The curse of debt

…because for many of us, it is a curse.

It’s a blight for those on low incomes who are targeted by loan sharks – something Stella Creasy has campaigned on for quite some time.

One of the reasons I chose to leave the civil service was that the redundancy settlement cleared off all of my immediate debts, which had grown like a seemingly unstoppable boil over the past ten years. Every time my pay went up, so did my debts and outgoings. Interest payments and loan repayments were like this horrible parasite leaching most of my salary before it had even arrived. Combined with rent, bills and public transport costs, there was not much left over. So what did I do? Borrowed more in the anticipation that at some stage in the future I would start paying it all back.

Debt is a dark shadow over our futures – especially “consumer debt” – which is essentially what mine was over the past ten years. It was debt accumulated as a result of living – not out of an investment in something tangible that would be a valuable physical asset in the future.

Debt is nothing new. History and literature are littered with the story of violent loan sharks preying on the poor, wayward aristocrats gambling away their wealth and the wealth of others, and the struggle of ordinary people just trying to make a living. “They say love won’t pay the rent/Before it’s earned our money’s always spent” (I chose the UB40/Chrissie Hynde version because as some of you may be aware, in civil service land there was a form known as UB40 related to unemployment benefits – which the band named themselves after, having experienced life unemployed).

Debt hung over me like a black cloud during my time in the civil service. Being an unnatural worrier by disposition (hence the anti-anxiety medication for longer than is sensible) my perennial worry was what I would do if I suddenly found myself out of a job. Having survived one cull of civil servants about eighteen months after I joined, I kept tabs on what sort of redundancy payment I’d be entitled to if I was made redundant. This wasn’t really an option on the bottom rung in my old office simply because I felt at the time I had no experience of really interesting stuff that would give me a vague chance of future employment in an area that I felt matched my skills, potential, and achievements prior to the world of work. A question I consistently asked myself was: “Could I see myself doing this for the rest of my life?” To which the answer was “No” – in those early days because the day job was so unbelievably mind-numbing at times. In any large organisation you will find ‘non-jobs’ – called ‘diseconomies of scale‘ by economists.

But coming back to the debt, nothing could get away from the impact that this cloud had on me. In hindsight I didn’t help myself with some spending decisions and a desire to live a lifestyle that in part I could not really afford. When I transferred down to London, I benefited from a huge payrise but at the same time took one hell of a hit because all of the rise plus more went on train and tube fares. A year later I moved down to London looking for somewhere that allowed me to rent without having a long commute. Basically anything that was more than 45 minutes point-to-point meant it was better for me to commute from Cambridge.

Wanting to live in an area that has lower than average crime rates and is close to a tube line while at the same time not looking like a hell hole and is owned/managed by a person/firm that doesn’t look too dodgy results in paying a premium for all of that. Again, being the worrier meant that I chose to pay up rather than live in an area where I might be afraid to step outside of my front door. The price of not worrying about the area I lived in was the knowledge of building up even more debt.

It’s strange looking back on all of this now. During my time living and working in London I never found people who I really ‘clicked’ with in a social sense, despite making more than a conscious effort to go out and about doing stuff – as (I think) is normal for anyone who has just moved to a new area. But this going out and about cost money – lots of it. This is Central London remember. The cost of living is wallet-destroying.

By the time I stumbled into 2011, I had made the conscious decision to take a voluntary exit and take my chances with the wider world. Given the choice to make the same decision I’d take the same one. It was the right one for me at the time.

When I finally cleared off everything in the early autumn, I felt a huge change in how I saw myself – in two regards in particular. The first was that I was no longer tied to the civil service and an overly-restrictive hierarchical line-management structure that for me kills far too much creativity and generates a culture of micro-management. i.e. The second was that I was no longer tied to worrying about how I was going to pay the next loan instalment or credit card bill. Free from the claws of the big banks.

It’s not the magic wand though. I’m now completely dependent on my family. A different sort of dependency to that of having to hand over most of your salary to your landlord, utility bill companies or the banks? Perhaps. It’s not the best situation to be in but certainly far preferable for my health at least compared to the hamster wheel that I was on a few years back.

At the moment I’m of the mindset where I don’t want to take out a mortgage in the future. Having spent a decade trying to free myself from debt that began during my student days, I don’t want to throw myself back into it anytime soon. At the same time I do want my own place, yet worry that even rent prices are becoming unaffordable. We thus find ourselves in this crazy housing situation where a minority of people are on reasonable rents in the social housing sector while others find themselves paying those rents for housing stock that leaves some people in slum housing and/or paying vastly inflated rates just to find somewhere to live – perpetuating the debt crisis for them, but in the interests of who?

There is then the issue of adverts and advertising. The Work Foundation estimates that the total contribution of the advertising industry to UK national income in 2008 was £15.6billion – just over 1% of our national income (£1,446billion – though this will vary depending on the measure you use) for that year. That’s not an insignificant figure for an industry whose ultimate purpose is to persuade people to buy stuff -the buying of which contributes to consumer debt.

