings or for a wide range of investments. In short, they help you to make more from your money and give less to the tax man.
- Take a look at investments
Investments can help to make your money grow over the long term. There are many different kinds of investments available to suit all kinds of tastes. Take a look and see what suits you.
- Make Time To Review Your Finances
As you go through life your circumstances will change and your finances need to stay in sync with those changes. Therefore make time at least once a year to ask yourself “How to organise my finances?”. This will help to ensure that you make any changes you need to.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE