Personal Over-indebtedness in Northern Ireland February M. Woods OFMDFM Equality Directorate Research Branch

Transcription

1 Personal Over-indebtedness in Northern Ireland February 2006 M. Woods OFMDFM Equality Directorate Research Branch

2 Table of Contents 1.0. Introduction Consumer Credit in the UK Extent of Credit Facilities and Consumer Borrowing The Socio-Economic Characteristics of Respondents with Consumer Credit Unused Credit Facilities and Amounts Owed Amounts Owed on Consumer Credit and Income Levels The Composition of Those Individual s that Were Over-indebted Domestic Bills Subjective Views on Credit and Debt Sources of Financial Advice Comparative Data Summary and Conclusions Appendix A1. Methodology for Computing Classification of Over- Indebtedness Appendix A2 Technical Survey Notes Bibliography OFMDFM Research Branch 1

3 1.0. Introduction 1.1. The Office of the First Minister and Deputy First Minister (OFMDFM) are currently developing an Anti-Poverty Strategy for Northern Ireland. A priority area of the developing strategy is financial exclusion. In support of this theme OFMDFM Research Branch commissioned a module of questions in the Northern Ireland Statistics and Research Agency s (NISRA) Omnibus survey. This module of questions examined individual s level of borrowing and attitudes to borrowing. The data also allows definitions of over-indebtedness used by GB departments to be modelled for NI for the first time 1. In addition the research examines arrears with domestic bills In recent times much has been made of the levels of consumer borrowing in Great Britain and Northern Ireland (NI). Concerns have been raised that the levels of borrowing are unsustainable. There has been a lack of primary data on the amount and types of borrowing in NI, with the notable exception of the General Consumer Council (GCC) report Taking the Credit (GCC 2004) While groups such as the Citizens Advice Bureau (CAB) have analysed the position of their clients who seek advice on debt this does not present the picture for the whole of the NI population. 1 See Appendix 1 for full methodology OFMDFM Research Branch 2

4 2.0. Consumer Credit in the UK 2.1. The Office for National Statistics and the Bank of England produce estimates of consumer credit for the UK as a whole, there is no disaggregation to the individual countries within the UK Figure 1 below shows the increase in quarterly consumer credit gross lending. Over the period 1995 quarter 1, to 2005 quarter 1 gross lending rose by 162% in nominal terms. The data provides no indication whether this increase was the result of an increase in the number of people using consumer credit or an increase in the amounts held or a combination of both. Figure 1 Consumer Credit Gross Lending 1995 Quarter1 to 2005 Quarter 1 ( million) m Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Source ONS (VZQN) 2.3. Over the period in question, the total amount of consumer credit accounted for by credit cards has increased from 54% in 1995 quarter 1 to 62% in 2005 quarter 1. Figure 2 shows the actual amounts over the period The increase in credit card gross lending has exceeded that of all consumer credit gross lending. Over the period gross lending on credit cards has increased by approximately 200%. OFMDFM Research Branch 3

5 Figure 2 Consumer Credit Gross Lending 1995 Quarter1 to 2005 Quarter 1 Credit Cards ( million) m Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Q Q1 Source ONS (VZQO) OFMDFM Research Branch 4

6 3.0. Extent of Credit Facilities and Consumer Borrowing Credit appears to be more easily accessible in the UK today than at any other time. The omnipresent adverts for credit cards and loans, the unsolicited increases in credit limits etc. may have created an environment in which the consumer could view credit as a rather more safe option. Advice agencies have pointed to the lack of financial knowledge of consumers and instances of irresponsible lending as creating a precarious situation for some This next section of the report will examine the extent of credit facilities, the type of credit use and amounts, as reported by respondents to the Omnibus Survey in March Figure 3 below shows the number of credit facilities 3 that respondents declared were available to them The vast majority of respondents had access to at least one credit facility (71%), conversely 29% of respondents had no credit facilities. A small percentage of respondents (9%) had access to five of more credit facilities Across all respondents the average number of credit facilities was 1.8, for those with at least one commitment the average number was 2.5. Figure 3 Number of Consumer Credit Facilities % 80% 70% 60% 50% 40% 30% 20% 10% 0% None Any One Two Three Four Five or more 2 See for example Kempson When money is owed on a credit facility it is termed a credit commitment. Due to the limits of the survey questions only total amounts owed across types of facilities were recorded and not for each individual credit facility. OFMDFM Research Branch 5

