The Effect Of Debt Upon Children
8th May 2014
A report released by The Children’s Society has highlighted the types of difficulties faced by children growing up in families affected by debt problems. The scale of such childhood experiences is significant, with more than two million children in the UK growing up in homes affected by problematic levels of debt.
My personal experience, working as a debt adviser, is that many parents suffer extreme levels of guilt about the effect that their financial bad fortune (or mistakes) are having on their children. Problem debt is stressful for most people; problem debt as a parent can be much worse.
In some instances this can translate into a destructive borrowing cycle where parents decide that it’s unfair that their children miss out in comparison to their peers. In other instances parents do without (often to a degree that puts their own health in jeopardy) in order to prioritise the needs of their dependents. We commonly hear from enquirers that their feelings of guilt have led to delays in taking advice, despite the fact that it has been entirely clear to them for months that the situation must be addressed.
The Debt Trap report highlights that kids from families experiencing problem levels of debt are twice as likely as their peers to be unhappy at school. This may be because of bullying connected to their relative lack of possessions. 58% of these children worry about their family finances and 47% observe family arguments connected to money. 90% may have had to do without food, heating or clothing at some point as a result of their parent’s money problems.
The report’s authors suggest that a process to provide “breathing space” is introduced to protect parents in debt from descending further into a downward debt spiral. It’s also suggested that councils should be more mindful about the needs of children when using their own debt recovery procedures. Financial regulators might look into how financial firms deal with the debts of parents and also what “early-warning” procedures they utilise that might protect children before a downward debt spiral has truly set in.
These interesting suggestions are bound to spark a debate about how the interests of children can be best served when their parents get into financial difficulty. However, any resultant changes may well come too late to assist the 2.5 million children exposed to such issues today.
Can formal debt solutions, like protected trust deeds in Scotland, protect the interests of children in families where debt has already become a serious problem?
The answer probably depends upon the viewpoint of the parent(s). Entering into a Scottish trust deed, bankruptcy or a debt arrangement scheme is generally going to involve living on a restricted budget for a period of years. Some parents find this prospect very difficult, for example when contemplating limitations being placed on their holiday or Christmas expenditure.
Other parents have already placed enormous restrictions on their own budget in a desperate effort to maintain their debt repayments. People we speak with about expenditure allowances often tell us that the allowances typically provided for housekeeping or utilities expenditure (in debt solutions) are higher than the amounts that they have actually been surviving on. They have often cut back enormously at the expense of a healthy diet or keeping a sufficiently warm home.
The fact of the matter is that very serious debt problems don’t tend to go away without taking action of some sort. Typically they’ll actually get worse if they aren’t addressed. The question perhaps isn’t whether action is needed, but rather when there will be no choice in the matter left. The available debt solutions might well be more severe if this point is reached.
When entering trust deeds, bankruptcy or debt arrangement schemes, financial expenditure allowances will be made. This creates a family budget for essentials like housekeeping, clothing, travel and heating. School meals will be covered, as will school uniforms. Reasonable expenditure on educational trips and resources will usually be allowable. Modest levels of pocket money are allowable. These important financial needs of children are covered.
Perhaps more importantly, many children will experience diminished worry about the state of their family finances. A lot of kids will also become less exposed to family money arguments that can affect their happiness.
It’s natural for parents to worry about the effect that their finances are having upon their children. For that reason it’s always worth taking professional debt advice at the earliest possible stage. Nobody will force you to act upon it, the decision to act will always be yours, but understanding your options is the first stage in making the right decisions about debt. This is very likely to be in the long-term best interests of both your children and yourself.
If you’d like to speak to our professionally qualified debt advisers please use our contact form or call us on 0141 249 0416.
By Andrew Graveson
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