Joseph Rowntree Foundation reports low income households using credit to meet basic needs

‘Credit and Debt in Low Income Families’, which examines credit use and debt levels amongst low income families, shows that complex debt arrangements and a lack of sustainable employment typically leads to poor debt management and ‘debt traps’.

The report finds that debt is more typically due to inadequate levels of income than to ‘consumerism’, with arrears on utilities and rent most common and most prevalent amongst those on benefits. Doorstep lending, using instalment credit for household goods, and bank charges, combined with a lack of affordable and responsible credit were the most common causes of personal debt problems.

The report finds that:

• Triggers of over-indebtedness included moving in and out of low-paid work and associated delays in the processing of benefit payments
• Previously documented links between over-indebtedness and mental ill-health were confirmed
• The targeted marketing of expensive credit to vulnerable borrowers, punitive bank charges, and requirement of up-front lump-sums to start repayment plans all discouraged progress towards manageable levels of debt
• Work offered a route out of over-indebtedness and poverty, but only if it was permanent sustainable employment that paid adequately.
• Savings offered protection, but even small amounts of saving were only feasible for those in work
• The complexity of people’s financial situations meant that ongoing money advice was more likely to be effective than a one-off consultation.

The report notes that:

‘The findings of this research strongly support the notion that it is incumbent on the government to ensure that taxpayer investment in the banking system is directed to those that need the most help’

The full report can be found here

www.jrf.org.uk/sites/files/jrf/credit-debt-low-incomes-full.pdf