A new report highlights how vulnerable single mothers are when it comes to borrowing, writes Kate Holmquist
Joanne, a lone mother of two children under 10, wants to go on a tour of secondary schools warning girls of the stigma and poverty caused by unwanted pregnancy. That's how strongly she feels about her struggle to cope on a social welfare income so low that she has been forced to use moneylenders to cover school costs, Christmas and birthdays for her children.
She accepts high interest rates of 30 per cent because she has no other option, most recently last Christmas when she borrowed for children's presents. Joanne was once €6,000 in debt to a moneylender, paying interest so high that for each €500 borrowed, she was paying €300 in interest. It has taken her five years to pay it back. In the past she felt forced to use finance companies who can charge interest as high as 200 per cent.
"Four or five loan sharks come into my cul-de-sac on the estate on a Friday evening at 6 or 7pm," Joanne says. Those who cannot pay, hide in the house but the "loan sharks" - a term Joanne uses for legal and illegal lenders alike are persistent. Usually, they are friendly neighbours lending a helping hand. Sometimes they are women who get lower rates of interest in exchange for lending and collecting money on their street. Lending companies justify their high interest rates by their high level of bad loans, since their customers borrow without security or even secure income.
Joanne is one of many lone parents among the 150,000 Irish who use moneylenders each year. She is "unbanked" - the term applied to those for whom borrowing from banks is not an option. Moneylenders - both legal and illegal - are the main source of credit for lone parents who turn to the Money Advice & Budgeting Service (Mabs) for assistance, according to a report published today, Do the Poor Pay More? A Study of Lone Parents and Debt. The report was commissioned by the One Parent Exchange and Network (Open) with the support of Mabs and the Society of St Vincent de Paul, and written by Dr Pauline Conroy of the research company Ralaheen Ltd.
"The poor pay much more for everything in our experience," says Michael Culloty, spokesman for Mabs. "If you are a lone parent in that poverty bracket you are excluded because of your situation, your income and your lack of childcare. You are pushed to the margins of society whereby you have to rely on expensive credit to get by because your income is inadequate."
It may seem extravagant to borrow from a moneylender in order to pay for Christmas in the winter, new tracksuits in summer and school uniforms in the autumn, but Joanne, who is studying psychology, argues that children have high expectations of getting the toys they see on TV and the clothing labels their friends wear. She knows that the moneylending interest rates are outrageous but she sees it as paying 30 per cent more to make her children feel happy and secure.
"Scandalous" and "absolute exploitation" is how Francis Byrne, director of the One Parent Exchange Network describes the Government's sanctioning of such high interest rates by legal moneylenders. The report highlights the fact that parents like Joanne are vulnerable to predatory lending, which includes offers of loans and credit cards in the post, as well as mail order catalogues offering interest rates of 32.7 per cent APR "to take the pressure off you, especially at times like Christmas".
Nearly two-thirds of lone parent clients of Mabs are in arrears with their electricity bills. The ESB, which reported a before tax profit of €453 million in 2003, has raised electricity prices by 40 per cent since 2001. Gas prices have risen by 22 per cent and almost one in three lone parents in the survey was in debt to the gas company.
Estimated bills can wreak havoc on the finances of lone parent families, who may suddenly receive an enormous bill based on an actual reading. Those using meters have found that they have "underpaid" because meters were not adjusted to new price levels, resulting in unexpected arrears.
There's no question of many lone parents asking the bank manager for an overdraft. In some cases, it's because they don't have a driver's licence, passport or utility bill to present at the counter. If you cannot afford a car or passport, and pay your ESB by the meter, these forms of ID are unavailable to you, which is why Open wants the banks to introduce a new form of account which requires minimal ID. It would have a maximum deposit ceiling of, say, €1,500 to discourage money-laundering, but it would enable lone parents to build a relationship with a bank so that, eventually, they would be able to borrow small amounts of money at reasonable rates.
Social welfare allowances are too low, mainstream banking too inaccessible, and utilities too expensive. "Government departments, the utilities companies and the banks working together hold the key to preventing debt and treating lone parents in a more equitable way. You can't point the finger at one sector," says Byrne.
Even secondary schools have a case to answer, since some send out letters requesting "voluntary contributions" which look like mandatory bills to some parents.
Do the Poor Pay More? stresses that lone parents are generally excellent money managers and that their indebtedness must be seen against a social background of rampant consumerism, in which 24-hour shopping is seen as a leisure pursuit. Children naturally expect to "consume" at the same level as their school friends because they are being conditioned by a global trend of consumerism spread by TV and peers.
Being poor once meant starving and going without medical care, clothing or shelter. Today it means being a "flawed consumer", states the report.
The shame of being so flawed, especially for children, can be intense, especially on top of the stigma of being from a lone parent family, says Joanne, who goes without new clothes and even food for herself so that her children can be seen in the latest trainers and tracksuits. The stigma of being a lone parent drove Joanne - who had her first child at 17 - hiding in her bedroom for six months because neighbours were insulting her on the street.
"In the consumer society, personal consumption is expected to continue at a certain norm, even when personal finances do not permit it to do so," states the report.
