1. Strength against shocks Low income families and debt Dalia Ben-Galim Institute for Public Policy Research 28 th June 2010 d.ben-galim@ippr.org

2. We went through a couple of the worst months weve ever had. There is no extra, and sometimes youre having to rob Peter to pay Paul and hoping you make the extra up in between to get Peter paid back again. The kids have noticed, even down to pocket money, treats, days out, its just non-existent. Its very, very, demoralising going to work all day and earning nothing. Its horrendous – it affects my moods, it affects home life, everything. This has taught us a very valuable lesson in how quick your life can be taken – your income can be taken from you [through] no fault of your own. When times are tough

3. Methodology Context Key findings –The poverty premium –Most families want to save money –The impact of trigger events Key recommendations and policy implications –Build financial strength and resilience –Greater support to mitigate impact of external shocks Overview

4. 58 low-income families – Glasgow, London, Nottingham and Newcastle Day-to-day understanding of spending, saving and debt patterns Over 4 month period –Initial face-to-face interview –Spending diaries –Catch up regular phone calls –Final interview Nov 2008 – April 2009 – included Christmas Methodology

5. Context: debt

6. Expansion of household credit –43% of low-income families were homeowners –59% credit cards –47% mail order catalogues UK households saving less Families from all income groups entered recession in debt Context: credit

7. I wish Id never got that one [credit card]. We all make mistakes, well some people do. I wont be doing it again; the APR is just so high on it… its my own fault for getting myself into debt in the first place, I could kick myself really, but sometimes when times are hard, like when I had my part-time job, before I went full-time… I ran up a few debts then. (London, female 33, single parent 3 kids) Credit: too easy or my fault?

8. Low-income families often pay a poverty premium on essential and non-essential items Over two-thirds of participants said that their biggest problem was the high price of food and energy Door-step lenders – trust and convenience more important than cost If I have a crisis I would then go to [the doorstep lenders]. I know you pay three times as much to pay it back but if youve got a problem they normally help you out. They come to the door each week and if you havent got [the] £10 they want, its quite easy to give £5 or whatever. Theyre my backbone. (46-year-old female, two-parent household, three children, Nottingham) Findings: The poverty premium

9. Typology of saving –Coping with uneven spending patterns throughout the year –Saving for short-term precautionary reasons –Long-term asset building Government position on savings not yet clear –Labour Government supported Savings Gateway, Child Trust Funds, ISAs and Personal Pensions Account. Families able to juggle, few able to save –Ive not been one for saving long-term. I can save for a purpose. (Female,33, Newcastle, single-parent family, two children) Positive attitudes to saving, but difficult to find the money Findings: wanting to save

10. The impact of trigger events in the current economic crisis means that many families are accumulating debt at a faster rate Over a quarter of ipprs research participants experienced a fall in household income during the research period I lost my job and my husband did as well. That just killed my finances completely because we had nearly £40,000 a year coming in and we went from that to nothing. I was getting £60 a week on incapacity [benefit]. He was getting about £80. (46-year-old female, two-parent household, two children, Newcastle) Findings: trigger events

11. Build financial strength and resilience –A savings account to build resilience –Funding for affordable credit initiatives for low- income families –Online credit comparison –Free and impartial financial advice Greater support to mitigate impact of external shocks –Integrated advice and support at crisis point –Flexibility on financial commitments Recommendations

12. Cannot under-estimate trigger events – local labour market conditions matter Suitability and appropriateness of financial products – by what criteria? –Will sub-prime mortgages be appropriate again? Budget implications –The ratio of spending cuts to tax increases – disproportionate impact on low-income families –VAT increase, Savings Gateway cut and changes to benefits – not progressive Policy implications