Jill Kerby

WILL THE RETURN OF CREDIT (SOME DAY) TEMPT THE RECOVERING SHOPAHOLIC?

Are you a recovering shopaholic? 

Have you abandoned your silver, gold or platinum card for …shudder…a bank debit card, or even a cash-only, no frills, no fees credit union account?

Do you still feel the urge to spend money you don’t have on stuff you don’t need as you walk down a popular shopping street or through a mall on your way to the discount grocery store?

Have you ever had a slip?

According to the Central Statistics Office, the good news (sort of) is that the entire country is still pretty much committed to its collective 12 step programme after a decade of bingeing on SUVs, designer kitchens, handbags and elaborate personal grooming services that were, frankly, the most ludicrous, wasteful  expenditure of all. (We are large boned, pink-faced Celts for crying out loud…)

Last June’s CSO statistics (the most recent at time of writing) showed that retail sales continued to drop by 1.6% that month compared to May 2013 and by an annualised rate of -1.5% for the year.  We did buy more books, newspapers and stationary in June (+3.5%) than in the previous month, but furniture and lighting shops were crucified (-12.3%) as were new car sales (-7.9%). 

Clothing and footwear was flat as a sandal at -0.5%, and even pharmaceuticals, medical goods and cosmetics, which should have been in demand given the weather up to then, were down a significant -3.8%.

The only sector with a huge boost was hardware, paints and glass sales, up nearly 10% on the previous month.

The stats are pretty much par for the course these past five years and evidence that we’ve pretty much abandoned the style, manner and volume of shopping we succeeded at during the boom years.

In that time, I think we’ve also discovered some unpleasant home truths about shopaholicism, such as, 

-       It especially strikes those who are hopeless with money anyway and who suddenly have access to cheap and easy credit;

-       Shopping is more fun than doing repetitive chores, visiting relatives or going to church during your spare time;

-       Having a line of easy credit makes you forget that your income hasn’t really been rising as quickly as the cost of living;

-       It happens gradually, then quickly, especially when your child’s teacher, the cleaning lady, the chit of a girl at the nail bar always seems better groomed/dressed than you or drives a better car;

-       Cheap/expensive stuff is just so alluring in the shop with its flattering lights, mirrors and fawning staff (ok, that never happened in Ireland) and the subliminal message for everyone to buy, buy, buy.

There are now digital libraries full of the pseudo-analysis about what happens in our brains when we buy stuff that we like the look or taste of, such as fancy red-soled shoes, chocolate and muscle cars.  They all conclude that the  “I’m worth it” factor is not just seductive, but also short-lived, which is why shopping can be so addictive. 

You don’t need to have taken Psych 101 to understand what such feelings can do to the weak-minded, or their even weaker-minded bank managers when both are exposed to endless cheer-leading by the media and markeers and tax-addicted politicians.

What I‘m wondering now, with all this talk about the bottoming out of the property market, the ending of our infamous Troika programme and the restoring of our sovereignty (that is, the return to global creditors instead of the EU/ECB/IMF), is whether there’s a danger that we could end up back on a regular fix of credit card, bank and mortgage loans?

Could the shopping virus that infected the nation in the naughties – the retail version of smallpox, successfully eradicated in the 1960s - unwittingly, or god forbid, intentionally, be let loose again on us by the politicians and their creatures in the central banks who artificially manipulate the price of money?

So far, it looks like only failed countries and banks that have been “successfully” bailed out with taxpayer’s money (and the future taxes of the unborn – a very special sort of consumer in Ireland) are being facilitated with a new crack at the credit punchbowl. 

As much as the retail banks are dying to extend the sweet elixir of credit again, they’re still unsure of exactly who’s good to pay it back.

Since modern economies are now wholly reliant on cheap credit and cheap energy – hence the global nature of this five year economic downturn – it’s only a matter of time before someone slides up to you and offers you a new credit injection.

It might look innocuous – and you really need that new washing machine – but it will be the first step back to that dark place filled with hair extensions (for the lapdog), diamante encrusted water bottles, Japanese garden features, and Croation buy-to-lets.

So consider the following:

-       Just say No!  (If it worked for the global cocaine trade it can work for the euro!)

-       Keep doing your 12 steps and stick close to your ex-shopaholic buddy.

