The single parent debt trap

By Adam Butler, Public Policy Manager

One in four StepChange advice clients is a single parent — new research by StepChange and Gingerbread seeks to explain why and what can be done to prevent problem debt among single parents

For a first-hand account of the experience of struggling with debt as a single parent, read Lindsay’s blog

In 2019, 24% of StepChange clients were single parents, compared to 6% of households in the UK. National polling showed that single parents were more than twice as likely as couple parents to experience severe problem debt.

Before the Covid-19 pandemic began in March last year, we began working with single parents’ charity Gingerbread to better understand the causes of problem debt among single parents.

We found that single parents are exposed to a high number of risk factors for problem debt. The majority (84%) of those who are struggling financially cited more than one cause. We grouped these risks into four common pathways:

• Struggling to make ends meet. 82% of the single parents surveyed cited ‘not enough income to meet living costs’ as a reason for using credit, and were almost twice as likely to cite this than any other reason.

A combination of low, and often insecure, income and unavoidable expenses (primarily linked to children) means that single parents are more likely to need to resort to borrowing to make ends meet more than other households with a low income.

Regularly using credit to make ends meet often leads to escalating debts, interest charges and repayments, causing and exacerbating debt problems.

“No matter how much I try to improve my finances I can’t seem to get ahead. There’s always something [like] car problems. I’m getting further and further into debt and often have to borrow money off my 70-year-old mum for essentials like food.”

• Relationship transitions. Just under half (44%) of single parents cited the impact of relationship breakdown or divorce as a reason for being in problem debt. The costs associated with separating, such as legal fees, disentangling finances and moving home, are significant and can lead to substantial borrowing.
• Economic abuse perpetrated by a former partner. 48% of single parents in our survey sample had experienced some form of economic abuse by a former partner, such as experiencing controlling behaviour and coerced debt, that affected their present situation, often alongside physical abuse. Despite separating, many of those affected still experienced controlling behaviour through a former partner’s financial involvement in supporting children.
• Life shocks such as unemployment and illness. The final pathway we identified reflects the difficulty households with low financial resilience such as single parents face when they experience significant income or expenditure shocks.

The most common experiences cited were illness or disability (28%), moving home (17%) and unemployment (15%), alongside a range of less common experiences such as bereavement.

The impact of problem debt on single parents and their children are severe. Two-thirds of those affected had cut back on a healthy diet (often doing so in order to protect their children), and a similar proportion (69%) were experiencing mental health problems.

“My anxiety and depression has worsened. I worry constantly, I can’t sleep at night [and] have panic attacks thinking about my situation, I have no presents for the kids for Christmas, everyone I work around is talking about all the holidays and days out they have planned and I can’t afford to pay bills and food.”

We did not find that poor money management skills were a significant driver of debt problems among single parents. However, money worries and the constant grind of juggling payments and ‘watching every penny’ cause stress and anxiety that can contribute to mental health problems and delays seeking help.

Three priorities for policy makers

In the report, we set out three priorities to prevent problem debt among single parents and better support those affected:

1. Address problems at source by providing the right framework for single parent families to be able to make ends meet without resorting to borrowing. At the time of writing, the £20 per week Universal Credit uplift put in place at the beginning of the Covid-19 pandemic is at risk . Making the uplift permanent is crucial.

Our research found that working single parents were at greater risk of debt problems, in part due to the challenge of meeting childcare costs. Lifting caps on childcare support within Universal Credit and providing help with up-front deposits would help address this problem.

Unreliable income from a non-resident parent through the Child Maintenance Service (CMS) was also a common problem that contributed to difficulty making ends meet and fluctuations in support that cause budgeting problems.

Gingerbread highlights that the CMS can be reformed by ending fees that penalise single parents, better adapting the service to those who have experienced abuse and putting in place more effective and responsible collections processes.

“Without child maintenance it was too easy to get into debt just to pay the important things. I was given credit cards too easily and my limits were raised regularly because I always paid [the] card bills.”

2. Deliver more help to support single parents to be financially resilient against life shocks. This can be achieved, for example, by better integrating the Help to Save scheme with Universal Credit and extending access to grants and safe, affordable credit options to meet unexpected and unpredictable costs.

It is crucial that those seeking to extend access to affordable credit draw on lessons from the lived experience of single parents; at present, commercial credit products like online catalogue credit and credit cards offer flexible borrowing and repayment terms that fit in with the budgeting realities families face but cause long-term problems through high interest costs.

3. Do more to prevent economic abuse and support victim-survivors. As a starting point, new vulnerability guidance from the Financial Conduct Authority provides a platform for financial services to improve prevention and support, while the FCA can do more to understand and use its regulatory powers to prevent harms linked to domestic abuse caused by regulated financial products.

Many of those who have taken on coerced debt during an abusive relationship have little choice but to repay this debt (estimates suggest only about one in four such debts are written off).

The Domestic Abuse Bill now proceeding through Parliament will create a new Domestic Abuse Commissioner; the Home Office. The Commissioner in her future work programme now has an important opportunity to work together with experts to clarify the legal and regulatory changes needed to ensure survivors of economic abuse are released from liability for coerced debt.