If you’re one of the millions of Britons worried about money right now, the next month or so isn’t going to help.

Battered by spending messages courtesy of everyone from the kids to major retailers, you’ll hardly need telling that the nation is set to seriously ramp up the buying in the next few weeks. A lot of it will be on credit. And a lot of that will sit on top of existing debt.

Right now, we’re more indebted than ever. It would take us almost 28 years to pay off the average credit card debt at the minimum rate warns the Money Charity.

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That’s before we take into account borrowing on store cards, overdrafts, personal loans and other (even more alarming) forms of credit such as payday loans and shadowy loan sharks.

And yet we will spend money we don’t have at an even greater rate in the next month – a month punctuated by a general election.

So far, the question of crippling debt and the complex raft of problems it brings with it is nowhere on the political agenda.

Reform and regulation

Debt charities such as StepChange warn the next government must take decisive legislative and regulatory action to curb exploitative practices in debt sales, management and collection.

Peter Tutton, the head of policy, research and public affairs at StepChange, says: “It would be a tragedy for people in problem debt if the positive work in progress – such as the reform of bailiff regulation and the implementation of statutory debt breathing space in England and Wales – got lost somewhere between this government and the next. So we urge in the strongest possible terms that all the work in progress is carried over by the next government.

“At the same time, there is so much more that any government could and should do, especially in strengthening the safety nets that can help households build greater financial resilience, and protect them when unforeseeable hard times do strike.

“We especially urge the next government to commit to measures that will better support the financial resilience of single parents, adults under 40, renters (especially in the private sector), and people with physical and mental health problems.”

Among its recommendations, the charity is calling for the next government to pilot a no-interest loan scheme in the UK to support those who would otherwise have to resort to high-cost credit or go without basic needs such as heating or food, as well as strengthening the Financial Conduct Authority’s capabilities to deliver a safe and fair credit market for consumers.

StepChange also wants to see the benefits system altered to eradicate the infamous five-week wait for universal credit and a new strategy to reduce the number of people using credit for essential household bills, emergency expenses and basic household goods.

The numbers don’t stack up

Others believe the underlying structures consumers and the financial services industry rely on to help deliver realistic, affordable debt solutions need a radical overhaul.

Alan Campbell, the founder of ethical lender Salad Money, believes the current credit rating system traps millions in debt and excludes them from affordable credit, driving them to more expensive alternatives such as payday lenders. More than 3 million people paid around £800m in interest alone to payday lenders in 2018.

“We’re all brainwashed into believing that we have to be ‘model credit citizens’ but the system is broken,” he says, arguing that credit scores unfairly penalise people on the basis of incomplete and inaccurate data.

Credit rating data is often 60 days out of date as lenders supply it on a monthly basis, which means people can easily end up overborrowing. People may be “invisible” and excluded from credit entirely due, for example, to recently moving back to the country, never having had a credit card before, or being in a relationship where their partner is responsible for managing the finances.

More than two in five Britons who check their credit reports find flaws such as misspellings of vital personal information or inaccurate reports on payment defaults, which can mean they end up paying a higher APR through no fault of their own.

People are penalised on the basis of arbitrary metrics, such as moving house too often, failing to register to vote, or being refused on a loan application, Campbell says.

People power

But all this risks taking the responsibility and, crucially, the power to make positive changes away from debtors themselves.

“We seem to think we can regulate and legislate against debt. But policymakers need to understand that a top-down approach will have very limited gain because it doesn’t deal with underlying individual behaviours,” warns Dr Punit Shah, from the University of Bath’s Department of Psychology.

For example, it seems people are more likely to impulse buy – often using credit cards – if there are other people around. That social validation is one of the reasons next weekend’s Black Friday events and, more traditionally, the Boxing Day sales have such traction.

This social facilitation effect is also evident on online auction and retail sites that use a people element (“12 other people are looking at this item”) and a time limit on offers (such as countdown clocks) to drive sales.

“We need to raise awareness of the tactics used to part us with cash we hadn’t planned on spending,” Shah says, adding that we often back away from making impulse purchases when we’re challenged about them and that there’s an appetite for programmes and features that expose the kind of strategies retailers use.

But getting into problem debt is all too often about basic costs rather than big blowout buys and there is a lack of research around understanding the psychology of credit misuse, he warns, particularly when it comes to everyday spending on credit.

“The role of education is often overplayed, but we need to look harder at the relationship between psychology, maths and financial decision-making,” he says.

“The reality is that if you can’t do basic maths there are serious long-term implications for your financial health. If you can’t work out that you’re tangibly better off with one purchase over another or one behaviour over another you won’t have the emotional response needed to change behaviour.”

Research out this week, for example, suggests that one in five consumers don’t know the difference between a personal and a payday loan. That knowledge gap alone could be financially crippling for debtors as personal loans typically cost around 2.9 per cent APR compared with an extortionate 1,299 per cent APR for many payday loans, warns Compare the Market.

No panacea

The idea that we can legislate or regulate our way out of this mess ignores the fact that when one channel to financial exploitation is closed down, others are quickly found. They always will be.

For decades, as personal debt levels have crept up, the pundits, watchdogs, regulators, charities, educators and policymakers have launched endless isolated campaigns in a bid to help, coerce or shock us into getting a grip on our borrowing. They have invariably failed.

Why? Because changing the debt game has to start with empowering the individual from day one while providing a robust, comprehensive and unified safety net around them.

So far, we’ve been looking so hard at the mechanisms and the money that we’ve forgotten about the person holding it.

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