-       Switch to an on-line only bank account with confusing, software. Your inability to manouvre through the useless website might just be enough to delay hitting the ‘proceed’ button.

-       Switch to the slowest, worst broadband/mobile package to discourage any temptation to shop the internet instead of the high street.

-       Avoid all contact with French-polished nails.

-       Move to Bulgaria, Albania (with their non-exchangeable currencies) or any other bankrupt European country without a printing press of its own. (This now pretty much includes France and Italy). Not only is the risk of getting cheap credit nil to zero, but countries like this haven’t even entered, let alone exited bail-out programmes.

Meanwhile, if you are a retailer, and still in business, you have my deepest sympathies and sincerest good wishes.

You are the true heroes of our modern age. You’ve somehow managed to keep supplying the necessary goods and services that we really need, rather than simply want, while paying suppliers and staff and keeping the banksters at bay. Hopefully, you’ve paid yourself this month as well.

It couldn’t have been easy remaining sober when everyone else was on the tear, even if it did mean some very nice short-term profits. As you have learned, too much credit not only destroys the infected shopaholic but it can spread to the relatively healthy shoppers too.

There’s a vaccine, of course. It’s called sound money. The kind that can’t be printed from thin air, has to be backed by real capital and that has to be earned and saved before it can be spent or lent out.

Thank goodness then for the October budget. I can’t imagine a more successful method of containing a new outbreak of shopaholicism.

That, and the sight of Minister for Finance, Mr Noonan reminding the nation that the medicine he’s prescribed, “is for our own good”.

 

Ends

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INSOLVENCY PIPS MAY CHERRY PICK DEBTORS WHO CAN “BRING SOMETHING TO THE TABLE” The first insolvency practitioners are now taking on clients. For the tens of thousands of people who desperately need their assistance, the job of finding one to take on their case may not be easy. The 14 registered Personal Insolvency Practitioners (PIPs) on the official Insolvency Service of Ireland’s website, www.isi.gov.ie represent 10 firms of accountants, solicitors and financial advisers and are located in six counties – Clare, Dublin, Limerick, Louth, Meath, Tipperary and Waterford. The majority are accountants and insolvency practitioners, one is a legal practise and one is a financial adviser. More names will be added to the register shortly. While each of the successful PIPs has fulfilled the ISI’s required minimum level of financial/insolvency experience, training and insurance, the range of skills, experience and resources per firm vary hugely. How they each intend to charge for services that include applying for the 70 day debt protection notice, meeting with creditors, preparing a successful insolvency application, arranging the collection and payment of the agreed monthly payment to creditors for the duration of the Debt Settlement Arrangement (DSA) or Personal Insolvency Arrangement (PIA) which can last for five or six years (and a year longer in some cases) is not clear-cut. PIP must also supervise the debtor’s ‘Reasonable Standard of Living’ income arrangement and even adjust it (and pay creditors their share) should the client receive any additional income, bonuses, inheritances, etc during their insolvency period. Friel Stafford and Grant Thornton are two of the largest, mainly corporate insolvency practitioners in the state. Grant Thornton is the biggest personal insolvency firm in the UK. They are expected to process large numbers of personal insolvency cases and have systems – and sufficient administrative staff - already in place to process the applications more quickly than small practises. The other practitioners on the ISI list, are much smaller firms, but we asked them all about their remuneration, specifically about initial fees or payments. From the outset, said some of the PIPs, debtors need to realise that the client/PIP relationship is entirely private, and it is the client, not the ISI that pays the PIP for their work. Many PIPs expect their total fee, per typical case, to amount to about €5,000 though it could be higher depending on the size of the insolvency. Some will charge a first meeting consultancy fee. This fee is paid even before the €250 and €500 respective fee to the ISI for a DSA and PIA protection notice certificate is paid that must be paid directly to the ISI if the case is accepted by the PIP. Some then expect to receive either an upfront cash or front-loaded payment (in the first year of the arrangement) that is agreed to by the other creditors. A few stated that they would accept an equal share of the debtor’s repayment pool over the agreed period of the insolvency. The following listed practitioners are waiving, for an introductory period at least, any initial consultancy fee: they include Grant Thornton in Dublin; Forest & Co in Dunshaughlin, Co Meath and ACO Business & Financial Solutions in Trim, Co Meath; Gloman Consulting in Limerick City; Kirk and Associates, Dundalk, Co Louth and Hogan and Co in Ennis, Co Clare. Initial meetings are expected to last up to two hours, and the majority said they would be reviewing their fee policy depending on how many clients fail to show up for those scheduled first meetings. Five of the insolvency practises are charging an initial fee: Mitchell O’Brien of the Insolvency Resolution Service in Dungarvan, Co Waterford charges €150 plus VAT fee for the first meeting, deductible against his total remuneration if the application is successful. Friel Stafford in Dublin and Hibernian Insolvency Solutions, in Clonmel, Co Tipperary will both charge a non-deductible €300 plus VAT for the initial consultation. John Lynch of Lynch Solicitors in Clonmel will be charging a non-deductible €250 plus VAT for the initial consultation. So far, just Grant Thornton in Dublin, Hogan and Co in Ennis, The Insolvency Resolution Service in Dungarvan and Gloman Consulting in Limerick have said they will be paid from the general creditor’s pool. The others are still considering how they will arrange their remuneration: two “may look” for c€1,000 upfront; the others said it is too soon to determine how every case payment will be arranged. There was some consensus however about who is most likely to succeed in a debt settlement or personal insolvency arrangement: it will be the person who has access to cash, or a saleable asset “to put on the table to their creditors.” People with only their income to offer, or worse yet, no income, if they are social welfare beneficiaries, may not only have difficulty finding a PIP to take their case, they said, but may have to consider the option of bankruptcy.

