THE HEADLINE figures from the latest quarterly income survey commissioned by the Irish League of Credit Unions (ILCU) makes disturbing reading. It shows high and rising levels of personal debt for some people, and low and declining levels of disposable income for many. After essential bills are paid each month more now say they have less money – under €100 – to spend than a year ago. The figure indicates the degree of financial hardship that many encounter on a daily basis, as they struggle to balance budgets and try to minimise the impact of austerity. Unsurprisingly, a greater number (61 per cent) feel they are living to work, rather than working to live.
The tough financial challenges that face so many consumers and not least those burdened by a high level of personal debt help to explain why retail spending remains weak. In turn, negative consumer sentiment has depressed tax revenues and helped to slow economic recovery.
The survey, which shows how people are coping with the impact of recession, highlights some disturbing trends. Forty per cent of consumers say they have had to borrow in the past year just to pay their household bills. They have relied for financial help on a variety of lenders: family and friends, the credit union and banks. However, an increasing number have, in desperation, been forced to borrow from moneylenders – some of whom are illegal – to whom they pay excessively high interest rates for short-term loans. This risks creating a debt-trap spiral from which those who deal with moneylenders may later struggle to escape. To borrow more at ever higher interest rates to pay bills that keep on rising while incomes remain unchanged makes no sense. Almost certainly, it ensures the borrower will struggle to repay the debt, and face greater financial difficulties than before. The ILCU has called on the Government to cap the interest rates legal moneylenders can charge. At present no cap exists, and lending rates of close to 200 per cent APR can apply.
For most people (72 per cent) mortgage and rent payments are the most expensive bills to be paid in the weekly or monthly household budgets. The increasing number of owner-occupier mortgages in arrears reflects both the collapse in house prices, the rise in the rate of unemployment and the cumulative impact of an economic recession that has lasted four years. Mortgage holders in severe financial difficulty can, with the introduction of the Government’s personal insolvency regime, expect some relief in future. However, it may be early next year before the new insolvency service for out-of-court debt settlement agreements is established.
A revealing, and disturbing, aspect of the survey is that many consumers are poorly informed about key aspects of money management, Only half of respondents were aware of bank fees, or the interest rate payable on credit card loans. A basic knowledge of money management skills might well have enabled some to avoid, or at least minimise, the financial difficulties they have experienced. The ILCU, in highlighting the need for such personal finance skills, has done its members some service.