# Cost of living and Credit



## Survey (29 Nov 2003)

PrimeTime tuesday night ran a story about the huge increase in credit. Private credit keeps rising and is now running at 17% yoy. Mortgages are running at 24%, and Mabs is reporting more and more ordinary earners running into debt problems.

Banks argue that is all ok, and that they screen ability to repay. Auctioneers and some Economists say that its all perfectly normal. But IFSRA is worried about excessive lending, and the consumers association says that a person on the average industrial wage can't enjoy a modest lifestyle now in urban Ireland without using credit. Has Ireland has become unaffordable for people in this bracket. Who is right? I heard the debate again on Today FM


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## Skinflint (29 Nov 2003)

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> the consumers association says that a person on the average industrial wage can't enjoy a modest lifestyle now in urban Ireland without using credit



I wonder what exactly they mean by "modest" in this context?


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## Cormac K (30 Nov 2003)

*Average*

The average industrial wage is €28,000. After paying tax whats left over isn't likely to allow a lavish lifestyle. I dunno but i guess modest means precisely what you could get for a net €22 to €24 k ? I earn nearly twice this amount and live in greater Dublin. I pay a mortgage of €130,000 and I can't save - the rest goes on expenses. I don't know how most people survive on lower salaries. I don't use credit.


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## Skinflint (30 Nov 2003)

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Some rough figures: €28000 gross is approximately €2000 take home monthly. A 20 year €130,000 mortgage at 4% is approximately €780 per month (less when mortgage interest relief is taken into account) leaving €1220 for other expenses and disposable income. Doesn't seem that tight to me. However, I see that the average Dublin house price is hitting €300K these days.


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## MOB (30 Nov 2003)

*Consumer association nonsense*

If the comment attributed to the CA is accurate, I am surprised.

("the consumers association says that a person on the average industrial wage can't enjoy a modest lifestyle now in urban Ireland without using credit"

Unless I am totally out of touch, the growth in private credit is not mostly to pay for food, or children's shoes, or schooling.  It is to pay for televisions, DVD players, newer cars, holidays and so on.   People who borrow are making a choice - instead of opting for deferred gratification (i.e. saving up for something) they are prepared to incur some extra cost in the form of interest in order to enjoy something now.    It is completely wrong to suggest (as the above quote seems to do) that you can have a better lifestyle using credit - you give up something (your future money) in exchange for something else (the right to consume now instead of later).  Who can say which is better?  Certainly not the CA.

Personally, I think that borrowing for non-essential, non-productive assets (other than your home) is silly.  But I respect the right of others to disagree and to incur the cost of borrowing so that they can have whatever it is they want now instead of later.   Undoubtedly many people do not make informed choices - in that credit is frequently sold rather than bought.   The role of bodies like the CA should be to ensure as far as possible that people make informed choices.


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## Sinbad (1 Dec 2003)

*Credit*

MOB is right - in the theory of the thing, but the idea that credit is used just for  DVD's TV etc runs the danger of stereotyping. In the past few years there has been a noticeable increase in stealth taxes, things like waste charges and parking fees where before there was none.

Its all very fine those of us on higher incomes extrapolating that €500 per week isn't restrictive, but I suspect that it is, if you had it yourself. In the recent past I've ran a cash diary for about three month's and I was shocked at what the family was spending, and not just on non-essential items. I'm not sure if the consumer group are right, but my guess is that they are hitting a real issue for many workers who are relatively young and trying to make ends meet while paying off mega mortgages.  

Maybe Skinflint is being to hard on Cormac K?


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## Skinflint (2 Dec 2003)

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> Maybe Skinflint is being to hard on Cormac K?



I was simply crunching the numbers and giving my own personal opinion. I have lived on €118 p.w. unemployment benefit in the past (admittedly with no mortgage/rent overheads) without undue hardship as it happens.


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## ninsaga (2 Dec 2003)

*Re: .*

.
Some rough figures: €28000 gross is approximately €2000 take home monthly. A 20 year €130,000 mortgage at 4% is approximately €780 per month (less when mortgage interest relief is taken into account) leaving €1220 for other expenses and disposable income. Doesn't seem that tight to me. However, I see that the average Dublin house price is hitting €300K these days....

