OFT closes down Debt Advice Sites

The Office of Fair Trading (OFT) is going to ask at least thirteen businesses which run 27 websites, offering debt advice, to change their sites or shut them down. 

There is nothing wrong with offering debt advice, and obviously more people are turning to these businesses. However some of these sites attempt to masquerade as free advice sites, such as The Citizen's Advice Bureau, and do not make it clear that you will end up paying for the debt management plan that they set up for you. These debt management companies are deliberately misleading people by using website addresses similar to those of charities.

If you are need to ask for financial advice, do please ask the person who is offering to help whether they have a consumer credit licence.

The OFT will either prosecute those firms that are not licensed, or remove the licence from those that are, if they do not comply. 

"There is a danger that with increasing unemployment, more people could run into financial difficulty and we are concerned that at the point where they are most vulnerable and seeking advice, they are being deliberately misled by people who are trying to gain a commercial advantage from them," says Ray Watson, director of credit at the OFT.

"We believe they are misleading consumers by holding themselves out as free advice agencies such as Citizens Advice, the Consumer Credit Counselling Service, the Money Advice Trust and Advice UK."

The 13 companies have not been named, but many of the genuine charities have been concerned about fee-charging debt management companies who aim to give the impression they are connected with government organisations or charities.

Do research the company who you are thinking of approaching. You can look at the 'about us' tab in order ot get more information about them.

How to make financial decisions

Should people of lower cognitive ability be trained to be more financially patient? Apparently we don’t make financial decisions in as rational a way as we might like to think. Although financial studies can be carried out in situations that perhaps don’t accurately mirror the situations in which we might find ourselves in the real world, when deciding how to spend money, there are a couple of interesting studies out that supposedly shed more light on what happens when our financial decision-making is going on.

One study shows that men with more testosterone are likely to punish others involved in transactions, even at their own financial expense, and the other shows that apparently people with superior cognitive ability take more risks, and are likely to postpone immediate pleasure for greater gains at a later date.

Using the Ultimatum game as a testing ground, it was found that men with higher testosterone levels were more likely to reject low bids, even if it meant that both parties would then lose a cut of the final pool. The game features a budget from which a proposer offers a portion to a responder. If the responder rejects the proposal then both parties lose out.

‘Twenty-six male students played the Ultimatum Game with real money after having their testosterone levels measured by saliva swab over three days. Terence Burnham at Harvard University found the students with higher testosterone levels were more likely to reject a poor offer from the proposer: 45 per cent of the men with above-average testosterone chose to reject a low $5 offer from a budget of $40 compared with 7 per cent of men with below-average testosterone.’ 

It has been proposed that a reason for rejecting low bids is to build up a reputation for being, well, basically, ‘hard’. A low offer can be seen as an insult to the responder and to repeatedly refuse these offers means that perhaps one then is less likely to receive a low offer in the future, as by rejecting offers, the responder is ‘educating’ the proposer.

In the Proceedings of the Royal Society, Terence Burnham said: ‘If our understanding of Ultimatum Game rejections and other related phenomena can be improved through studies of hormones, morphology, and neurological activity the ramifications for economics might be quite broad and positive.’ 

In other research, carried out at the University of Bonn and the Institute for the Study of Labour, in Germany, by Thomas Dohmen and colleagues, it was shown that cognitive abilities might be related to financial patience and risk aversion. There is thought to be a relationship between prosperity and high IQ, and this study attempted to tie up these factors.

Just over 1000 German adults were tested, using subscales from the Wechsler Adult Intelligence Scale. David Wechsler, in 1981, wrote: ‘Intelligence is multifaceted as well as multidetermined…What it always calls for is not a particular ability but an overall competency or global capacity” (1981, p. 8).

According to Wechsler, intelligence is influenced by personality traits and other nonintellective components, such as anxiety, persistence and goal awareness. These nonintellective factors are important, according to Wechsler, but he remarks, ”no amount of drive will develop a dullard into a mathematician” (1981, p.8).