7 4.0 The Socio-Economic Characteristics of Respondents with Consumer Credit Facilities In terms of gender almost three quarters of female respondents had at least one credit facility compared to 68% of males. Eleven per cent of females had five or more facilities compared to 7% of males. These higher levels for females translate into an average number of credit facilities for females of 2.0 compared to 1.6 for males In terms of age the younger and the older age groups exhibit the lowest levels of credit facilities. Sixty-two per cent of year olds and 40% of those aged 65 and over had at least one credit facility compared to 87% of year olds and 72% of year olds. Fourteen per cent of year olds had five or more facilities as did 10% of year olds, compared to only 4% of year olds and 1% of those aged 65 and over. The highest average number of credit facilities was for those individuals aged years (2.1) and the lowest for those aged 65 years and over (1.1). This pattern is no doubt influenced by the fact that the age range years is likely to be the most financially active period in the Iife-cycle of the individual 4.3. Across marital status groups married persons had the highest level of any credit facilities, (76%) and widowed individuals the lowest, (48%). Eleven per cent of married individuals had access to five or more credit facilities compared to 5% of widowed individuals. Married persons had the highest average number of credit facilities (2.0) and widowed persons the lowest (1.0) Across different tenure groups those individuals that own their home with a mortgage had the highest access to credit facilities. Eighty-one per cent of such individuals had at least one credit facility and 11% had five or more. Approximately half of those individuals living in social rented accommodation had at least one credit facility and 5% had five or more. Those individuals that own their home with a mortgage had on average 2.2 credit facilities compared to 1.0 for those in social rented accommodation For those individuals in paid employment 84% had at least one credit facility and 12% had five or more. For persons not in paid employment levels were lower. Fifty-nine per cent of such individuals had at least one credit facility and 9% had five or more. On average those in paid employment had 2.2 credit facilities compared to 1.3 for those not in paid employment In terms of socio-economic group the general pattern was for the higher groups to have greater access to credit. In this respect 91% of the professional group had at least one credit facility compared to only 38% of those in the unskilled manual group. A similar pattern was apparent when considering the proportion within groups that had five or more credit facilities. Nineteen per cent of the professional group had five or more credit facilities compared to 2% of those individuals in the unskilled manual group. In terms of average number of credit facilities the same pattern is evident. For the OFMDFM Research Branch 6

8 professional group the average number of credit facilities was 2.8 compared to 0.8 for the unskilled manual group In terms of gross income the pattern shows that as income increases access to credit increases. Fifty-seven per cent of individuals with gross annual income of under 5000 have at least one credit facility and 7% had five or more. For individuals with an income over % had at least one credit facility and 28% had five or more. The highest average number of credit facilities was found in the income bracket (2.2). The results above are shown in Table 1 below. Table 1 Level of Credit Facilities by Socio-economic Characteristics. Credit Facilities % of individuals with.. Average number No credit facilities Any Five or more All individuals Gender Male Female Age and over Marital Status Single Married (inc separated) Divorced Widowed Tenure Owns outright Owns with mortgage Social rented Private rented Other Employment Status In paid employment Not in paid employment Socio-economic Group Professional Managerial & technical Skilled non-manual OFMDFM Research Branch 7

