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Killarney Credit Union urges parents to shun moneylenders at back-to-school time
A new, national survey has identified a rise in the number of parents in debt due to back-to-school related costs. Well over a third of parents in Ireland (36%) now say they are getting into debt trying to cope with costs at back-to-school time. This compares with 29% who reported being in debt last year. The worrying findings were revealed in the study commissioned by the Irish League of Credit Unions.
More than two thirds of parents in the study also said that they found back-to-school costs a financial burden. Nearly half (46%) said meeting costs was their biggest back-to-school related worry. Close to one third of parents said they would be forced to deny their children certain school items this year because they could not afford them. Extracurricular activities and new school shoes were amongst the items to be cut from the budget this year.
Reacting to the findings, Helen Courtney Power, Business Development Officer of Killarney Credit Union said that the credit union is all too aware of the struggle for parents this time of year. “We do see parents approaching us around this time of year requesting assistance with either budgeting and saving for the back-to-school spend, or with taking out a loan to see them through. It’s understandable that back-to-school costs are seen as a financial burden for so many when parents are paying out €999 for every primary school child, and over €1,300 for every secondary school child in their household.
At Killarney Credit Union, we offer a special Back to School loan with an affordable APR rate of 6.2%*. The loan is typically approved within 48 hours and there are no hidden transaction fees or charges. As always, we are happy to work with parents to structure repayments in a way that suits their individual circumstances.”
Of concern for the credit union was the finding that, of those parents who said they were getting into debt, more than a quarter (27%) said they had turned to a moneylender in an effort to cope with back-to-school costs. This was a noticeable increase on the 20% last year who had opted for a moneylender.
Commenting on this finding, Helen said, “I would really encourage these parents to reconsider approaching a moneylender, some of whom charge APR rates as high as 188%**. This can lead to a recurring cycle of unnecessary debt and panic borrowing. We offer a service called the Personal Micro-Credit Scheme or ‘It Makes Sense’ which was specifically designed to assist social welfare recipients who feel they have no option but to borrow from a moneylender. Our welcoming staff are always on-hand to answer any queries in relation to this loan.
* For a €1,000 1 year variable interest rate loan with 12 monthly repayments of €86, an interest Rate of 6%, a representative APR of 6.2%, the total amount payable by the member is €1,032.
Information correct as at 31/07/2018.
** Central Bank of Ireland Register of Moneylenders, July 2018.
Questions and Answers
Why are you limiting/imposing a savings cap?
The Board of Killarney Credit Union took the difficult decision to limit savings to €30,000 per member account after a significant increase in the number of cash deposits made at the credit union and the knock-on implication this has had on the credit union’s ability to maintain the regulatory reserve set out by the Central Bank of Ireland, which is a minimum of 10% of our total assets.
This means that for every additional €100,000 of savings, we must allocate €10,000 from our surplus / profits to our Capital Reserve, and this can have the effect of depleting the amount available to pay a dividend at year end and roll our new services e.g current accounts etc
We also face the challenge of a low interest rate environment which is greatly reducing the investment income that Killarney Credit Union earns on its deposits. Due to the high level of on demand savings held by the credit union, over €22million of excess funds must be placed in investments which we are receiving a very low or zero interest rates. There is also the possibility that the credit union will be charged by the banks for taking deposits in the near future. Therefore, the low interest rate environment is also impacting on our ability to generate a surplus.
How many members will this affect?
This will affect approx. 600 member accounts in total which is only 2% of total membership.
What is the saving restriction? The credit union now has a saving restriction of €30,000 per member account. This means that each member can only have €30,000 on deposit with the credit union. If anyone currently has over that amount in savings here they will have to withdraw them to bring them to the €30,000 limit. Members who have less than €30,000 can increase their shares to €30,000 – but no more than that. Joint members can transfer funds to each other to bring their accounts under the 30k limit.
What about members with savings under €30,000?
If the member has less than €30,000 they are free to increase it to this amount, but to no more beyond this level. Staff will be tracking this to identify members that are reaching the limit and the member will be advised accordingly.
What about members with savings above €30,000?
Members above €30,000 are encouraged to withdraw funds to comply with this cap. Members in this category cannot make lodgements to their accounts until the balance goes below €30,000. Members will be encouraged to bring their savings down to the limit before the 30th September 2018.
