The impact of debt on people’s lives
- Author: Joe Lane, Policy Researcher
The impact of debt on people’s lives
From the 350,000 people we helped manage their debt last year – it is clear that debt problems are often related to wider problems in their lives, whether that be housing, employment or the welfare system.
In total, around half of the people we help with debt problems have a problem in at least one other area of their life.
In a new report, A debt effect?, we investigate some of those relationships in more detail, building on existing research which shows that high levels of debt are related to wider problems in people’s lives.
The research uses the Understanding Society survey, which surveys around 40,000 people each year, to assess how much debt people are in and how high levels of debt are related to other problems in people’s lives. It also uses Citizens Advice data and a YouGov poll of 2,109 UK adults.
How many people have unmanageable debt?
One commonly used indicator of unmanageable debt is having debt worth more than six months of your income. Our analysis finds that one in twenty adults have that level of debt. When looking at different groups in society however, that figure is far higher:As shown by the chart above:
- One in fourteen of the lowest paid fifth of the population have debt worth more than six month’s income (7%)
- One in ten private renters have debts worth six months of their income, nearly twice the proportion among people with a mortgage (10% compared to 6%)
- One in seven of 20–29 year olds have more than six months’ income in debt, twice the figure for 30–39 year olds (14% compared to 7%)
What is the wider effect of those high levels of debt?
Beyond the financial strain that debt causes, we looked at how that debt relates to other problems in people’s lives; unemployment, low pay, poor physical health, and poor mental health.
The report isolates the effects of debt from other factors in people’s lives such as their income and level of education. The most striking finding was the relationship between debt and mental health. People with unmanageable levels of debt are 24% more likely to have poor mental health – even taking into account their incomes and other factors.
Looking at the relationship another way, by comparing people with below average mental health scores with those with above average, we found that those with below average mental health were:
- Over 20% more likely to have unsecured debts
- Twice as likely to be behind on a household bill
- Nearly two thirds more likely to be behind on their council tax
One challenge presented by the research was how to identify whether unmanageable debt causes poor mental health or whether poor mental health leads people to have higher levels of debt. In reality, both are true.
How does debt lead to wider problems in people’s lives?
Thinking about how debt might worsen outcomes in other areas of people’s lives, we found that people with high levels of debt not only caused stress and anxiety but, significantly, meant they were less likely to say they would be willing to take major life decisions because of their debt.That restricted decision making, over time, can have a major impact on the course of people’s lives.
What can we do?
There is no easy way to limit the impact of debt on people’s lives but advice services play a crucial role in ensuring that people can get high quality debt advice to help them sort out their problems.
One way those services can further help mitigate the wider effects of debt is to help people avoid getting into problem debt in the first place. The ongoing review of the funding of public financial guidance is a good opportunity to direct more funding to frontline money guidance services in order to encourage more people to get help managing their money before they get into difficulties.