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Photo by Stephen Phillips on Unsplash
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No matter the language, the words ‘borrowing’ and ‘debt’ tend to hold a mix of negative and positive connotations. Whilst borrowing can be a lifeline for those facing financial hardships, there is often an overwhelming sense of shame attached to it. Now, this is nothing new. Throughout history, society has constantly debated the morality of debt and how it impacts society.
A few examples of how different cultures and countries see and interact with debt – Islam prohibits adding interest onto loans, whereas some places encourage borrowing within the community (such as credit unions) versus going to institutional lenders believing that credit unions equal fairer, more equitable financing for its members. Furthermore, in the 1930s, layaway (the original Buy Now, Pay Later or BNPL) was introduced in the UK to allow people to spread the cost of household appliances that had a big price tag with little risk to the lender, and if you look at the US borrowing landscape in the 1960s, credit became widely marketed as a more ‘casual’, easily-accessible decision to increase home ownership and home improvement.
Debt and borrowing have gone through many cycles reputationally. It’s clear that these terms, while rooted in financial transactions, extend their influence well beyond mere monetary exchanges, making the discussion around acquiring credit an emotionally-evoking topic for a lot of people around the world, and more specifically over the course of this article, the UK population.
Why is it so important to discuss the deeper notions associated with the words ‘debt’ and ‘borrowing’?
‘Debt' and 'borrowing' in the UK encapsulate a complex interplay of financial prudence, opportunity and social responsibility, reflecting a society where economic choices have far-reaching consequences beyond the balance sheet. Understanding these connotations is crucial for individuals, businesses, and policymakers as they navigate the intricate landscape of finance in the modern UK.
Borrowing has become more of a necessity for households who don’t have savings to fallback on. The amount households feel comfortable borrowing and spending are also two of the indicators for the Consumer Confidence Index (CCI) which tells us how the UK is feeling when it comes to its financial health.
With the current state of global affairs (the invasion into the Ukraine) and the impact that these situations have had on the UK economy, along with decisions, both historical and more recent, made by the UK itself (Brexit), the mood of the population has been anything but light. Admittedly, many have felt emotionally strained with the weight of financial decisions laying heavy on much of the population’s shoulders.
The current sentiment should come as no surprise – the UK population is currently battling with increasing mortgage rates (due to increasing interest rates to tackle inflation – although as of the 21st September, the Bank of England called a halt for its long run of interest rate increases), the continuation of the cost of living crisis, and, according to Bloomberg, the UK economy’s future as it is headed for a rocky end of 2023 (and at high risk of a mild and short-lived recession).
The feelings associated with debt and borrowing
'Debt' in the UK often conjures up images of financial responsibility and obligation, plus it is often associated with the potential to cause financial strain. Almost instantly, the first thing that is considered or discussed (whether it's a financial institution lending to an individual, or someone speaking to a family member or confidant about borrowing) is the potential for the borrower to spiral into serious financial distress if the debt is not managed wisely.
On a more positive note, 'borrowing' in the UK suggests a nuanced blend of necessity and choice. It implies access to capital for investment, expansion, or fulfilling immediate needs. In the UK, a lot of work has been done over the years to make APRs (Annual Percentage Rates) much more understandable, contracts much more simplified and tighter rules around what can be borrowed.
In short, borrowing and debt can be perceived positively when used for productive purposes, and negatively when associated with excessive consumerism.
Feeling shame around debt and borrowing
The most common feeling around debt and borrowing is shame.
On a societal level, shame is normally associated with those who are at more of a disadvantage financially in the world.
Those who are in the higher echelons of society tend to not associate the same shame with debt and borrowing; unfortunately, the mindset of borrowing being shameful if the individual does not already have money has been ingrained into society for centuries.
Now, that doesn’t mean that those who seem financially sound do not feel shame when borrowing, however, shame puts those who are considered financially vulnerable into a much more precarious position as they are more likely to take out higher interest loans, payday loans and at its worst, accept money from loan sharks. This puts this group of individuals in a never-ending spiral of repayments, making resolution of loans near-impossible.
What shame around debt and borrowing can result into for the financially vulnerable
The stigma around debt can have profound consequences for the financially vulnerable, exacerbating their struggles and preventing them from seeking help.
Many people avoid answering the phone to debt collectors or the debtors themselves and can cause further distress to themselves. This can then result in new or further mental health issues impacting sleep, health, work and relationships with others.
Studies have shown that one in four adults will have a mental health problem at some point in their life, that one in two adults with debts has a mental health problem, and that one in four people with a mental health problem is also in debt.
For those who have been unfortunately targeted by loan sharks (of which there was an increase due to the cost of living crisis), it can create dangerous situations as they believe they have nowhere else to turn when struggling financially.
According to IPSOS for pressure group Fair4AllFinance, more and more struggling households are turning to illegal lenders in the absence of regulated firms operating in the market to service those who are financially vulnerable. Between May 2021 and May 2023, 2.8m low income households had lending applications declined by regulated firms creating a ‘perfect storm’ in the credit market and causing around three million people turning to illegal lenders over the past three years.
It’s crucial to break down this barrier between the feeling of shame and the act of taking-on debt and being-in debt. That’s why, similar to the discord around encouragement to talk more about mental health, the negative connotations of debt need to be addressed as it goes way deeper than just borrowing money.
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On the chance that anyone reading this may be, or know someone who may need help with loans and debt, there are many organisations who are out there to provide non-judgemental help. A more comprehensive list of charities and support groups is outlined on the UK Government website.
For banks and financial institutions who are working on being compliant with the FCA’s Consumer Duty (created to help the financially vulnerable have access to products and services tailored to their specific needs), do get in touch with the Kalgera team.
About Kalgera
Kalgera, a London-based RegTech, is the first line of defence for financial institutions who want to actively support its most vulnerable customers. By helping the finance sector identify customer vulnerability through transactional data, Kalgera creates better outcomes for the customer and the financial institution itself.
We are committed to working with banks through several avenues to comply with the FCA's Consumer Duty Act. Kalgera’s state-of-the-art technology uses 11 parallel AI models to pinpoint vulnerability to financial abuse and low financial resilience with greater precision.
You can find our online training, in association with the London Institute of Banking and Finance (LIBF), here and more information over at our website.Photo by Stephen Phillips - Hostreviews.co.uk on Unsplash
About Kalgera
Kalgera, a London-based RegTech, is the first line of defence for financial institutions who want to actively support its most vulnerable customers. By helping the finance sector identify customer vulnerability through transactional data, Kalgera creates better outcomes for the customer and the financial institution itself.
We are committed to working with banks through several avenues to comply with the FCA's Consumer Duty Act. Kalgera’s state-of-the-art technology uses 11 parallel AI models to pinpoint vulnerability to financial abuse and low financial resilience with greater precision.
You can find our online training, in association with the London Institute of Banking and Finance (LIBF), here and more information over at our website.
