Low-income households have recorded a sharp rise in the use of potentially expensive consumer debt over the past decade and are now vulnerable to unexpected hard times, the Resolution Foundation, a thinktank has said.
It said the increasing use of credit cards, store cards and overdrafts by those struggling to make ends meet should concern policymakers.
The proportion of low-income households using some form of consumer debt rose by 9% (from 53% to 62%) between the three-year periods of 2006-08 and 2016-19 – a far steeper increase than the one-point rise (to 64%) among high-income households. Rising use of consumer debt had been concentrated in products with high interest rates that – unlike mortgage debt – had not got cheaper over the past decade.
Credit card use (with an average quoted interest rate of 20%, up from 15% in 2008) among low-income households grew by 13 percentage points from 2006-08 and 2016-19, while the use of overdrafts (with an average quoted interest rate of 15-20%) grew by 4 percentage points.Kathleen Henehan, a Resolution Foundation policy analyst said, ““Access to new credit can be hugely beneficial for low-income families, but with many also reporting that they have no savings to fall back on, these high debt repayment pressures are a sign of stretched living standards. The risk is that this leaves them far too exposed to future financial shocks, reinforcing the need for policy makers to focus on the living standards of those on low and middle incomes.”