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The Debt Trap: Exposing the impact of problem debt on children

For too many households, debt repayments and creditor demands spiral into unmanageable situations which can devastate lives.

However, despite millions of children living in families with problem debt, very little research has explored the impact it has on them. Combining a survey of 2000 families with children, and in depth interviews with 14 families in problem debt, this report addresses this gap.

The report examines the extent of problem debt among families with children, the drivers of problem debt, and the impact that this has on children’s lives.

Key findings

The scale of problem debt among families with children
• Almost 1.4 million UK families with dependent children are currently in problem debt.1 In total, families with children are behind with payments of £4.8bn to service providers and creditors (including national and local government). Around 2.4 million dependent children live in these households.
• However, this is only part of the problem; an additional 2.9 million families with dependent children have struggled to pay their bills and credit commitments over the previous 12 months, putting them on the edge of falling into problem debt. The drivers of problem debt
• Families with children are often trapped in a situation where they have little alternative but to take out credit to pay for necessities; 10% of families said they had taken out credit to pay for food for their children, 18% for clothing and 6% for heating.
• This is part of a ‘debt trap’; with families subsequently finding that keeping up the repayments on credit means their children miss out on the basics. Nine out of 10 parents in problem debt have cut back on essential items for their children within the last year so they could keep up payments on debts.
• For families already in poverty the situation is worse. Our analysis finds these families are particularly likely to be trapped in problem debt, which exacerbates and compounds the financial and psychological pressure they are already under.

The impact of problem debt
• Families trapped in problem debt are more than twice as likely to argue about money problems, leading to stress on family relationships, and causing emotional distress for children.
• Around six in 10 children surveyed in families with problem debt said that they often worried about whether their family had enough money
• The presence of problem debt also damages children’s relationships with their peers. More than half of children aged 10-17 in families with problem debt said they had been embarrassed because they lacked the things that their peers had, and nearly one in five said they had been bullied as a result. In both cases, children in families with problem debt were twice as likely to suffer these problems as other children.
• Evidence suggests that problem debt can lead to children facing difficulty in school. Around a quarter of children in problem debt were unhappy with their life at school – making them nearly twice as likely as other children to be unhappy in this area of their life. We believe there is a danger this may have a long-term, detrimental impact on their prospects.
• Problem debt can also have a profound impact on children’s ability to engage in social activities. Almost three-quarters (73%) of children whose parents are currently in arrears note that their parents found it hard to pay for their social activities. This compares to 37% of those whose parents are not in arrears.

Creditor behaviour
• Depending on the type of debt, up to 42% of parents who had struggled with bills or credit commitments over the last year think they are being treated ‘badly’ or ‘very badly’, with payday lenders most likely to be treating vulnerable parents negatively.
• The vast majority of families with problem debts (84%) felt that they would have liked to have received more support, or to have received support at an earlier stage.
• Those who did seek support often received a sub-standard service, particularly from creditors and local councils. Of those who have sought help from their council, a third (32%) found this ‘not helpful at all’, while 28% of those seeking help from a creditor or creditors said the same. Our evidence suggests creditors are not considering how the presence of dependent children can increase a household’s vulnerability.