More questions answered: the Bank of England

I'm Alex Dunn, Senior Supervisor in the Prudential Regulation Authority. I work in the part of the Bank of England which is responsible for making sure that banks and other financial firms are safe and sound.

Alex Dunn Bank of England

Q) Hi, what would happen if the financial crisis happened again? If it did, would it effect children?
From fair_analysis at Notley Green Primary School

A) The recession following the 2008 financial crisis had a huge impact. People around the world lost their homes, their jobs, their retirement savings, and, in some cases, their sense of safety and stability. Research suggests that the financial crisis also had a far-reaching impact on people who were too young to understand the events of the time. For example, when parents experience extreme stress, their children inevitably feel the effects. And while the economic outlook has improved for many families in the 10 years since the crisis, the children who lived through the crisis will have to live with the effects.

According to organisations such as Unicef, the recession hit young people extremely hard. For example, the number of young people who are not in education, employment or training (known as NEET) rose dramatically in many young countries. Unicef stated that in the European Union, 7.5 million young people (almost the population of Switzerland) were NEET in 2013 – nearly a million more than in 2008. The United States and Australia also had the largest increases in the NEET rate in countries outside of the European Union.

The impact of the financial crisis on children in different countries depended on how bad the recession was in the countries where they lived, and how well the economy had been doing before the crisis. It also depended on the quality of public health and education services, which can provide a ‘safety net’ in times of crisis. The poorest and most vulnerable children suffered disproportionately as a result of the 2008 financial crisis, with inequality rising around the world.

If there was another financial crisis, children could be affected in much the same way, which is why it is so important that we work hard to stop it happening.

Emma Sinclair Bank of England

I'm Emma Sinclair. I work in the area responsible for the design, production and distribution of our banknotes and my job title is 'Senior Manager, Banknote Engagement and Communications'.

Q) Do you think it is fair that people have to owe more money back then they borrowed. For example, if someone borrowed £10,000, they would have to pay £10,500 back but is that fair for them?
From harmonious_snail at Elaine Primary School

By Emma Sinclair, Senior Manager, Banknote Engagement and Communications
I work in the area responsible for the design, production and distribution of our banknotes.

A) Interesting question @harmonious_snail. Banks charge people more money than they borrow for three main reasons. 1) So that the bank can cover its costs, things like paying their staff and for their offices. 2) To cover the money that may be lost when some people don’t repay their loan. 3) To pay some extra money to the people that are saving with them.

The extra money banks charge (or pay on savings) is called interest and is usually a percentage of the money someone has borrowed (or saved). If they didn’t charge this banks would need to find another way of making money in order to stay open.

But the interest banks charge can vary hugely – and many people see this as unfair. For example, one bank may charge a customer 3% on a loan of £1000 and another may charge 8%. That would mean that while one person was paying back £30 in interest another person was paying back £80 for a loan of exactly the same amount.

Some businesses and products charge much more interest than this. For example, credit cards often have interest rates of around 30% and, separate to banks, payday loan companies might charge up to 1,500% a year! Shockingly, these companies often target their products at the people in society with the least money.

Action has recently been taken to cap the cost of payday loans and there are laws about how banks sell loans and make their customers aware of the interest rate they charge. This should make loans fairer. But still there is a huge variety in the interest rates, and often the numbers are very difficult to understand.

That is why is really important that whenever you are borrowing or saving money you look around for the best deal, pay close attention to the interest rate and make sure you understand how much you pay and whether you can really afford it.

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