Now, I am already thinking that some people will be saying that people don’t have to buy stuff. (Yes @AndyBower, I’m looking at you 😉 ) A reasonable point? Perhaps. But then if we’re looking at balanced arguments whether to buy product A, product B or nothing at all, we never see on our screens or on billboards anyone making the argument for buying nothing at all. Adbusters made a splash in the very late 1990s but don’t seem to have the profile that they used to have. Where are the adverts that say “do you really need that new scarf?” or “do you really need that new gizmo or is the current one working fine (or could it be repaired?)”

Advertising isn’t about presenting a series of facts and inviting people to make a rational decision about the purchase that they may or may not make. The job of the advertiser amongst other things is to persuade people to buy the product or service (irrespective of how good or bad it is). Unfortunately not all advertisers are decent & honest people. (Unfortunately not all people are decent & honest people). This is why we have the Advertising Standards Authority to help keep them in check – but how good a job do they do? I’ll leave that one for you. But be aware that debate is already happening around the banning of adverts from certain places (as Sao Paulo did) to the ethics of advertising itself.

My point is that for consumer debt at least, advertising is part of the problem. If we are going to deal with consumer debt, it also means dealing with and reining in parts of the advertising industry. You can imagine what big business would make of that given the amounts of money they invest in brands.

As for the other drivers, I look particularly at the costs of living such as (but not limited to):

  • Housing (whether mortgages or rents as a proportion of people’s income)
  • Food (goes without saying – but in particular healthy food)
  • Fuel (whether for heating the home (which is a housing issue too) or for cars)
  • Public transport (both fares and availability of)
  • Childcare
  • Health and education
  • Leisure

Tackle those costs of living and we may get some way to tackling the curse of debt.

Finally, I want to nail this mindset coming from politicians of having to take out loans for everything – in particular education and training. The argument is that the individual benefits from the education and training so therefore the individual should pay. Yet the firm also benefits from having a workforce that is trained – especially as we are asked to become more specialised in a work area (while at the same time no longer having jobs for life and thus having to take on the burden of the costs of retraining).

By having loans for everything, people are locked into a cycle of debt that perhaps they may never get out of given the way university tuition fees are going along with house prices and rates of consumer debt. I put it to you that this set up is unsustainable.


5 thoughts on “The curse of debt

  1. A great blog – and I agree with your conclusions. It’s an unsustainable set-up. The problem is that so much depends on it, and so much relies upon it – and there are huge pressures to make it even worse. One tiny example from me. You mention how rents are now becoming unaffordable – well I have first hand knowledge as to some of the pressures that bring that about. I’m a landlord – I didn’t want to be, but we couldn’t sell our flat (the market for sales of flats being completely dead) so we rented it out, using the rent to pay our mortgage on the place we moved to. Well, after a year of renting out, the time has come to renew the lease – and the estate agents who are managing it for us tried very hard to convince us to increase the rent, because ‘the market’ for renting is so much better now than it was. Now we have good tenants – why should we make their life harder by increasing the rent? Their salaries won’t have gone up much if at all, and other things in their life won’t be cheaper – so ‘the market’ suggests that we should make their life even harder.

    We didn’t do so – I imagine our agents were very disappointed that we didn’t raise the rent. Unfortunately I suspect we’re unusual landlords though, so the rate of rental increase will just accelerate. It seems almost inevitable…

  2. Seems that there are two root issues at the heart of this article are the issues of housing and consumerism. I think its pretty obviously that at the moment the government is being timid about reducing the debt fuel boom (for fear of crashing housing and retail- in directly advertising/media). The net effect is that the misery caused by consumer debt and high house prices (with associated mortgage debt) is hear to stay.

    One thing to remember is that housing is not equally unaffordable everywhere. Houses in the old industrial town is relatively cheap. So the issue for most people is not buying housing, but finding affordable and decent housing in good neighbourhood that are close to jobs.

    I would argue that possibly the government could actually start looking at the people from the opposite direction. What can be done to improve troubled neighbourhoods to make them more desirable and what can be done to improve the transport infrastructure so that people moving to such neighbourhoods are better connected to areas of economic activity. I’m pretty sure that if people started looking at these issues then at least some of the housing problems would be solved (through increasing supply of viable housing).

  3. An excellent analysis of the current mess; these problems started with the Thatcher right-to-buy scheme which removed huge tranche of the more desirable social housing and in the process turned houses from a homes to an appreciating notional asset against which people could borrow against the presumption of ever-increasing prices. I remember once driving across Blackfriars bridge and seeing the Evening Standard placard “home-owners fear interest rate rise” which reinforced and propgandised the myth that mortgage holders are home owners. They are NOT but this mindset helped people differentiate mortgages from other debts and people started believing that their house value was not something that it cost to buy a home but as an asset which produced the lending facilitated continuing unreal increase in house prices. It was never ‘real’ money.

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