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YOUNG DRIVERS ARE A WORRY…SO IS INSURING THEM We learned to drive quite late: I was 28. My husband was 40 – and he only bothered to get a license because we were expecting our first child and I didn’t fancy driving myself to the maternity hospital. We are untypical (especially since I come from North America) but not unique: we have always lived in inner cities with good public transport links. I still have friends – well into their middle age now - in Dublin, Montreal and New York who still don’t drive. Yet driving is a great skill and one I’m pleased to have – like knowing how to type and navigate the internet, to cook, cut hair (I did a basic course in my comprehensive secondary school), balance a bank statement and sew and knit, though I haven’t done much of the latter two in the last 20 years. I still wish I was a better swimmer and knew how to grow my own vegetables and do rudimentary plumbing, but these are high on my evening course bucket list. Self-sufficiency, and this includes safe driving, isn’t something we teach in our schools or college but as a parent I believe my only child, especially because he’s an only child, must learn most of these skills too. And there’s the problem. He’s 19 and about to go to college, wants to learn to drive after being in Canada since the end of his Leaving Cert exams, where every kid, including all his cousins over the age of 17, drive. Their town is part of the huge, sprawling Greater Toronto area with congested, multi-laned roads and highways, poor public transport, expensive taxis and very little by way of cycle lanes. Last week, Aviva Car Insurance produced the results of a study about parents’ attitudes about their children driving. It found that just over half – 53% - would trust their kids with their car and 60% would put them on their insurance. According to the study, “Most parents worry about their teenager having an accident (79%) caused by distractions like other passengers (68%), phones (63%) or speeding (62%), while nearly half (47%) say that their teen would be distracted by listening to music while driving.” Two other issues – the high cost of insurance and lessons are colouring the reluctance of 90% and 64% parents respectively to encourage their teen’s desire to drive. It concerns me too. My boy, who fancies living in Canada some day, and with his eyes set on becoming a geologist, will have to learn. It isn’t as pressing a skill requirement so long as he lives (and gets summer work) in Dublin, but there are many more parents outside the capital or other cities whose young people must learn to drive at an early age to get to college or work. Adding a learner-permit driver to your own insurance policy “can be very expensive” says Aviva, but they insist that their deal (13 lessons for €499 with free cover on the parent’s policy for those six learning months) is good value when compared to the required 12 lessons all must drivers must take and then the cost of them becoming a driver on your policy. Meanwhile, if the young person achieves a top Module 3 competency level and a full license at the end of their instruction, the second six month period will be charged to the policyholder as if the young person had a full license, not a provisional one. If your child applies for their own insurance, the Module 3 achievement gets them a substancial discount on the cost their insurance. As an Aviva customer I will be carefully comparing this deal with the cost and quality of other driver schools and then the cost of putting my child on my existing policy or from a new provider. This won’t get over my nervousness about him driving at 19, and driving my car, but this is a life and job skill that he absolutely needs. And it reminded me of something my mother once said about each of her five children: “For as long as you all lived under our roof, we worried every day about you driving.” PS: The Insolvency Service of Ireland (see www.isi.ie) has finally launched its personal insolvency practitioner register. At time of writing there were only 14 names listed, four in Dublin and Tipperary, two in Meath and one each in Limerick, Meath, Louth and Waterford. More are expected to be added weekly, said the ISI. Next week, we will look at the different terms and conditions that the listed PIPs will be setting for new clients, who include those people who are applying for both Debt Settlement Arrangements with unlimited unsecured debts only and those applying for Personal Insolvency Arrangements with secured and unsecured debts up to €3 million. So far, only the Grant Thornton PIPs have stated that their payment will be derived from the overall creditor settlement and not from upfront fees

