2024 Cooperative Case Studies
- May 2024
Why is debt a problem?
More than 20 million people – nearly half the adult population – are worried about their personal debt levels. Debt is not just a financial problem. Debt can adversely affect relationships; have a negative impact on health and impact on people’s ability to do their jobs due to the psychological impact of debt. This can lead to a spiral of debt, with people feeling psychologically unable to work and therefore forced into further debt.
The rising cost of living to changes to benefits to uncertain employment, the financial challenges that people are facing are mounting. Personal debt is increasingly affecting families as the cost of living continues to rise.
StepChange, the debt advice charity, found recently that millions are paying for essentials like utility bills, rent and council tax on credit cards and payday loans. This access to ‘easy’ credit is not helping people meet these financial challenges; often exacerbating the problem by forcing people to pay back far more than they borrow due to the high interest rates.
Why should a local authority help people who are in debt?
Any local authority has a significant role to play in helping residents avoid debt, and supporting those who find themselves in financial difficulty. We also have a duty to ensure our communities are able to prosper, both socially and economically. Using our role as a community leader, Oldham Council can play a key role in mitigating the factors that lead to people falling into problem debt.
Our Co-operative approach has seen Oldham Council, voluntary organisations and local residents work together to tackle the debt issues early, stopping them becoming overwhelming and potentially causing lasting damage to residents’ financial situations.
Instead of just helping people once their debt has already become too much to cope with; we’ve developed a model that helps people help themselves before the problem escalates further. Our work has seen residents empowered to make positive financial choices, for example, saving through Oldham Credit Union or through our Fair Finance campaign which provides greater choice for residents wishing to purchase household essentials (e.g. fridges and cookers).
In 2012 12.1% of Oldham residents had difficulty in making credit/loan repayments; higher than the 10.7% National average. This figure was significantly higher in some wards, for example, Coldhurst where 17.6% of the population had difficulty making repayments. Some of the poorest areas have a particularly high prevalence of loans, and credit refusals are particularly high in Hollinwood (25.1% refused credit) and Alexandra (26.4% refused credit).
How are we helping residents tackle debt?
The Oldham Credit Union (OCU) – which is run for residents by residents – plays a significant role in helping people avoid the debt trap. OCU’s ‘Jam Jar’ account – which is designed to help people with essential living costs – automatically divides people’s income into several ‘jars’ for rent, bills, etc. It means that residents know what they budget is for the coming days and don’t overspend by accident.
We also run joint campaigns with OCU and voluntary organisation on relevant issues. For example, our ‘Stop Loan Sharks’ campaign has helped reduce the damage predatory money lenders inflict on the community, by working closely with the other agencies to raise awareness of the alternatives to loan sharks and provide advice to those who have already incurred debt in this way.
Often it is the most vulnerable individuals who are at risk of problem debt. Our Welfare Rights Service – which advises people on the benefits they are entitled to under the new welfare system – makes sure people with little money are aware of the support they’re able to claim as well as other action they can take to improve their situation such as employment, housing, and disability advice.
We are also working with young people in Oldham to help develop their financial management skills. Oldham Youth Council, as members of Oldham’s Co-operative Commission, has partnered with Barclays Bank on the ‘Money Skills Champion’ programme. The programme teaches young people how to manage their money and develops financial skills for the future – an important part of this approach is that those who receive the training then share their learning among their peers.
It is how we combine all of these elements together that is fundamental to our success. Oldham is making great progress as a Co-operative Council – working hard to redefine the relationship between authority and resident and looking for ways to build levels of self-reliance and confidence.
What’s next?
As the cost of living continues to rise we will see more people forced into problem debt. In many cases residents can no longer afford household essentials and are forced to rely on high interest, high street lenders.
Goods sold by high interest lenders often have a very high APR (annual percentage rate), for example, a fridge that costs £399 from Curry’s ends up costing £1560, almost four times the amount, from a high interest lender. This is known as the poverty premium: the poorer you are, the more you pay.
Though high interest lending on the high street is regulated, we are seeing a growing trend of people who are unable to pay back the loans that they take out.
Oldham Council intends to tackle this problem head on. We are currently working on opening a shop, Oldham Essentials, which will provide access to household essentials at fair prices on fair financial terms.
