The Young Foundation’s latest research report Credit where credit’s due? Understanding experiencing of high cost credit in Wales, is one of the most detailed of its kind ever conducted and examines why families on low incomes take out expensive loans, the impact of indebtedness, and suggests ways out of the problem.
Over 12 million people in the UK do not have access to affordable credit. An estimated 16.8% are over-indebted. In Wales, the proportion is higher in every single local authority area with three among the UK’s top 10 most over-indebted localities.
The research was conducted in Wales but high cost credit is an issue all over the UK and the leading rent-to- own retailers have almost 400 stores between them across the country.
This report is an important look at how high cost credit impacts on social wellbeing. The money that is spent paying back high cost loans could be invested into activities that boost standards of living and local economies.
Fifty percent of the people who take out high cost loans experience anxiety and stress as a result of debt. If the debt becomes unmanageable it can have a significant impact on quality of life of individuals and families and in some cases on the life chances of children.
Our research found high cost credit customers come from all walks of life but they are mainly young families. They are equally likely to be employed as non-customers but are generally on low incomes.
In recent years the attention has focused on payday loans but home credit and rent-to-own have largely escaped scrutiny despite being more prevalent and often more expensive.
Sixty five per cent of high cost credit users do not compare offers between lenders. The majority live in communities where this type of borrowing is ‘normal’. There are alternatives, such as borrowing from a credit union or loans from friends and family. Only a third of those researched considered these alternative.
Stephen Kinnock, MP for Aberavon, who launched the report at the House of Lords, said: “This is a vitally important report, drawing attention to a serious and growing challenge.
“In Wales, where six percent of the population make use of high cost-credit, the Assembly Government have developed strategies for financial inclusion and capability. It is vital that these strategies are implemented, not just in Wales but across the United Kingdom, along with the other recommendations of the report.
“The Port Talbot Credit Union, in my constituency, is an excellent example of fair and ethical lending. We must ensure that awareness is raised of the services that the Credit Union offers, so that all those who are potentially vulnerable to high-cost credit are able to make better choices.”
There is no silver bullet which can transform access to affordable credit but we have developed recommendations, which are outlined in the report, focusing on five areas of action which together could bring real change to improve access to affordable credit and give people the confidence and skills to make positive financial choices.
We are determined to work with government and key stakeholders to push these recommendations forward.
Thank you to Professor Steve Martin Director of the Public Policy Institute for Wales (PPifW) who launched the report in Cardiff. The report was commissioned by PPiW as part of its work on tackling poverty and funded by the Economic and Social Research Council.