Debt and Credit Products for Lower Income People

Topics: Debt, Loan, Credit Pages: 87 (31101 words) Published: June 24, 2013
Chapter and debt in Creditheading low-income families

June 2010
This report examines the experiences of credit and debt for low-income families over a twelvemonth period. It was conducted against the backdrop of the global ‘credit crunch’, when a sustained period of readily available credit was followed by recession, increasing unemployment and rising household costs. Until relatively recently, research on debt has tended to take a static, cross-sectional approach. This has not aided the understanding of how credit and debt are defined and experienced over time by households on low incomes. This report provides policy-makers and those who provide access to credit and advice services with new insights to assist them in reducing the numbers of over-indebted people and in supporting people who experience over-indebtedness and financial crisis. The report: • explores the types of credit and debt people living on low incomes used and experienced, and their own definitions of these terms; • looks in detail at the ways in which people became indebted and lived with indebtedness over time; • examines how people managed their indebtedness; • describes the impact on people of living on low incomes and with indebtedness for sustained periods of time; and • suggests how the government and financial sector might respond to improve the circumstances of people living on low incomes.

Chris Dearden, Jackie Goode, Grahame Whitfield and Lynne Cox

Contents Chapter heading

List of tables Executive summary 1 Introduction and methodology 2 Explaining over-indebtedness 3 ‘Managing’ debt, over-indebtedness and resilience to debt 4 Conclusions Notes References Acknowledgements About the authors

3 4 7 15 28 40 49 50 53 53



List of tables

1 2 3 Target sample design (numbers achieved) Types of credit and debt Explaining over-indebtedness 9 12 18

List of tables


Executive summary Chapter heading

Research background
The recent global ‘credit crunch’ followed a sustained period of readily available credit and rising household indebtedness in the UK. Its impact has been characterised by restriction of access to credit, increased unemployment and rises in the cost of living – particularly for people living in households on low incomes. Although not anticipated during the design of the research, this combination of circumstances provided a unique opportunity to explore the experiences of people living on low incomes who had used credit or who lived with debt. This study aimed to provide policy-makers, those who provide access to credit and other agencies who work with people on low incomes who are experiencing financial problems with a detailed insight into how people think about and manage their credit/debt over time. It is hoped this report will contribute towards efforts to reduce the levels of over-indebtedness and to improve support to people living on low incomes. It is also hoped that it will inform financial inclusion policy through providing insight into the strategies adopted by people living on low incomes and into the kinds of interventions that may help improve their circumstances. This study used a longitudinal qualitative design involving 60 participants over a twelvemonth period to enable an annual cycle of household financial management to be explored in depth. It explored factors including: previous experiences of credit and debt; personal choices, aspirations and expectations; individual and social resources available to people; and life events that might change people’s circumstances. It also explored ‘supply side’ factors such as the availability and marketing of different types of credit and creditor behaviour.

The casualties of the culture of ‘easy credit’
In many ways, people living on low incomes are among the casualties of an earlier era of ‘easy credit’. They, and the population in general, were actively encouraged to make use of credit during a period in...
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