It is now almost a truism to say young people have been negatively affected by the recent economic downturn. Youth unemployment now stands at 22% with 1.3 million 16 to 24 year olds out of work. As a result young people are increasingly likely to face acute financial trouble and are severely at risk of intractable social and financial exclusion.
In response to this situation, I was commissioned by Nottingham Community Housing Association – a leading social housing provider – to conduct research on the relationship between young people in their properties and debt. The research will inform its planned strategy of encouraging more effective money-management and the use of stable lending services (in particular Credit Unions) by younger tenants.
The study – due to be released at the beginning of the new year – focused on debt literacy and the awareness of the risks of payday loan companies amongst housing tenants aged between 17 and 25. Based on in-depth interviews with a sample of ten tenants in Nottingham city, the study gives an important insight into young tenants’ relationship with debt and borrowing. The report shows what steps need to be taken in order to minimise over-indebtedness and encourage more responsible money-management by young people.
Irresponsible borrowing and poor money-management have been significant contributing factors in the rise of over-indebtedness. Borrowing in itself need not be problematic unless it becomes unmanageable, but without effective support, debt problems can exacerbate social and financial exclusion, particularly for those young people in vulnerable, lower-income groups.
My research mapped out a robust outline of young tenants’ key financial challenges and the rationale behind their decision-making, providing a vital insight into tenants’ perspectives on borrowing and highlighting how they view high-cost money-lending agencies and their awareness of the risks of indebtedness.
The findings of the report were both positive and negative. On the positive side, my work indicates that younger NCHA tenants are – despite what some might imagine – reasonably debt-literate. Those interviewed emphasised their aversion to borrowing and were very sceptical of agencies marketed as ‘easy lending options’ such as payday loan companies. The overwhelming majority were well aware that such ‘easy options’ were high-cost and high-risk. Their borrowing is often restricted to small amounts and few had either borrowed or would consider borrowing more substantial amounts unless there was an immediate or unforeseen necessity that could not be covered by their existing income.
However the study shows that there are still limitations in young tenants’ financial knowledge, particularly in relation to responsible borrowing. Worryingly the study indicates that there is a lack of ‘future-thinking’ amongst tenants with regard to money-management. For example, the majority of young tenants’ debt awareness has been acquired due to their own or their friends’ and family members’ bad experiences of borrowing. This suggests a potentially dangerous situation where young people are learning about debt through being in debt rather than part of a preventative strategy of managing their finances successfully.
Moreover, their aversion to borrowing did not discriminate between more responsible borrowing options (such as Credit Unions) and other less stable lending services. Many instead expressed a preference to borrow small amounts from friends and family only when absolutely necessary, potentially leading to financial exclusion or future debt problems when these option are not available. Younger tenants are not inclined to enter into more stable borrowing programmes, such as bank loans, rather they emphasised the importance of being able to access money quickly. Such information is of key importance to developing an effective strategy for encouraging more responsible borrowing.
My research concludes by recommending that the NCHA might take into account in their financial responsibility strategy measures such as encouraging structured borrowing, providing preventative financial education, and supporting efficient lending practices such as Credit Unions.