Debt: Household pain

Global analysis of debtor-creditor relationships sounds comfortable far away from the everyday life of you and me, but in reality it's not. The decisions taken at international and national levels ripple down and can have major, even catastrophic effects, on individual citizens and households.

The Open University video below vividly shows how life changed for many Argentinians when savage austerity measures focused on the cutback of public sector services and employment. This ripping away of the carpet of financial security from previously moderately well-off, middle-class families is somehow uncomfortably shocking in a way that the cycle of long-term poverty is not, but should be. It is easy to see how Greece and other indebted developed nations stand on the brink of a similar experiences.

The vast majority of working-age households in developed countries rely on selling their labour to ensure their financial security. Retrenchment by governments to tackle their over-indebtedness shows how diaphanous that security can be when unemployment rises. Retrenchment also reveals the flimsy construction of the welfare-state safety nets that we may assume will be there to catch us.

OU research, such as the Poverty in Scotland project in association with the Child Poverty Action Group and others (McKendrick et al, 2011), highlights how low income and unemployment are key pathways into personal debt. As the authors note: ‘The financial crisis, and the reactions to it by different governments and transnational organisations, has major  implications for our understanding of social welfare today, and the future shape and direction of social welfare and anti-poverty policy in Scotland and across the UK. With a Conservative/Liberal Democrat UK government committed to major cuts in public services and jobs, and with the promise of a renewed attack on ‘welfarism’ in an attempt to reduce the vast national debt, the immediate future for social welfare in the UK looks bleak’.

Debt at the household - the human - level is exacerbated by financial exclusion. People lacking access to mainstream financial services face higher interest, lack of credit and insurance and some are forced to turn to ‘loan sharks’. Financial exclusion and personal debt also means that the costs of basic utilities, for instance, gas and electricity charges, are also higher.

Both Scottish and UK governments have recognised that personal debt is a problem and policy interventions have focused on promoting financial inclusion and improving access to debt solutions. A strand in these interventions is the promotion of ‘financial capability’ which aims to equip individuals and households with the knowledge, skills and confidence they need to manage their financial affairs and participate effectively in retail financial markets, including those for credit.

An important Open University contribution to these initiatives has been the development of its seminal You and Your Money module, which takes a structured approach to all aspects of financial planning from budgeting and debt through to retirement planning and investment. Unlike other courses of this type, You and Your Money sets financial planning within the economic, political and social context, acknowledging and exploring the impact that external factors have on households and vice versa. The financial liberalisation that started in the 1980s not just in the UK, but notably in the USA and elsewhere, arguably has led directly to the global crisis of 2008 as well as fuelling the indebtedness of households.