..open to original poster to comment on this but 780Euro is juts the mortgage, there is also the home insurance, life assurance & other possible (accident illness, redundancy. Then of course there are the household utility bills. Running the car etc. (& don't forget to eat) That quickly enough starts to deminish the 1200Euro left over per month...

Guess my point is that even earning over the industrial norm doe not mean that one can have a 'lavish' lifestyle.

ninsaga


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## Skinflint (2 Dec 2003)

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> 780Euro is juts the mortgage, there is also the home insurance, life assurance & other possible (accident illness, redundancy



Yes - but I assumed an interest rate 0.5% to 1% higher than prevailing rates to allow for additional costs such as these. Obviously it doesn't include utility bills etc. My point is that c. €1220 to cover these and any other essential (or even non essential) outgoings is hardly insignificant. I certainly could live on it. I've lived on far less.


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## Egghead (2 Dec 2003)

*Above*

I respect Skinflint's point of view, but I'd be suspect that its representative of the norm. Skinflint might instead represent the Ebeneezer Scrooge among us. Skinflint hasn't chosen his or her pen name by accident!

€500 per week quickly evaporates in a city. According to Morning Ireland, there's more today in the INDO and Examiner I think.


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## Adolhus Briggs (2 Dec 2003)

*AIW*

The average industrial wage is nowhere near 28k, I don't care what anyone says. I'm not sure who was included in this survey to arrive at this figure. 

I earn mid 30's in salary. but for years I worked for an "industrial wage" in a factory in Galway, which equated to about 15K (Euros) before tax and I doubt very much that this has gone up. My former colleagues, who I am still in contact with, have said they find it harder and harder to survive on what they earn as prices go up.

 We supplemented our income by working as much overtime as we could but even then the hourly rate was so pitiful that we never brought home much green. It annoys me to hear 28K being quoted as the AIW.

David McWilliams interviewed John Pilger a few weeks ago on Agenda and Pilger laughed in his face when he claimed that the average industrial wage was 17 Euros per hour (Works out a 34K per annum) When David began to argue the case Pilger just said something to the effect of "I don't think I'd have to look too far to prove you wrong on that one." He was right.


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## Egghead (2 Dec 2003)

*Above*

Good post, confirms my suspicions-thanks. If it is the case that credit is being used for normal cost of living items, we are heading into uncharted waters.Anybody know how the AIW is calculated in simple English?


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## daltonr (3 Dec 2003)

*AIW In Plain English*

The following is from a few years ago, so ignore the figures.

The concept of the average industrial wage is one with which many of us are familiar. The average industrial wage is the average annual wage paid to those in the Industrial sector. The Industrial sector, as defined by the Central Statistics Office, includes the manufacturing, mining, and quarrying, and the electricity, gas and water
sectors only.

The average industrial wage in Ireland varies considerably across the twenty-six Counties. The average value for the entire country is £14,461.41. However, extremes can be found in Counties Dublin and Donegal, where wages are £18,334.41 and £10,853.24 respectively.

[broken link removed]

-Rd


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## Egghead (3 Dec 2003)

*Txs*

Thanks Daltonr. Any views on the main question?


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## Protocol (4 Dec 2003)

*Average wage in industry*

The average wage in industry, according to the CSO, in Ireland, for June 2003, is:

13.56 per hour
= 540.27 pw
= 28,094.04 per year

Protocol


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## Adolphus Briggs (4 Dec 2003)

*Average wage in industry*

Load of b*llocks. Sorry but its just completely wrong. see my above post.


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## Skinflint (4 Dec 2003)

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Hmmm ... the CSO statistics versus AB's personal story and Robert Fisk on the radio? I think I know who I'd give most credence...


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## Protocol (4 Dec 2003)

*CSO data*

CSO data are professional, reliable and accurate.

The link to the latest data on earnings in industry is:

[broken link removed]

Have a look at it.

BTW, average earnings in the Public Sector are 700 pw.

Protocol


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## Protocol (4 Dec 2003)

*Stats*

Note that this average wage includes everybody working in Industry, not just operatives on the production line.


