For a large swathe of the Welsh population on low incomes, the economic recovery could be marred by an historic overhang of debt. Overall UK consumer debt trebled in value from 1993 to 2013 reaching £158 billion. This has left many in poverty facing high debt repayments and uncertainty as interest rates are set to start rising.
Nowhere are these risks sharper than in the case of payday loans. Despite offering worse economic terms than some alternative products, including some provided by credit unions, payday loan companies have been the decisive winner of the UK’s recent squeeze on household incomes. The staggering rise of extremely high-interest-rate debt threatens to shape the way many in poverty experience the economic recovery: Reducing household spending power, increasing insecurity, and derailing anti-poverty strategies.
Research being carried out by The Young Foundation starts from the premise that there need to be attractive alternative options for would-be customers if the rise of payday loans is to be curtailed. Getting product design right will require a richer and more detailed understanding of why people look for credit than we have today.
The study will use participative methodology that will give us a ‘borrowers-eye-view’: Walking through the decisions made by low-income borrowers, and co-designing a viable alternative offer to payday loan-style products. We will:
- Conduct in-depth interviews with low income borrowers to evaluate how the experience of taking out a payday loan compares to alternative forms of credit;
- Carry out a series of participative workshops to co-design with low income borrowers an alternative, competitive and less harmful offer that would be a viable alternative to payday loans.
This is an intentionally practical project which seeks to have an impact on policy and practice. It has been designed to support the Welsh government’s objective of mitigating the effects of poverty and, in particular, its goal of increasing the use of credit unions as an alternative to more harmful forms of short-term credit. It will conclude with publications for both academic and non-academic audiences and a series of dissemination events to share findings with policymakers and delivery organisations.
Article re-posted from Public Policy Institute for Wales.