We are caught in a debt-trap and we all need to talk about it
Debt has been very high on the news agenda recently. Greece for example: a country plagued by debt, which decided in early days that rather than taking the default route would take on new loans from German, French and other creditors in return for harsh and predictably ineffective austerity measures, and which has this week elected a government who will fight tooth and nail to renegotiate their debt repayments.
So what tremendous timing it is to see Mark Carney, the governor of the Bank of England, attack the spectre of austerity by saying the single-currency area was caught in a ‘debt trap’.
“Low growth deepens the burden of debt”, he told a Dublin audience on Wednesday.
“Workers become discouraged and leave the labour force. Prospects decline and the noose tightens.”
Of course we don’t only have to look out to the wider Eurozone to find the burden of debt. This week is Debt Awareness Week, launched to raise awareness of post-Christmas finances among UK households and to help them ‘take back control’.
However, nothing looks more out of control at the moment than personal debt. In a frightening but entirely necessary move, StepChange has put up a live feed which shows the total amount of debt it has dealt with as an advice charity that week on its website. When it was last updated at the time of writing at 5pm on 28 January, the total amount dealt with was a huge £136,786,623.
2015 was predicted to be the year of a further personal debt explosion. A This Is Money study found, for example, that there are now twice as many who believe their finances are set to worsen in 2015 than did in 2014.
Despite some early wins such as the imposed cap on the cost of a payday loan by the regulator the Financial Conduct Authority, and their current investigation into the credit cards industry, a lot more will be needed to try and reverse the nation’s addiction to credit.
Surprisingly, there has been a fall in consumer credit use from 2008, using Bank of England data, but this is from a dramatic high of £208bn collectively owed. Currently, for unsecured credit, we owe £168bn, which equates to a terrifying £5,800 per UK household.
A report published last week by CUNA Mutual, the insurer, found that a third of consumer borrowing was carried out to cover existing debts. While the coalition government may wish to celebrate the return of Britain the financial powerhouse, one cannot help feel that the recovery is unevenly tipped when you see the Britons piling debts onto debts just to get by.
And just this week research by Prudential, a financial services company, found that one in five people retiring in 2015 will do so with debts averaging at about £21,800. While the majority of retirees expect to pay off their debts within three years- you can understand their needing to be optimistic – 9 per cent believe it will take them nine years or more to pay back, and five per cent don’t believe they’ll ever pay them off at all.
Though it makes for shocking reading, it is most praiseworthy to have these organisations and others such as StepChange and Citizens Advice, bring to life what debt actually means for people. Left with government produced data we only get a partial sight of numbers high and low to work with, but charities, advice agencies and financial services research departments make it real.
A project I’ve been working on, with colleagues at the Political Economy Research Centre (PERC) in Goldsmiths University, has just published the first of many public reports, looking at how campaigners, charities, and community groups have responded to this personal debt crisis.
One of the things that became apparent early on was the extent to which civil society groups and communities are tackling debt in their own way. Where previously personal debt was a subject of much stigma and shame, now money talks and collective debt advice sessions take place in church halls and online in debtor forums.
To sit alongside the debt advice sector’s data, personal testimony of debtors both online and off are telling a far more detailed story about what it means to be in problem debt today.
Local communities, financial innovators, and policymakers must still be urged to seek alternative forms of responsible credit, which rather than fuel debt dependency seek to temper it, and regulators need to continue their work ensuring markets work for consumers as opposed to exploiting them.
But while they do this we should not ignore the efforts of communities and debtors to find solutions to today’s personal debt problem themselves. Speaking out about debt – especially but not exclusively during Debt Awareness Week- can begin to stave off some of its excesses.
Carl Packman is a contributing editor to Left Foot Forward and the author of Loansharks: The rise and rise of payday lending
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