How long will the cap last for? The Board of Killarney Credit Union will keep the savings restriction under constant review, if they make any decision to change the current cap, members will be informed.
Does this mean the credit union is in difficulty? No, this has no bearing on the day to day operations of the credit union. Killarney Credit Union is adequately capitalised at €12m and has assets of €113m. In the past year, savings have increased by 6% and stand at €99m –and we must meet the regulatory reserve of 10% of our total assets at all times.
Each time our savings increase, we have to allocate more money from our surplus funds to meet this regulatory reserve, therefore reducing the amount we have available to pay out a dividend or loan interest rebate. It also reduces the amount we can afford to invest in new services and new technology options that can benefit all our members.
To reduce the impact of this savings growth, the decision was reluctantly taken to limit savings to benefit the greater number of our members.
Will this affect the dividend offered? Last year Killarney Credit Union paid a dividend of .05%, worth €44,000 to members. While it is too early this year to determine what rate of dividend if any we will pay out, we will be communicating with members directly to inform them once we are in a position to do so.
Are my savings safe here? I can assure you that your savings remain safe and secure at Killarney Credit Union. We are a financially strong and stable credit union with €12m in capital reserves and €113m in assets. We made a surplus in 2017 of €609,601.
In addition, your savings continue to be guaranteed by the Government Deposit Guarantee Scheme up to €100,000.
Does this mean the credit union cannot give out loans? Killarney Credit Union is in a strong position to give out loans, subject to appropriate assessments being completed. Our ability to lend is in no way affected by the savings cap. We continue to provide valuable loan services to the local community.
I’m affected by the savings cap of €30,000, what will I do now?
You will receive a phone call from a credit union representative who will advise you of your options. You will be required to withdraw funds to bring them below the €30,000 cap, this can be done by cash, cheque or EFT. Please being ID (photo and current address) to undertake this transaction. We cannot give out financial advice to members on investment or other savings options. You are recommend to talk to your financial advisor.
I have received a letter advising me I am nearing the savings cap. How will this affect me?
Members who reach €30,000 in savings will be prevented from making further deposits until the balance on their account falls below €30,000 (this will apply to all cash, cheque and EFT transactions).
Please take note of your current balance and ensure that it does not exceed the €30,000 limit on savings. You may find out your current savings balance by contacting the credit union directly or by registering for online banking.
We have a range of back to school loan options available to members. Why not make a quick loan enquiry and we will call you back.
Back-to-school time might seem like a long way off at the moment, but a significant number of Irish homes will have no choice but to start preparing for the associated costs.
Many parents will need a little financial assistance, whether it be dipping into their savings, borrowing from loved ones or taking out small loans. In fact, three quarters of parents of school-attending children say they view the back-to-school spend as a financial burden, with 29% saying they will get into debt. The findings were revealed in the 2017 Back to School Costs survey commissioned by the Irish League of Credit Unions.
The same survey found that on average, parents were spending €1,209 per school-going child to get them ready for the school year ahead. The cost has continued to increase over the years and was up 2% on 2016, and up 4% on 2015. In fact, a substantial one in four parents said they would be forced to deny their children basic school items in 2017 because they simply could not afford them.*
Helen Courtney Power, Business Development Officer of Killarney Credit Union says that many parents can be tempted to use quick, but ultimately expensive means to fund the back-to-school spend.
“With more than a quarter of parents saying the costs will negatively impact on household bills, it’s very understandable that it’s a significant source of stress and that many might feel the easiest option is just to use the credit card or worse, turn to a moneylender. However the interest rates with these options can be extremely high, and parents can find themselves in significantly more debt than they had planned for. We would urge all parents in the South Kerry area who might be considering these options to come in and talk to us in the first instance. We offer a range of short term loan options which is typically approved within 48 hours. We can also work with parents to ensure that the loan repayments are structured in a way that suits their individual circumstances best. We never charge administration or transaction fees, or penalties for paying a loan back early.”
Helen continued: “I would also say to parents to feel free to drop into us for a chat about how to budget and spend within their means, so as to ensure they don’t get into unnecessary debt around back-to-school time. For those who are considering a loan, we stand ready and willing to lend to new credit union members, as well as those members we may not have seen in years. There is no need to save with us for a set period of time before applying for a loan. Our aim is for all parents in the South Kerry area to enjoy the summer holidays with their kids without the worry of a looming financial burden.”
*All findings from ILCU 2017 Back to School Costs survey