On the basis of this rather condemnatory approach to intelligence, half the participants had to then make a series of choices between either a guaranteed lower amount ranging from 10 euros to 190 euros or a 50 per cent chance of winning 300 euros. This then looked at their financial risk aversion. Remaining participants were then tested for their financial patience, choosing between 100 euros today or a series of larger amounts in 12 months time. There was a one in seven chance that participants would receive the outcome of one of their choices.

Armin Falk, from the University of Bonn, says, of the results on financial decision-making: ‘The more intelligent the test subjects were, the more patient and tolerant of risk they were.’ The researchers said that with cognitive ability assumed to be at least partly inherited, these new findings could help explain the intergenerational transmission of poverty and socio-economic status.  Whether or not this is the case, I would next like to see research carried out that tests whether these men who rejected low bids would also reject this hypothesis. People talk about ‘being able to afford to take risks.’ I would have thought that that is precisely the point. If you are poor, then you are more dependent on knowing for certain where your next money or meal is coming from, and not gambling it away.

Other research, carried out by Jaideep Bains, PhD, a University of Calgary scientist and his team of researchers at the Hotchkiss Brain Institute has discovered that neurons in the hypothalamus, the brain's centre for stress responses, interpret 'off' chemical signals as 'on' chemical signals when stress is perceived. "It's as if the brakes in your car are now acting to speed up the vehicle, rather than slow it down." says Bains.

 Normally, neurons receive different chemical signals that tell them to either switch on or switch off. The off switch, or brake, only works if the levels of chloride ion in the cells are kept at a low level. This is accomplished by the transporter protein KCC2. Stress can lower the activity of this protein, causing the brake, a neurotransmitter called gamma-Aminobutyric acid, not to work properly.

A loss of the brain's ability to slow down could explain why too much (although how much is too much is a question in itself) stress can have such a terrible effect on people's lives.

"There is still much work needed in the basic science of this phenomenon before there are any new advances in the medical treatment of stress," says Bains, while Yves De Koninck, PhD, and president-elect of the Canadian Association for Neuroscience and professor of Psychiatry at Laval University, believes that "This opens entirely new and quite unexpected avenues for controlling stress responses.” This research may go further to helping us understand why financial decision-making may appear to be irrational – if you are under stress then decision-making gets put under enormous pressure, as is possibly shown by these latter findings. All the more reason for trying to go easy on yourself if you are in debt, or feeling depressed and unable to cope. Just say to yourself, ‘Look after your GABAs and the pounds will look after themselves.’

Hewitt SA, Wamsteeker JI, Kurz EU, Bains JS. Altered chloride homeostasis removes synaptic inhibitory constraint of the stress axis. Nat Neurosci. 2009 Mar 1; doi:10.1038/nn.2274 

New Year's Eve

No I’m not cashing in on all the hype that starts around now, but thinking about what can be a very hard time of year for many people. 

Everyone asks, ‘What are you doing for New Year’s Eve?’ and their response to your response (usually in my case, a shame-faced mumble) can lead to crashing feelings of inadequacy and worthlessness.  There is a huge amount of pressure on us to have a good time, and the gap between what we’re actually feeling and what we think we should be feeling can make the lead-in to the New Year incredibly miserable.

My friend, Steve, at 39, reckons that the pressure can be intolerable. ‘At this time of year, I just want to go and hide. I’m newly single, missing my children, I’m worried about what my ex-wife is doing, and other single people are trying to get me to go out with them, or sign up for an incredibly expensive celebration somewhere, and I really don’t want to.  I can’t afford it anyhow. I can’t bear to be with other couples at the moment – our friends have been really nice and have tried not to take sides, but I can’t bear to see them together. And I’m scared of letting them see that. I’m feeling a lot of pressure and it’s getting worse as the date approaches.’