9 Skilled manual Partly skilled Unskilled manual Never worked Full-time students Location Urban Rural Religion Protestant Catholic Other Annual Gross Income Under ,000-14, and over Those with no credit facilities are disproportionately drawn from: males; individuals aged 65 years and over; widowed individuals; those living in social rented accommodation; individuals not in paid employment; those in the unskilled manual socio-economic group and individuals with an income under Those with any credit facilities are disproportionately drawn from: females individuals aged years those that own their property with a mortgage; those individuals in paid employment; those in the professional socio-economic group and OFMDFM Research Branch 8

10 individuals with higher incomes Those individuals with access to large numbers of credit facilities i.e. five or more are disproportionately drawn from; individuals aged married / divorced individuals individuals in paid employment higher socio-economic groups and those with higher gross annual incomes. OFMDFM Research Branch 9

11 5.0. Unused Credit Facilities and Amounts Owed. 5.1 As noted above not all individuals with credit facilities have actual commitments on those facilities i.e. owe money. Note, however that due to the limitations of the Omnibus survey it was not possible to investigate amounts owed on each individual commitment but rather on overall amounts The survey questioned respondents on the number of credit cards / store cards / mail order / hire purchase facilities that the individual had and the money owed across all these types of facilities. In total 39% of respondents had at least one credit card /store card / mail order / hire purchase facility. Of these individuals 50% did not currently owe any money These figures imply that there was a high degree of unused facilities. If the individual s circumstances change negatively, for example, a period of unemployment there is the potential that credit facilities such as those referenced above could be used Figure 4 below shows the amounts owed for those individuals that had at least one credit cards etc. Including those who did not owe anything the average amount outstanding was 747. Excluding those not owing anything the average amount owed was A small proportion of individuals owing money on credit cards etc. owed at least 2000 (9%) Figure 4 Amounts Owed on Credit Cards / Store Cards / Mail Order / Hire Purchase 60% 50% 40% 30% 20% 10% 0% over 2000 Note figures exclude small number of don t know / refused 5.5. For those people with a credit commitment on credit cards etc. the survey asked whether the amount they were paying represented the minimum repayment on any of these types of commitments. Approximately 20% of such individuals were paying the minimum on all such commitments, 27% paid the minimum on some and 52% were not paying the minimum. OFMDFM Research Branch 10

12 5.6. Approximately three quarters of individuals did not have a loan of any type. Twenty-one per cent of individuals had one loan with the remaining 4% having two or more Figure 5 below shows the amounts owed for those individuals that had at least one loan. Including those that owed nothing the average amount owed on loans was Excluding those that owed nothing the average amount owed was However it should be noted that 4% of individuals with at least one loan facility owed at least 20,000. Figure 5 Amounts Owed on Loans 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% over 2000 Note figures exclude small number of don t know / refused 5.8. Approximately 10% of individuals had overdraft facilities. Of those with an overdraft facility, a significant proportion (49%) currently did not owe any money on an overdraft(s). A further 31% owed under 500 and only 5% owed over OFMDFM Research Branch 11

13 Figure 6 Amounts Owed on Overdrafts 60% 50% 40% 30% 20% 10% 0% over 2000 Note figures exclude small number of don t know / refused 5.9. The average amount owed on overdrafts, including those individuals that owe nothing was , excluding those that owed nothing the average amount increased to The following analysis combines all the types of credit facilities outlined above to give an insight into the total amounts owed by individuals A significant proportion of the 71% of individuals with at least one credit facility currently did not owe any monies (44%). A further 19% owed 500 or less. At the opposite end of the spectrum 11% of individuals with credit facilities owed over 5000, as shown in Figure 7 below. Figure 7 Amounts Owed on All types of Credit Facilities 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% over 5000 Note figures exclude small number of don t know / refused OFMDFM Research Branch 12

