Indebtedness: breaking down the barriers

21 Mar 2016

The Financial Health Exchange attended an event by the Money Advice Service (MAS) recently called Indebtedness: Breaking Down the Barriers, in Central London. The aim of the event, as the byline implies, was twofold: to uncover the true scale of over-indebtedness in the UK and to explore what are the potential solutions.

“One in six people in the UK are over-indebted, but less than one in five of them seek advice”, reads a line from the foreword to the new MAS report. And this statement gave shape to the entire event.

After introductions from Nick Watkins, Head of Insight & Evaluation at MAS, and Melanie Mitchley, MAS’ Director of UK Debt Advice, we heard from the findings of MAS’ new study on over-indebtedness, the personal cost of debt, and a discussion on some of the barriers to seeking advice.

Colin Kinloch, MAS’ Debt Advice Strategy Manager, and Karen Kelly, Client Partner – Retail Banking at CACI (both co-authors of the report), took us through the five key factors linked with over-indebtedness: renting (25% of renters are over-indebted as opposed to 12% of home owners); larger families (1 in 5 adults with children are over-indebted which rises to 1 in 4 among adults with three or more children); single parent families (28% of single parents are over-indebted compared with 18% of two parent families); low incomes (individuals are more likely to be over-indebted if their household income is less than £10,000); and, age (those aged 25-34 are four times as likely to be over-indebted as those aged 65 and over).

The new report ends with three implications that need addressing: service design (how do we design debt advice services with what we know about over-indebtedness); room for partnerships (forging clear working relationships with other organisations with a close proximity to over-indebted people like housing associations); and, the commissioning process (what their results mean for organisations that fund advice).

The event proceeded with the question: how do we ensure those people who need debt advice make the necessary steps to receiving it? And, what do we know about the barriers and how we can tear them down?

Sarah Little, MAS’ Insight Manager, presented on what differentiates those who need advice, looking at all groups from the ‘rejecters’ of advice, who are the hardest to reach, to the ‘potentials’ who may need a little help accessing the right advice but who recognise their own financial issues.

Little pointed out that the groups most likely to be seeking advice are the ones already missing payments, paying more on debt, and whose debt-to-income ratios are highest. This led to a discussion on how to get people through the door into debt advice before the problem becomes too severe.

Rob Hartley and Sammy Warrens from 2CV, a boutique consumer market research agency, gave a very interesting account of some research they carried out looking at what it feels like to need advice and what the barriers are. They found that the barriers included: projection bias (being overly optimistic or pessimistic, and not realistic); confirmation bias (only being attentive to those things which confirm either their optimistic or pessimistic biases); and, hyperbolic discounting (the preference for smaller benefits now, rather than greater benefits later).

Dan Bicknell, a debt advisor from Talking Money, gave a very personal account of why he found himself in a debt advisory role. He spoke on the day about ‘John’ (not his real name): he has an alcohol dependency, lost his family, then his house, and was being chased for a £59,000 mortgage shortfall. He didn’t want to go through bankruptcy proceedings as he had done it before, plus he was priced out of doing so. He sought the services of Talking Money, underwent woodwork training, and managed to get his mortgage debt written off. An extreme circumstance, but an illustration of how debt advice can be life transformative.

Peter Tutton from StepChange spoke about the figures: 15m people in debt, 8.2m over-indebted, with around 2.6m of those whose debts Tutton described as “pear shaped”; completely unmanageable. It is these debtors who are the toughest to service, and yet with them we have to get it absolutely right. Tutton also mentioned the high invisible costs associated with the “waiting and worrying” and the reasons for why we need early debt intervention.

During the final panel session, on actions to drive people into debt advice, we heard from Citizens Advice’s Anna Hall who spoke about why debt advice doesn’t need to reinvent the wheel, and how much we can rely on partner organisations for their knowledge in achieving advisory goals. We also heard from Jane Tully of the Money Advice Trust on the importance of MAS’ Quality Framework for Individuals Delivering Debt Advice, and why it is so rewarding for her to read verbatim client feedback reports to see how much difference they are making.

The room was full of ideas, but also the recognition that there is still a lot to do to bring down the barriers to debt advice. One main reason for this has to do with the testimony of one over-indebted Talking Money client, featured in a video from the day: “I was numb, frightened, scared – I just wanted to bury my head in the sand and forget about it”.