Not only are there social pressures, but these inevitably will lead to psychological pressures. There is an awful lot of talk about renewal at this time of year. A nauseating amount of pink oozy sweetness flowing from the self-help corner, aimed at ‘enabling’ and ‘transforming,’ ‘facilitating,’ etc etc. You know the kind of thing. (My site is possibly slightly guilty of this.) Makes you want to vomit (unless that happens to be your thing in the first place, in which case it should make you want to not vomit. Or, not to want to vomit.) 

So, suddenly, suddenly, suddenly, we are to transform ourselves, into better, thinner, kinder, non-chocolate-eating, non-expulsive, non-smoking and non-drinking, non-spending, non-fucking, non-grumpy people. What is it about all these self-help books and articles that makes you want to go out and commit terrible acts, possibly even to the authors of these books? 

A great article in the Times yesterday, by Alain be Botton, ‘Seeking words of wisdom,’ considers the fact that in the old days, self-help books, such as those written by Boethius or Marcus Aurelius were a bit more down to earth about what we can expect from life. 

I think Marcus Aurelius might possibly have been talking about how to cope with New Year’s Eve, here:

“When you let yourself feel resentment at a thing, you forget that nothing can come about except in obedience to Nature; that any misconduct in the matter was none of yours; and moreover, that this is the only way in which things have always happened, will always happen, and always do happen. You are forgetting, too, the closeness of man’s brotherhood with his kind; a brotherhood not of blood or human seed, but of a common intelligence; and that this intelligence in every man is God, an emanation from the deity. You forget that nothing is properly a man’s own, for even his child, his body, his soul, all come from the same God; also that all things depend upon opinion; also that the passing moment is all that a man can ever live or lose.” (Translation by Maxwell Staniforth.)

I think that Marcus might have been slightly annoying to live with; the sort of guy who always has to have his notebook and pen (ok, tablet and stylus) and I bet he didn’t do much washing-up with that detached attitude. Or maybe, even worse, he did, every now and then, with a sort of set, grim, martyred expression – ‘I’m just being stoical, darling.’ And, he probably made a note of it. To me, it just doesn’t smack of having to do housework and childcare and work and generally deal with stuff that makes a lot of us get just a tad hysterical. But it does pick up on a number of concepts (including ‘flow’) and I am especially drawn to the idea that on the one hand this is the only way, and on the other, the moment is all that is ever gone. It’s sort of like saying don’t worry, and don’t even worry about being happy, or resentful. 

Actually Freud said it quite well too: that a worthwhile goal (in his case, the goal of psychoanalysis,) is to transform ‘hysterical misery into ordinary human unhappiness.’

So next time your poor, over-burdened, anxious, and put-upon soul gets told it can be released, or made better if you only buy it whichever product it is for £4.99, just stop for a minute and think about that nice, ordinary, non-aspirational unhappiness. In fact, tell yourself, it’s a lifestyle choice.

One other thing – there is a lovely book, written, by of all people, Sylvia Plath, called ‘The It-Doesn’t-Matter Suit.’ Now this is a great story, just about putting on a magic yellow suit, that’s like a piece of armour.  The main man (seven-year-old boy) is called Max Nix, which possibly translates to a big, fat, zero, but we have happiness and yellow clothes and nothingness and families and the construct of her eventual ending all tied around a little, lovely book. Any of you write nicely enough to me, I’ll send you my copy. 

‘It is a handsome suit!’ said Paul.

‘Light as a feather!’ said Emil.

‘Bright as butter!’ said Otto.

‘Warm as toast!’ said Walter.

‘Simply fine!’ said Hugo.

‘Dandy!’ said Johann.

‘O my!’ said Max.

That gives you an idea. But the best thing is that although it appears to be bright and merry, we all know there must be a hidden, darker, meaning in there, because of how she eventually went. Her ending kind of eclipses the book’s. As Marcus Aurelius might have said, on being asked what sort of pillar of society he was, ‘Isn’t it Ionic?’

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