The Impact of Debt on Families: The Debt Trap

Posted: 13th Jun 2016

By Rory McGimpsey

It’s a trap that can be sudden. One of the consequences of the financial crisis is the increasing number of families falling into debt. It’s ironic that an over-reliance on credit helped create the debt problems of recent years, but families are now turning to credit once again, e.g. payday loans, to alleviate the pressure they’re under. As ever, it’s families, especially on those on low incomes, who are bearing the brunt of these economic woes. While benefit payments and relatively stable employment mitigated the worst effects of debt historically, the more uncertain nature of modern employment has altered the dynamic in respect of family finances.

For example, the rise in zero-hours contracts, benefit cuts, and increased self-employment (to name but a few) have all contributed to a less secure working environment. With household income reducing and expenditure steadily increasing, many families are falling into a spiral of debt they find difficult to control. One of the effects of this income fluctuation is families experiencing sudden and unforeseen drops in income that create a temporary crisis in household budgets.

If we take the example of a parent on a zero-hours contract. By definition, there’s limited security in this type of employment where hours can be cut or employment scrapped altogether on minimal notice. Although such contracts may benefit a student or young school leaver, they’re unlikely to be suitable for a parent who urgently needs to pay the mortgage and fund school uniforms. Of course, there’s nothing new in this. Sudden changes in circumstances (redundancy, separation, illness etc.) have always precipitated debt problems. However, the changing nature of modern employment has made such scenarios much more prevalent.

The impact of money worries on families, particularly those with young children, has been highlighted by StepChange. In 2014 the charity produced a report entitled “The Debt Trap: The impact of debt on families with children.” Written in conjunction with the Children’s Society, the report, drafted following a survey of 2,000 families in debt, discussed the impact debt was having on children. Its findings include:

• Children living in families in debt were more than twice as likely to be bullied at school;
• Half of children in such families claim that debt problems caused arguments within their family;
• 90% of families living with debt stated that they have had to cut back on essential family expenditure such as food, clothing, and utilities to finance repayments.

The Guardian confirms this bleak picture, reporting that the number of families with children living with severe problem debt has increased by 16% since 2013. You can read this article here.

The website agrees that those on low and middle incomes are more likely to be affected, concurring that the rise of zero-hours contracts is a significant contributory factor. Other factors like increasing rents, mortgage rates, and general hikes in cost of living have also added to the problem. It’s an issue that’s not going to go away either. Incomes are set to fluctuate for the foreseeable future, with families and legislators struggling to adapt to a changing world.

Anecdotally, I’ve seen a fair bit of this phenomenon. While working as a telephone advisor, a disproportionately high number of my clients seemed to be families. While couples and single people also struggle with money worries, the problem always seemed more acute for those with children. Every week, I’d speak to parents who were struggling with the burden of family debt. It’s easy to forget that for millions of people these struggles are real, as families strive to keep the proverbial wolf from the door.

Our clients aren’t statistics. They’re real people who are struggling to feed and clothe their families in a rapidly changing society. When completing appointments, parents would tell me first-hand how cuts in their benefits had affected their ability to pay for even basic expenses. The emotion in their voice was often palpable as they relayed their concerns to me. Their stress was obvious, but the main worry was usually the effect their money problem was having on their families and dependents. In our industry, we regularly talk about “worthwhile work” and it is here that you see the massive difference we make to our clients’ lives. In resolving debt, we are undoubtedly removing financial problems, but we are doing much more. We are providing peace of mind. And for millions of families that’s priceless.

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