14 5.12. Including those individuals that owed nothing on credit the average amount owed was For those that owe money on credit the average amount was Figure 8 shows the characteristics of those individuals with at least 5000 debt: sixty-two percent are aged between 25 and 49 years; fifty-seven per cent are male; eighty-eight per cent either own their property outright or with a mortgage; eighty-one per cent are in paid employment; forty-four per cent have tertiary level education; forty-two per cent are in managerial & technical professions; seventy-one per cent are married (including separated); fifty-five per cent have dependants and fifty-five per cent have gross annual income from all sources of between and % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Figure 8 The Characteristics of Individuals With Consumer Debt male mortgage.own outright In paid employment tertiary Managerial & technical Married (inc seperated) nts Has dependa OFMDFM Research Branch 13

15 5.14. These characteristics tend to imply that those owing at least 5000 are not drawn in the main from groups more at risk of disadvantage such as those not in employment, and those with low level qualifications etc The above shows that a significant proportion of those owing at least 5000 may well be capable of handling their debt commitments. However it is not the amount owed in and of itself that is important it is the impact the amount owed has on the individual s income and consequently their standard of living. This will be examined in the next section. OFMDFM Research Branch 14

16 6.0. Amounts Owed on Consumer Credit and Income Levels The percentage of an individual s income that an individual spends servicing his/her debt is important. For example an individual in the higher income brackets may well service a large debt without difficulties while an individual with a substantially smaller debt but on a low income may experience extreme hardship. 6.2 The Omnibus survey collected gross annual income and amounts owed on consumer credit and mortgages. This information enables debt servicing ratios to be calculated. The methodology used is based on that supported by the Department of Trade and Investment (DTI), although the DTI states that there is no universally accepted definition of over-indebtedness. For a fuller explanation of the methodology used see Appendix A The figure below shows the banded levels of individual incomes, on an annual basis from all sources Of those individuals responding positively 23% had a gross annual income of between 5000 and A further 18% had a gross annual income of between and At the higher end of the income distribution 14% of individuals had a gross annual income of at least Figure 9 Annual Gross Income From All Sources % Under 2,500 2,500-4,999 5,000-9,999 10,000-14,999 15,000-19,999 20,000-24,999 25,000-29,999 30,000-34,999 35,000-39,999 40,000-44,999 45,000-49,999 50,000 or more Note figures exclude small number of don t know / refused 6.5. As noted above the actual amount owed on consumer credit is not a good indicator of financial stress caused by borrowing, rather the impact on the individuals income is more important The Omnibus survey has the data (after some adjustments outlined in Appendix A1) to investigate the amount of an individual s gross monthly income that is used to service borrowing. OFMDFM Research Branch 15

17 6.7. The chart below shows the percentages of an individual s gross income from all sources that is spent servicing borrowing. Figure 10 Percentage of an Individual's Gross Monthly Income Spent Servicing Consumer Debt 2% 4% 9% 29% 4% 52% Note figures exclude small number of cases with relevant variables missing 6.8. The majority of individual s do not have monthly commitments to consumer credit (52%). This figure includes those with no credit facilities and those that do not owe money on facilities that they have. A further 29% of individuals spend between 1% and 15% of their gross monthly income servicing debt There are two objective measures (outlined in Appendix A1) of overindebtedness. Firstly an individual can be considered over-indebted when he/she is spending more than 25% of their gross monthly income servicing consumer credit commitments. For simplicity this will be referred to as the 25% measure in the remainder of the report On the 25% measure 9% of all individuals surveyed were classified as over-indebted The second objective definition of over-indebtedness is when an individual is spending more than 50% of their gross monthly income on total borrowing repayments (consumer credit and mortgages). Again for simplicity this measure will be referred to as the 50% measure for the remainder of the report Figure 11 shows the percentage of an individuals gross monthly income that is used servicing all borrowing (i.e. credit and mortgages) secured and unsecured Forty-two per cent of individual s do not have monthly commitments to consumer credit or mortgages. This figure includes those with no credit facilities and those that do not owe money on facilities that they have and OFMDFM Research Branch 16