Reasonably comfortably off parents can be just as vulnerable as lone ones. Irish consumers, as a whole, now owe €85 billion in personal debt, including mortgages. People owe, on average 120 per cent of what they earn annually. Such high debt may be sustainable for most, but when unemployment, separation, ill health or the birth of a child demand that parents borrow, the debt can be ruinous. Many families eventually turn to Mabs for help.
The report, which looked at 139 clients of Mabs - 41 per cent of them lone parents (including just one lone father who had joint custody of children from two separate unions) - and found that the lone parents had an average debt of €1,000 in utility bills arrears and €8,000 in loans. The survey found lone parents were living on very low incomes, with 54 per cent having a weekly net income of between €100 and €200, compared with an average industrial wage of €565.
The lone mothers using Mabs spoke of being unable to seek employment because they could not afford childcare, so 63 per cent were financially reliant on social welfare alone.
Joanne has never set foot on an aircraft, cannot remember the last time she ate out in a restaurant and never goes out socially in the evening - even though she's just 25 years old.
Joanne shops only for necessities and wears "last season's" hand-me-downs given to her by employed, childless friends. Word-of-mouth on her estate leads her to bargains in the Square in Tallaght.
If she wants to read a book or magazine, she borrows it, but she couldn't afford to rent a DVD. She buys no personal care products for herself other than shampoo, and relies on hermother to give her "smalls" at Christmas. If she needs to get somewhere, she walks.
She has owed the ESB for an electric fire, radio, refrigerator and karaoke machine on hire purchase, which put her bill up to nearly €400 every two months for three years before she cleared the debt. The interest rate was only 1 per cent below what she could have got from a "loan shark" and she decided not to borrow from the ESB again unless she can pay it off "interest free" over one year.
She has resisted accepting the unsolicited credit cards she's been offered although she has no bank account and is on social welfare. Open wants the banks to stop offering such credit cards.
By living on a tight budget, Joanne has paid off everything and got away from the dominance of her local "loan shark" - a neighbour she describes as "friendly" - and into the Credit Union. Now working on a Community Employment Scheme, Joanne has saved weekly in the credit union and has just borrowed €2,500 to take her children on their first holiday.
Making ends meet
Susan Brennan (24), the lone mother of a four-year-old, can tell you that her T-shirt cost €1 and her jeans €2 in Penneys - exceptional bargains. Bargain- hunting is a matter of survival for Susan, who wraps up in blankets to watch TV because she cannot afford to turn the heating on.
She has had to micro-manage her money ever since her partner of six years, to whom she was engaged, met someone else and left a year ago. At the time she was caring for her ill mother, who died from the complications of diabetes last Christmas. Life since then has been lonely.
A new report on how lone parents manage debt, commissioned by Open, dismisses the myth that lone parents are poor money managers.
Most are like Susan - so efficient that they can tell you exactly how much they have set aside for fresh bread and milk.
"I have succeeded in getting maintenance, but it has been deducted from my rent allowance so I'm no better off, although the social welfare [ department] is. I'm not ashamed to let people know how hard it is to cope financially. I hate being on social welfare and would love a full-time job."
Susan has been tempted to use "home credit" from licensed moneylenders who call to the door with cash and collect payments once a week, but she has been warned off it by friends struggling to pay debts where interest rose so quickly that payments became unmanageable. She'd rather do without heating, fashionable clothes and a summer holiday than get a "bad name" for owing money, she says.
At the beginning of the month, she pays her rent, which leaves her "skint" for the rest of that week. She prioritises her utility bills, paying them in rotation. Her mobile phone is pre-paid, so that when she runs out of credit she can't make calls, but at least she is not in debt.
She has just finished paying off an interest-free loan for a vacuum cleaner, which cost her €44 a month over a year from the ESB.
"I have the same bills as a couple would have, but my income does not take that into account. I never regret having a baby, though. He's my whole world and my whole life. I guess it's fate." She had not intended to get pregnant and was on the Pill at the time.
"I'm in the poverty trap and I won't get out of it any time soon," she says. "But I'm refusing to let it take over my life."
The lone parent debt trap report recommends . . .
• The ESB must answer the perception that it is evading Ifsra regulation by charging 22.9 per cent interest on hire purchase, 1 per cent below the rate that would require it to register as a money lender.
• The Department of Social and Family Affairs should be advised by Mabs on the adverse effects some of the practices the ESB and Bord Gais have on social welfare recipients.
• Schools should be formally advised that they may not exericse moral, social or other pressures on parents to make so-called voluntary contributions to free schools and should stop referring to these as "re-registration fees" or "subsidies to school insurance" which are printed to resemble invoices.
• Banks should find a method of verifying the good standing of potential bank customers without requiring them to attend Garda stations for certificates.
• Mabs should meet the Department of Social Family Affairs to discuss the arrears arising from lone parents' inability to meet routine utility payments and other living expenses from their weekly payments.
• The Irish Financial Services Regulatory Authority (Ifsra) and the Civil Law Division of the Department of Justice should examine evidence of illegal money lending
• The Irish League of Credit Unions should ensure a single household cannot hold accounts in different credit unions, through which multiple loans are issued against the same savings/income as security.
