A Gaping Difference Between US and UK Money Advice



While researching different types of interest rates, I came across a UK financial advice site. Among the tips:

TIP: Open up a savings account for safe, and sometimes, shorter-term, savings.

TIP: Make sure you pay off all your debt before you start saving!

TIP: Make sure you budget and work out how much you can afford to save.

US readers: Have you ever, in your entire life, read a tip like that on a domestic financial advice site? I was shocked reading the boldfaced sentence above. How can paying off all your debt before saving anything possibly benefit you? Does it have something to do with a bigger social safety net? Or stricter lending laws? I’m perplexed.

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  1. Barnabee's Gravatar Comment by Barnabee on April 30th, 2009 at 9:33 am

    Unless I’m missing something fundamental, this is obvious: with the possible exception of very low rate mortgages, the amount you pay in interest on outstanding debt will almost always be higher than what you gain on any savings you have. Therefore, you are better off by using any money you can spare to reduce your debts than to save money whilst continuing to service those debts?

    The only thing you could argue is that even with debts it is worth putting money into a pension due to the tax breaks afforded, which can be very significant.

  2. Beth Robinson's Gravatar Comment by Beth Robinson on April 30th, 2009 at 9:35 am

    It depends. If your debt is accumulating at a greater interest rate than your savings account will earn and you have access to additional credit in an emergency then your dollar would seem to stretch farther if you pay off the debt first.

    I haven’t seen it put quite like that, but if I remember correctly it is one of the premises of Rich Dad Poor Dad – to put extra money towards your highest interest debt to pay it off quicker and then work your way down your loans and THEN start saving.

  3. Drea's Gravatar Comment by Drea on April 30th, 2009 at 10:14 am

    Thanks, Barnabee and Beth. That makes sense. My thinking was that you always need an emergency cash cushion (savings), then, once you have that put away, you start paying down debt. But if you have access to credit, that cash cushion isn’t as necessary.

    The other thing I read here all the time is that you should always put money into your 401K, which provides tax breaks as well as a retirement lifeline. That has always sounded like a bigger priority than paying down debt, which you can refinance or transfer anyway.

  4. Um, really?'s Gravatar Comment by Um, really? on April 30th, 2009 at 10:31 am

    You should always pay off debt first. Debt accumulates at high interest rates, and savings at low interest rates. That’s how a bank makes money (real banks, not the imaginary banks we have these days).

  5. John's Gravatar Comment by John on April 30th, 2009 at 10:38 am

    I suspect the advice is to put paying down debt ahead of major savings vehicles such as stocks. For purposes of their advice, I doubt they meant to put debt ahead of a modest emergency fund. Similar advice is often given this side of the pond, though with the exception of the first mortgage on your primary residence.

    What stuns me here is how many people advise to put some form of non-emergency savings ahead of even credit card debt.

  6. Mike's Gravatar Comment by Mike on April 30th, 2009 at 10:49 am

    There are also differences between US and UK. We do not have to worry about medical bills etc. Plus there is a basic state pension (dreafully low but still) and other pluses. Well, there has to be some benefits given the high taxes on companies and individuals.

    No matter what, though, putting your spare cash where the interest rate is the highest is a good idea – be it savings or debt.

  7. Jim's Gravatar Comment by Jim on April 30th, 2009 at 11:29 am

    1. Debt interest is higher than savings interest
    2. In Britain, savings interest is taxed, while personal debt interest is not tax deductible.

    If you save UKP100 at say 4% and pay tax at say 25%, you get UKP3 after tax. Instead you could pay off UKP100 of debt which if it’s costing you say 8% or UKP8. You’re UKP5 better off if you repay debt. Even more if it’s credit card or hire purchase debt.

  8. David Stillwagon's Gravatar Comment by David Stillwagon on April 30th, 2009 at 7:48 pm

    It is always good to have some money in the bank for a rainy day. Paying off your debt is fine, but you might need a little extra cash if an emergency arises.

  9. Jake's Gravatar Comment by Jake on April 30th, 2009 at 8:03 pm

    When you pay off all your debt before you start saving you free up the greatest tool you have available to you in building wealth, it’s called your INCOME. You can never borrow your way into wealth. Wish I could take credit for this, but http://www.daveramsey.com taught me almost everything I need to know about building wealth.

  10. Truthspeaker's Gravatar Comment by Truthspeaker on May 1st, 2009 at 1:33 pm

    I would guess it has something to do with paying the interest and common sense, rather than semi intellectual bullshit theories that people are trying to apply here.

    Pay off debt = less fees for debt = more money.

    Not that tricky a concept, really. Explains a lot about the good old US economy, and not cancelling world debt.

  11. rozyna's Gravatar Comment by rozyna on September 3rd, 2009 at 5:09 pm

    so i nedd help i brought something online and it says its 5.99 but in uk pounds so i need to howmuch that is in us dollars someone help me???

  12. Harry Swift's Gravatar Comment by Harry Swift on November 17th, 2009 at 4:07 am

    Money always get in used when it is keep safe.Because in a critical situation we should have some backup to handle our situation.

  13. dabbsdee's Gravatar Comment by dabbsdee on July 2nd, 2010 at 11:22 am

    Well, there has to be some benefits given the high taxes on companies and individuals.
    but if I remember correctly it is one of the premises of Rich Dad Poor Dad – to put extra money towards your highest interest debt to pay it off quicker and then work your way down your loans and THEN start saving.

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