18 similarly for mortgages. A further 22% of individuals spend between 1% and 15% of their gross monthly income servicing debt. Figure 11 Percentage of an Individual's Gross Monthly Income Spent Servicing Consumer Credit and Mortgages 12% 8% 5% 11% 42% % Note figures exclude small number of cases with relevant variables missing Using the 50% measure of over-indebtedness 11% of all individuals surveyed were over-indebted There was a high degree of overlap between the two measures with 62% of those over-indebted on the 25% measure also over-indebted on the 50% measure Given the relatively low level of over-indebtedness among the sample, the following analysis of the circumstances of such individuals should be treated with a degree of caution given the impact of smaller base numbers. OFMDFM Research Branch 17

19 7.0. The Composition of Those Individual s that Were Over-indebted and Risk Characteristics 7.1. The table below shows the composition by various socio-economic characteristics of; all individuals and over-indebted individuals 7.2. Composition refers to the percentage of all individuals, or those overindebted, that have a particular socio-economic characteristic. Table 2 Composition of All Individuals and Those Classified as Over-indebted by Socio-economic Characteristics. Characteristics % of all individuals % of those over-indebted 25% measure % of those over-indebted 50% measure Gender Male Female Age and over Housing Tenure Own outright Mortgagor Social rented Rented privately Other Marital Status Single Married (inc separated) Divorced Widowed Dependants Yes No OFMDFM Research Branch 18

20 Disability Person with a disability Person without a disability Economic Activity Economically active Economically inactive Paid Employment Yes No Socio-economic Group Professional Managerial & technical Skilled non-manual Skilled manual Partly skilled Unskilled manual Never worked Full-time students 3.7 ~ ~ Annual Gross Income Under ,000-14, and over Location Urban Rural Area Belfast East West Religion Protestant Catholic Other OFMDFM Research Branch 19

21 7.3. The bullet points below show particular types of individuals that have the highest percentage composition of individuals that were over-indebted on either measure. The fact that the individuals with a particular characteristic comprise the highest percentage may simply reflect their occurrence across all individuals. Composition figures are best suited to quantifying the types of individuals over-indebted For those individuals over-indebted on the 25% measure the major composition groups are set out below: approximately 60% of all individuals over-indebted were female; approximately 61% of those individuals over-indebted were aged 25-49; 45% owned their home with a mortgage; 68% of those individuals over-indebted were married (inc separated); 65% had dependants; 87% of those individuals over-indebted did not have a disability ; 64% of those individuals over-indebted were economically active; 60% of those individuals over-indebted were in paid employment; 36% of those individuals over-indebted were in managerial and technical professions 35% of those individuals over-indebted had a gross income under 5000; 61% of those individuals over-indebted lived in urban areas 44% of those individuals over-indebted lived in the East of the Province and; 55% of those individuals over-indebted were Protestant For those individuals over-indebted on the 50% measure the major composition groups are set out below: approximately 73% of all individuals over-indebted were female; approximately 77% of those individuals over-indebted were aged 25-49; 74% owned their home with a mortgage; OFMDFM Research Branch 20

22 84% of those individuals over-indebted were married (inc separated); 75% had dependants; 87% of those individuals over-indebted did not have a disability ; 59% of those individuals over-indebted were economically active; 56% of those individuals over-indebted were in paid employment; 30% of those individuals over-indebted were in skilled non-manual occupations; 44% of those individuals over-indebted had a gross income under 5000; 57% of those individuals over-indebted lived in urban areas; 48% of those individuals over-indebted lived in the East of the Province and 53% of those individuals over-indebted were Protestant The above analysis examined the composition of all individuals classified as over-indebted. Composition gives no indication of the likelihood an individual with a particular characteristic has of being over-indebted and may well be a reflection of their occurrence in the total sample. The next section of the report examines the likelihood or risk of an individual being over-indebted The risk is defined as the percentage within the group that are overindebted. For example the table below shows that risk for males of being over-indebted on the 25% measure is 8%, in other words 8% of all males are over-indebted on the 25% measure. Table 3 Risk of Over-indebtedness by Socio-economic Characteristics. Characteristics Risk of being overindebted Risk of being over- 25% measure indebted 50% measure All individuals 9 11 Gender Male 8 6 Female Age OFMDFM Research Branch 21