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WILL OCTOBER’S BUDGET FURTHER ERODE TAX-FREE INHERITANCES? Do you have a Will? Fewer than half of all adults in Ireland have bothered to write one and for any number of reasons. Some people say they have nothing of value to leave behind, or they don’t have any dependents who will be counting on them to make their departure from this world an orderly, if regrettable event. Others who do have goods, chattel and dependents don’t like the idea of facing their own mortality…so ignore the whole matter. Some just don’t care. Too many of us just haven’t got around to it yet. Writing a will is one thing, but it’s just one part of a wider, and important process. And from this October’s Budget will-makers may have to take account of the fact that the amount that Irish people can leave their loved ones will decrease…again. Back in 2008, just before the economy had the financial stroke that has kept it on foreign life-support (the tubes are coming out early next year and we should be eating and breathing on our own again, the government promises) a parent could leave an estate worth €521,208 tax-free to each of their children(Group 1). Grandchildren, siblings, nieces and nephews (Group 2) could inherit (or be gifted) €52,121 tax-free while more distant relations (like cousins) and strangers (Group 3) could receive €26,060. (In Ireland “favoured nephew relief” applies where a niece or nephew who works in a family business are entitled to the same status as a son or daughter.) The capital acquisition tax (CAT) payable on amounts in excess of those thresholds was just 20%. Several budgets later, these tax-free inheritance limits for the respective groups are now €250,000, €33,500 and €16,750 and the CAT has risen to 33%. A child receiving a €500,000 inheritance from their parent today would pay €82,500 in tax. The collapse in property prices has slashed the value of most family inheritances since so much of our wealth is tied up in our homes. But it does highlight the even greater need for some people - with a home, pension fund, some cash or other assets that altogether might be worth €500,000 or more – for some proper legal and especially tax advice. Some people are unaware that anyone who has continually lived in the same house as the disponer for at least three years immediately prior to their death, can inherit the property tax-free though they must continue to live in it for six more continuous years and not be a property owner themselves. But did you know that step-children and foster children are not considered as natural or adopted children under our inheritance laws; nor can they claim a share of an estate under the Succession Acts where there is intestacy (where no will has been made.) Special provisions need to be made in a will for such step/foster children. Divorce and separation are other life events that require extra care when making a will and need specialised tax advice (especially where judicial orders are being made regarding property, pensions and life assurance.) So what should we expect from the October budget regarding CAT provisions? Financial advisers I’ve spoken to say there is a very good chance that the tax-free thresholds will fall again, perhaps by another 3%-5% (bringing that top €250,000 Group 1 threshold down to between c€242,500 and €237,500 respectively), mainly because there has been no public outcry. The CAT rate itself could increase to say, 35%, again because it is seen as a more painless tax hike than raising income or consumption taxes like VAT. (Water charges will be calculated from late next year, payable from January, 2015.) Once these taxes are introduced, like, alas, death itself there is no avoiding them unless you act now at current rates by gifting a property or asset you may have been thinking of doing anyway. Also, there has been no tampering since 2008 with the minimum annual tax free gift amount of €3,000 which anyone can give to anybody they please without having to report the transaction to Revenue. Tax advisers say that despite the low sum it is an excellent way for older people, grandparents perhaps, who have surplus wealth (you need to work out your own needs first) to drip-feed their assets to their loved ones without triggering a large tax bill. Three thousand euro a year to adult children and to their children every year, whether to help with day to day household bills, to pay for big ticket items like utilities, health insurance, education costs is (where say, five or six family members are concerned) another €15,000-€18,000 that will escape the tax-man’s net. Perhaps most importantly these days, it is money that is needed now, when expenditure is greatest, and not when the adult recipients are in their 50s or 60s. Write that will…just write it with an eye on the tax and other unforeseen consequences.

