This blog explores the ways through which gender, class and race can determine the risk of personal debt within societies
This is the second part of a new joint SPERI- Finance Watch series on Untold stories of personal debt in Europe
Household debt is at an all-time high in the UK, and most of the people in debt are women. After the financial crash of 2008, governments have tried to reduce national debt and deficits by cutting spending on public services and social security. But these cuts have effectively transferred public debt to private individuals who can least afford it. Most of these people are women: When the impact of changes to social security and tax are combined, 86% of the cost has come from women’s purses and women are the majority (55%) of people in debt. Women are now being pushed to rip-off doorstep loans and other high-interest debt to pay for everyday essentials.
The current situation
In 2019, UK households owned a total of £1.6 trillion. This is 13% higher than at the time of the 2008 global financial crisis, an all-time high for the country. In 2017, the spending of UK households was higher than their income for the first time in three decades. Families are now paying £137 million per day, or £50 billion per year, just in interest payments.
Debt is fundamentally a class issue – not all debt is created equal. High-income households can benefit from debt because they use it to fund things like buying a house, which rises in value over the years. Richer households can also use debt to fund consumption of high-end products, like luxury items or holidays. Thanks to their higher and more stable incomes, they can often benefit from lower interest rates. But for many others, such as poorer households who are using debt to pay for day-to-day essentials, borrowing is not increasing their wealth – quite the contrary. These households are often borrowing to pay rent, buy their children’s school uniforms or put food on the table. Their poverty and insecure incomes mean that poorer households are often forced to pay higher interest rates.
What is fuelling this?
Stagnant wages and rising housing prices are straining households’ finances. Record numbers of people are renting in the private sector, where high rents, low quality housing and insecure tenancies are taking a toll on families’ financial security and quality of life.
Alongside this, cuts to social security benefits have reduced the income of the poorest families. There is now evidence that low-income families are borrowing to make up the shortfall created by cuts to benefits, stagnant wages and rising living costs. What we are seeing with austerity policies since 2010 is an effective transfer of debt from the state to the poorest individuals.
Debt is at the intersection of class, race and gender
Some groups have seen a drastic reduction in their income as a result of public spending cuts. These include families on low incomes, Black and Minority Ethnic (BME) households, single parents and disabled people. The cuts have also disproportionately impacted women: By 2020-21, women will have borne 86% of tax and social security changes. Among women, lone mothers, women with disabilities and BME women are most affected.
As a result, women are the majority of people in debt (55%) and they are also now the majority of people to go insolvent. This is a recent reversal, starting in 2014, of a historical trend of more men going insolvent. Worryingly, the insolvency gender gap is more pronounced among young people, with 25-34 year-old women over a third more likely to go insolvent than young men of the same age.
The on-going rollout of Universal Credit, a new benefit replacing most means-tested benefits for working-age people, also has an impact on personal debt. The five-week wait between making a claim and receiving the first payment is longer than many families can endure, especially when Universal Credit is their only source of income. This wait is pushing many people into rent arrears and food banks, and it is forcing people to take out ‘doorstep’ loans to pay for essentials. But these high-cost loans create a debt trap: interest is so high that total debt can quickly add up to more than twice the sum originally borrowed. This is effectively the ‘poverty premium’.
In addition to being more likely to have lower incomes, women tend to be the ones responsible for budgeting, shopping and paying bills in poorer households. Therefore, it is no wonder that 61% of those getting into debt to purchase everyday necessities are women.
Debt and financial abuse
For some women, domestic and financial abuse in a (heterosexual) relationship is a cause of indebtedness. In a survey of victims of intimate partner abuse, 61% reported being in debt because of financial abuse. Coerced debt has a harmful and lasting impact on women’s lives. It can damage their immediate financial situation but also their credit scores. It can make it harder for them to rent a home, open utility accounts or make purchases on loan.
Personal debt: a public responsibility
A combination of structural factors and government decisions is resulting in more women going into debt and insolvency. In a society that still shows dramatically too often racist and patriarchal traits, women, and in particular BME women, have lower earnings and less wealth than men. So, they are more heavily impacted when governments decide to cut social security benefits and public services on which they are more dependent. Women make up 92% of lone parents, and in addition, they can be victims of financial abuse in relationships. The narrative around personal debt is often framed around personal irresponsibility and living beyond one’s means. As this article has shown, however, this narrative is inaccurate as it fails to take into account the intersecting structures of capitalism, racism and sexism. By requiring the poorest households to use private debt to make up for lost benefits, austerity has effectively been a transfer of public debt to private individuals who are disproportionately BME, disabled, single parent women.