The Blog

Has Debt Become the Norm in Britain?

In a time of economic crisis, it is understandable that many families hit by financial hardships build up sometimes crushing levels of debt. This is often the only option for single-parents or low-earners, particularly those without strong familial ties to their own parents and relatives...

In a time of economic crisis, it is understandable that many families hit by financial hardships build up sometimes crushing levels of debt. This is often the only option for single-parents or low-earners, particularly those without strong familial ties to their own parents and relatives. Unfortunately, this debt tendentially cycles, leaving the poorest in an even direr financial situation, open to be exploited by loan sharks and other unscrupulous enterprises.

Debt has long been a reality of living on the breadline. This does not make it acceptable, but makes it easier to comprehend in the context of modern dog-eat-dog British capitalism. Yet the problem of debt, one of the principal reasons for the financial collapse in 2007, cannot solely be attributed to the loans taken out by the very poorest. Research carried out in directly before the crisis by Step Change, the UK's leading debt charity, suggested that debt increased proportionally to income.

Debt is no longer a last resort, nor is it solely a resource for the most financially insecure. In contemporary British financial culture, it is no longer shameful to be indebted. In some ways, this is a positive change; by removing the taboo surrounding getting financial help when in need, those struggling might now consult their bank rather than unreliable sources of immediate credit. On the other hand it points toward a worrying economic trend which may well have been at the root of the collapse, namely an increased tendency to borrow money and build up debt.

In a healthy economy, the debt we build up is integral to our financial sector. Whether it be taking out a mortgage or borrowing a smaller sum, these transactions fuel Britain's banks. On the flipside, the build-up of too much debt for any one individual or business is potentially harmful to the economy; if that debt cannot be repaid, that individual or business may find themselves in a situation of bankruptcy.

In 2006, the year before our financial system buckled, the number of people declared bankrupt or having entered into an IVA, an arrangement to avoid bankruptcy, rocketed up to just under 108,000. This was an increase of 40,000 cases upon the year before, of which 15,000 can be attributed to bankruptcy. This appears to be a clear indicator that changes in our attitude to money played a role in the British financial crisis; an increasing number of individuals were burdening themselves with debt that they could not pay off. Britain is clearly less averse to debt now than before, but why?

As a whole, our culture has changed towards debt and the attainment of goods. In a society where we cannot escape advertisements, our children imbibe materialism in virtually every aspect of their lives outside the home. When these children grow old enough to earn their own money, and to spend it as they wish, they often find a discrepancy between what they want and what they can afford. The capitalist society works because every economic group tends to desire the goods and quality of life which belong to those above them in the financial hierarchy. This desire is the motor to work harder, to earn promotion, and most importantly to fuel the capitalist machine.

Faced with the inevitability of desiring goods which they can not afford, increasing numbers of low- and middle-earners have turned to credit as a short-term solution to the capitalist problem. To blame changing attitudes to debt solely upon materialistic desire would be superficial, however, as there are many other factors at play. It would be fair to state that British society, even now six year after our economy slumped, is no longer debt-averse. In fact, the debate surrounding companies like Wonga and the Church of England's own short-term credit solutions highlights just how integral debt still is to the British financial system.

By heavily and relentlessly indebting our students, the British government is creating a generation of young people insensitive to the potential consequences of debt. In France the very brightest students are paid to go through university, albeit in return for an obligatory period of salaried work in the government or civil service. In Britain, the brightest students are now subject to a minimum debt of nearly £40,000. For today's generation of university graduates, arguably the most intelligent and best educated, mandatory tuition fees alone are roughly equivalent to the average first-time buyer's housing deposit.

The government would argue that this debt is never directly placed upon the student; it is simply extracted piecemeal from their future earnings. Yet when it comes to the question of changing and potentially damaging attitudes to debt, this simply doesn't wash. Whilst there might not be the pressure of imminent bankruptcy associated with other debts of a similar amount, the very fact of knowing that they are indebted to such an extent gives many students a blasé attitude to spending and budgeting.

Obtaining an overdraft is the norm, extending it is hardly out of the ordinary. For those students who simply can't make ends meet, this is perhaps the only way of doing so. For many others, however, taking out another £500 or £1000 to fund excessive expenditure is common; that amount pales in comparison to the debt which they are building up simply by being at university.

It is clear that the government has had to find a way of funding the increasing amounts of students undertaking degrees or other forms of further education. Given the current economic climate and changing attitudes towards debt, the path they have chosen seems ill-advised. By piling debt upon these students, whether or not it is indirect, those in power are actively fermenting the growth of a carefree approach to credit. If nothing is done to address this change, or to further educate young people on the dangers of such practices, we may find ourselves in dire financial straits again when this generation is ruling the country.