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HEALTH INSURERS HIKE PRICES - AGAIN When’s the best time to announce bad news? A bank holiday weekend is a good choice and no one uses this hoary old PR device better than governments and, yes, health insurance companies that are raising their premiums again. Last week as I was checking out the Health Insurance Association website www.hia.ie on behalf of a reader with a travel health query (more on that below) I noticed that the HIA was flagging a number of price changes. In the case of VHI, they have raised the cost of premiums on five PMI plans (these are PMI 10 11, PMI 11 12, PMI 1411, PMI 16 11, PMI 29 12) by 2% from August 1 and within these plans they have eliminated seven private hospitals and clinics in Cork, Galway, Tralee and Waterford from those covered by these policies for all new and renewing customers. Laya are also raising premiums from August 1 on their Health Smart and Health Smart Family plans – by a whopping 25% - with increases of €244.12 and €307.12 respectively, but it is also reducing the cost of its Simply Health Starter and Family Care child and student plans by nearly 6% -6.5% respectively. Meanwhile, from August 22, the cost of the PMI 18 11 for adults will rise from €973.78 to €1011.11 or about 4% and premiums for children aged 1-3 will go from €339.50 to €352.22 per child and students from €369.11 to €384.45. Gone are the Hermitage Medical Clinic in Dublin and the Galway Clinic private hospitals for new and existing plan holders. 
 The VHI, Laya, Glohealth and Aviva are all introducing new and revised plans this month too, some with small, worthwhile changes to existing benefits and excesses but usually in exchange for something else, whether a slight premium hike and/or the loss of certain private hospitals and clinics. (This is mainly to mitigate the higher costs the insurers face for patients who are treated in public hospitals.) That no one has noticed these changes in August is not unusual since we are still deep into the summer holiday season, but what so many of the nearly two million holders of health insurance don’t realize is that while most renewals still talk place early in the year, new products, benefit changes and price hikes are happening continuously now as the five providers compete especially for the hugely important corporate market. It’s also why the most competitively priced plans continue to be offered in the corporate sector, which the insurers do not advertise outside that sector; you need to know the name of the corporate policy equivalent of the one sold to individuals if you want the (inevitably) better price point. And while the HIA website lists all live plans and will let you compare benefits, the volume and complexity of policies listed means you should be using a health insurance specialist broker when you renewal date approaches. Meanwhile, that health insurance question I was researching for a reader may interest many of you, lucky, like this woman and her husband to be in their early 60s, newly retired, and hoping to set off on an extended holiday to Europe, basing themselves in France. Her question was what they should do about health cover since their private policy only covered 31 day duration trips. Her husband, she said, had two health conditions, both of which were being successfully treated. This lady was right to be questioning her overseas travel benefits, as we all should whether your trip lasts 31 days, or the more typical week or two. The benefits provided by your PHI in the event of an accident or emergency are quite substantial, despite the 31 day single trip rule, and include repatriating you home and even covering some of the costs of a companion when you are in hospital and being treated. But cover only includes in-patient care: if you break an arm and are treated in a day clinic, the cost of treatment is yours, not the insurers’. Catching the flu and receiving a house call is not covered, nor are prescriptions costs, etc. Most importantly of all, however, is that the health insurer does not have to pay anything if you do not clear the treatment with them first. You must contact your provider, via the emergency number they issue all members, immediately, or get the person travelling with you to do so. Sole travellers, unless they are unconscious, need to find someone to contact the emergency line for them or the nearest embassy or consulate. The way around the 31 day rule – and the other limitations of private health plans – is, of course to take out a good travel policy that also includes health cover. Travel insurance usually covers 60-90 days duration trips so you will have to return home – even for a day – if you want to ensure coverage. Anyone with a chronic disease should be aware of pre-existing condition clauses: if you have a bad heart and have a heart attack abroad, a treatment claim will almost certainly be rejected. Finally, be aware of the limitations to the EHIC, the European Health Insurance Card that should take with you. It only allows you free medical care in state owned health facilities, not private clinics or doctor’s surgeries and you may have to pay for the treatment (as in France) and reclaim the cost when you get home, so again, keep all your receipts.

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