New report shows how money troubles come quick

Feb 14 2010 by Michael Kelly, Sunday Sun

THE harsh day-to-day reality of dealing with debt has been exposed in a hard hitting report which revealed how low income families have been hurt most by the recession. The authors followed the fortunes of families across the North and the rest of Britain to find out how, or if, they coped. Mike Kelly reports.

IT doesn’t take much to tip a family over the edge when it comes to their finances.

The concept of debt is that it is something people get themselves into almost by oversight or indulgence and those who find themselves in the mire have no one else to blame.

Yet a comprehensive report reveals that many are not reckless spenders but some small, at times insignificant, incidents have a catastrophic effect which quickly pushes them into a downward spiral it is almost impossible to escape from.

It could be something as innocuous as a washing machine breakdown, a leaking water pipe or the need for warm winter clothes for the children, something perhaps a family hasn’t budgeted for, which kick starts the slide.

And, at present, there are not enough safeguards or initiatives to get people out of trouble.

The study by the Institute of Public Policy Research (IPPR) could not have been better timed, in more ways than one.

They picked 58 low income families from across the UK, including a group from Newcastle, who agreed to periodic interviews and keeping a diary about their financial situation.

Co-author of the report, Dalia Ben-Galim explained: “We started in October 2008 just as things were beginning to crumble. The field work was done between that October and March 2009. When we started we didn’t expect things to get so bad so quickly. The most surprising thing is the way in which the debts spiraled.”

It was the period when the dam burst, the British economy went into meltdown and suddenly people were in trouble, particularly low income families who existed on a financial knife edge for so long.

Some turned to door step lenders to borrow cash with astronomic interest rates. One subject of the study described how she needed £300 for household goods and the arrival of one of these lenders seemed like a Godsend. There were no questions asked, no credit checks, she just had to agree to an interest rate of 55%.

Then came the recession causing incremental changes in circumstances that spiraled the family into debt. First the 21-year-old son was “paid off” from work, the husband lost his overtime, and with two sources of cash removed, they couldn’t keep up with the payments.

The mother said: “We couldn’t buy as much food. We switched the electricity and gas off early and went to bed. I could not let the children go on school trips.”

Meanwhile the door step lenders returned, some to offer more money, others to “aggressively” demand what was owed. “They came every day and threatened me with court action. I was hiding in my own home,” said the mother.