Member Article

The changing face of debt

Karim Peer, CEO of Balmoral Financial

When we think of people with debt problems, the majority will think of those on minimum wage, state benefits or maybe simply those who have shopped irresponsibly on their credit cards. However, in reality, this is now far from the profile of the average debt victim.

In September of this year, the National Debtline and the Money Advice Trust released the Borrowed Years report, focussing on young people’s relationship with credit and, more specifically, debt. In this study, they found that “37% of 18 to 24 year olds currently hold one or more credit card, an overdraft or other form of borrowing (excluding student loans and mortgages), owing a combined average of £2,989”[1]. For many, £2,989 may not seem like a critical debt. However, when you take into account the same age range already has an average student loan debt of £25,505[2], the burden becomes greater. Even more concerning, is the fact that the study reports more than one fifth of these young adults cannot sleep due to money worries and 51% say they regularly worry about money.

Last year, the Joseph Rowntree Foundation also found that the demographic of poverty has completely flipped, finding that although in 2003/04 there were more people in poverty aged over 65 than 16–25, in 2015 this had completely reversed[3]. In 2013, the foundation also found that more people in working families lived below the poverty line than both non-working and retired families[4]. Again, this reveals the surprising reality of who is really most affected by poverty.

So, what is causing the change? Some may blame low wages, higher bills and lack of employment. Nevertheless, recent reports show annual earnings increased by 1.9% in 2015[5], the cost of living has paused for the first time since 2008[6] and the employment rate is at its highest since records began in 1971[7].

So is it merely the cost of living or is the issue more complex?

The fact is; people, especially working families, are still struggling with the cost of living[8]. Ask anyone who rents in London and you will hear the resounding groan of how the cost of rent consumes their wages. It is not just in London either. All across the UK, the cost of living is more than many can afford. PWC predicted that the level of renters is set to increase, stating that, “the trend is particularly strong in the 20-39 age group where more than half will be renting privately by 2025. The rise of ‘Generation Rent’ will continue.”[9]

The key question, no matter the cause, stays the same; what is the solution? Clearly more money would be the simple answer but this is how problems like the pay day loan crisis arose, people needed money and they got it. The issues arose when an unsustainable loan needed paying back.

Consolidation of debt is a way of helping an individual to gain control of their finances, by reducing monthly payments and taking interest down. At Balmoral Financial, we consolidate debt for UK workers. Whether it be from pay day lending, or other forms of high cost credit, we enable the consumer to pay the creditor off directly to avoid any risk of increasing credit. We have found that customers find this simpler, not just due to the reduced number of payments, but by the fact that their loan is already paid when they get their wages.

Education is also vital for getting finances back on track. There are many options depending on financial situation and if one can afford individual financial guidance, it is invaluable. However, for those who cannot afford such advice, employers should be looking to offer access via their employee rewards or benefits package.

The answer to the problem, we believe, is not a single answer, but rather it is about businesses providing their employees with support and access to products across each level of the financial cycle (from debit to credit). The overall goal is to enable individuals to minimise their financially related stress, improve productivity and move people towards managing their finances more effectively – no matter who they are.

[1] Borrowed Years. A spotlight briefing on young people, credit and debt. August 2016. National Debtline, Money Advice Trust.

[2] Borrowed Years. A spotlight briefing on young people, credit and debt. August 2016. National Debtline, Money Advice Trust.

[3] Monitoring poverty and social exclusion 2015. 23rd November 2015. Tom MacInnes, Adam Tinson, Ceri Hughes, Theo Barry Born and Hannah Aldridge.

[4] Monitoring poverty and social exclusion 2013. Tom MacInnes, Hannah Aldridge, Sabrina Bushe, Peter Kenway and Adam Tinson

[5] Annual Survey of Hours and Earnings: 2015 Provisional Results. Office for National Statistics.

[6] Minimum Income Standard (MIS) 2015.

[7] UK Labour Market: August 2016. Estimates of employment, unemployment, economic inactivity and other employment-related statistics for the UK. Office for National Statistics.

[8] A Minimum Income Standard for the UK in 2016. Abigail Davis, Katherine Hill, Donald Hirsch and Matt Padley.

[9] UK housing market outlook: the continuing rise of Generation Rent. ukeo-section3-housing-market-july-2015 PWC.

This was posted in Bdaily's Members' News section by Karim Peer .