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## Skinflint (4 Dec 2003)

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> CSO data are professional, reliable and accurate.



Exactly - that was my point!


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## Protocol (4 Dec 2003)

*average vs. experience*

Yes, I agree, my post was responding to Adolphus Briggs.

Note that theses figures are merely averages, and may hide huge wage dispersions within industry.

e.g. pharma and chemical industry = higher wages
textiles = lower wages


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## ajapale (5 Dec 2003)

*Re: average vs. variation*

Averages on their own are very limited. However, averages with some measure of variation (ie standard deviation) tell a much fuller story. I notice that the cso does not quote the standard deviation on this report, I think it would be very usefull if they did.
ajapale


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## daltonr (5 Dec 2003)

*AIW*

One thing confuses me though.

In the Budget coverage it's been said a couple of times that 1/3 of workers are now paying rate at the top rate of tax.

But if the Average Industrial Wage is around 28000 then surely almost half are!  Unless there are huge swathes of people on less than 28000 who are not part of the calculation.  Why make them part of one calculation but not part of another?

Also, with the AIW expected to be 29400 (i think) next year, surely the percentage on the top rate will be over half.  Again unless there are huge number of lost souls on low income.

This may explain Adolphus Briggs' feeling that the AIW figure is too high.

On the original question, I've started reading and hearing stories about Illegal Money Lenders again.  Last time I heard these was in the 80's.  All statistics aside that tells it's own story.

-Rd


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## Adolphus Briggs (5 Dec 2003)

*AIW*

I wouldn't dream of implying that the CSO are anything but professional and I think they do an excellent job. But in the context of a discussion about personal finances, the quoted AIW is being bandied about as if everybody is earning 28K a year. If the standard Deviation was published with the AIW report then it would be pretty clear that there is a huge gap between the rich and the poor.

I realise that industrial wages are not just about production operatives but given the very large (though shrinking) number of these workers, who definitely don't earn much more than 16-17K tops, they are a section of society that cannot be ignored, particularly when it is this section of society who are most likely to develop the very debt problems we are discussing here. Add hotel workers, cinema employees, sandwich bar staff, and all the other badly paid service jobs to the mix and you have a very significant number of citizens who fall well below the AIW.

While I realise that anyone can get into debt, cash flow plays a significant part in getting out of it and cash flow is simply not available to low earners who are suffering from massive credit card debt, car payments and 100% mortgages (The CU "deposit" trick is practised widely) The 28K figure should not be used when discussing this particular type or earner as it has no relevance and will lead to incorrect conclusions about the individual's ability to service consumer debt.

And Skinflint, it was John Pilger, not Robert Fisk, but you had a valid point. I'm only telling as I see it around me. I personally think its time to start teaching financial responsibility in school, may be instead of Irish, I know which one I'd prefer my kids to learn.


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## daltonr (6 Dec 2003)

*Re: AIW*



> I personally think its time to start teaching financial responsibility in school, may be instead of Irish, I know which one I'd prefer my kids to learn.



I agree, but perhaps they could start teaching Personal Finance at the Irish Speaking Schools and you'd get the best of both worlds.

Apparently these schools punch well above their weight at exam time.

-Rd

"Rich is better than Poor, 
  if only for financial reasons"
-Woody Allen (I think)


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## unreg (6 Dec 2003)

*useless statistics*

its quite feasible that the average industrial wage is 28k while most people might be earning under 20K - I don't know. 

Arithmetic Averages for salary figures, house price figures, etc are not useful as they are always skewed by the few people who are earning very large salaries. It makes more sense to look at the median - by definition 50% of people earn more than the median salary.

There are many more lower paid jobs in the service and retail sectors, where most of the jobs growth has been over the last few years.


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## Survey (10 Dec 2003)

*Above*

I work, outside of office hours, in the voluntary sector and I'm very very interested in what the Consumer Association is now saying because it concurs with a view I've had for some years. I'm very interested in this discussion. Do you think that people on the AIW or marginally below are forced to resort to credit to live in Ireland, or is the problem over-stated?


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