23 65 and over 2 ~ Housing Tenure Own outright 9 5 Mortgagor 9 18 Social rented 8 5 Rented privately 11 5 Other 7 5 Marital Status Single 8 5 Married (inc separated) Divorced Widowed 3 1 Dependants Yes No 5 4 Disability Person with a disability Person without a disability Economic Activity Economically active Economically inactive 9 11 Paid Employment Yes No 9 11 Socio-economic Group Professional Managerial & technical Skilled non-manual 9 14 Skilled manual 5 5 Partly skilled 8 13 Unskilled manual Never worked 8 9 Full-time students ~ ~ OFMDFM Research Branch 22

24 Annual Gross Income Under ,000-14, and over 10 5 Location Urban Rural 8 10 Area Belfast East 8 11 West 8 10 Religion Protestant Catholic 8 10 Other 8 8 ~ indicates rounded percentage less than Key points on the risk of over-indebtedness include; women have a higher risk of over-indebtedness than men on both measures; individuals in the middle age group (25-49 years) have the highest risk of over-indebtedness on both measures; individuals with dependants have a higher risk of over-indebtedness on both measures than individuals without; individuals in the professional (13%) and managerial & technical (14%) socio-economic groups had the highest risk of over-indebtedness on the 25% measure; individuals in the skilled non-manual (14%) the professional (13%) and partly skilled (13%) socio-economic groups had the highest risk of over-indebtedness on the 50% measure; individuals with gross annual incomes under 5,000 had the highest risk of over-indebtedness on both measures and individuals living in the Belfast area had the highest risk of overindebtedness on both measures. OFMDFM Research Branch 23

25 8.0. Domestic Bills The survey questioned respondents on whether they were at the time of interview behind with any of the following bills; electricity; gas; oil; other fuel bill; rates bill; insurance policies; telephone bill; television, video rental HP; other HP payments; mortgage payments and rent Five per cent of individuals were behind at the time of survey with at least one of the above referenced bills. The actual numbers of individuals in the survey that were behind with bills (n=49) means that any further analysis with regard to their characteristics should not be under taken due to small sample size Fgiure 12 Percentage of Individuals In Arrears With at Least One Domestic Bill 5% yes no 95% Note figures exclude small number of don t know / refused OFMDFM Research Branch 24

26 9.0. Subjective Views on Credit and Debt The survey asked individuals a range of attitudinal questions in relation to borrowing and their financial circumstances Those individuals that had borrowed money were questioned on their views of their current level of borrowing. The results are shown in Table 3 below 9.3. As stated previously not all debt is problematic and indeed could be a pragmatic means of spreading the cost of goods/services especially in a period of historically low interest rates. Therefore it is not surprising that the majority of individuals, (59%) that had borrowing stated that they could afford more credit but prefer to avoid it. A further 28% stated that they have as much credit as I can afford and wouldn t want to take any more. Approximately 8% stated that they could afford more credit and would be happy to take more if I wanted to buy something and 5% stated that they have more credit than I can afford and need to pay some off Table 4 Views on Current Level of Borrowing for Individuals that Had Borrowed Money at the Time of Survey Views on Current level of borrowing Percentages of Individual s that owe monies Could afford more credit and would be 7.6 happy to take more if I wanted to buy something Could afford more credit but prefer to 59.2 avoid it Have as much credit as I can afford and 28.2 wouldn t want to take any more Have more credit than I can afford and 5.1 need to pay some off 9.4. For those individuals that were over-indebted the results of the same question are shown in Table 5 below The majority of those individuals that were classified as over-indebted (56% on the 25% measure and 53% on the 50% measure) stated that they could afford more credit but prefer to avoid it. OFMDFM Research Branch 25