The causes of debt (click for larger)
Take a look at the causes of debt graphic to accompany this post.
The main cause of personal debt is thought to be pretty simple: debtors are seduced by consumerism. They went wild in the aisles and now they’re paying the price. They were feckless, reckless and spendthrift, and now the bill has arrived. In essence, overspending is the main cause of debt.
I recently scanned through some newspaper stories on debt, not to see the scale of the issue, but to see what was said in the website comments. I was interested to see what “the person on the street” felt about UK personal debt.
The responses were pretty standard, blaming external factors (it’s Labour’s fault; it’s the Conservatives’ fault), or in a few cases, blaming the banks and lax regulation. However, far and away the biggest blame was reserved for the debtors themselves.
“No one forces you to borrow”
Some example comments, from a newspaper website:
“It is your own fault if you have too much debt. No one forces people to borrow. It’s about time people took responsibility for themselves and grew up”
“Most people are in debt simply because they live in an “I want” society and not a “do I really need it” society”
“At the end of the day don’t borrow if you can’t afford to pay it back. Simple really…”
“If you do not want to be chased for money do not borrow money…”
“[Bankruptcies] encourage the feckless to run up huge bills, hoping that when they become unmanageable some soft judge will release them from their obligations”
“There are millions who have the ‘I want it and I want it now’ attitude and have absolutely no common sense or responsibility”
(Source: Daily Mail)
To be fair, a couple of these comments had been ‘downvoted’ by the rest of the community (in other words they weren’t the view of the majority), but these still give an idea of the perception of how people fall into debt.
At its most extreme it’s a perception that debtors buy plasma TVs, expensive clothes and video games consoles, racking up the bills until the cards are declined, then phoning up a debt help charity like StepChange and pleading poverty, in an effort to get the debt written off.
That’s the perception, but not the reality
Given we ask each of our clients their main reason for falling into debt – so we’re acutely aware of the reality – we thought it would be interesting to test how endemic the perception is and compare against our knowledge. We asked the excellent economics website eZonomics to poll their readers, to find out the general consensus.
What do you think is the biggest cause of financial difficulties?
The results confirmed our theory. 49% of those polled said that the main cause of personal debt was overspending, while only 29% said that job loss and pay cuts were the culprits.
The reality of the situation is virtually an inverse of this. In 2010, 48% of our clients stated that a job loss or a pay cut was the main reason for their debt. In contrast overspending was only listed in 10% of cases.
The reality is that work issues are the main cause of personal debt in four times more cases than overspending. Alongside this, the perception of profligacy as the main cause of debt was five times higher than the reality.
The general public understates the actual reason for problem debt but also overstates the role extravagance takes.
To visualise this difference we decided to design another of our successful infographics, which we present today: Do you know what causes bad debt. Take a look and share it with your friends via Twitter, Facebook or your favourite social bookmarking site. Blog about it and tell us in the comments below if you think it’s right or wrong.
We’re aware of some limitations of the data. The poll wasn’t scientific and the data we’ve collected isn’t independently verified. Our data also has a little bit of a bias; it’s collected from our clients not the general public.
However it still challenges the perception of debt and indicates that it’s less about being weak-willed and is more an unfortunate and accidental fact of life.
As I said at the start, what you think causes personal debt might be wrong.