/ Money, Shopping

Barnardo’s: We must confront debt to combat child poverty

Neera Sharma of children’s charity Barnardo’s argues that progress on tackling child poverty will be impossible unless the debt carried by poor families is addressed, and rent-to-own lenders should share the blame.

In the UK today, one in ten low income households do not have a bank account. When these families run out of cash, they can be lured into borrowing money at punitive rates of interest and become locked in an unaffordable debt trap.

The real beneficiaries of this country’s economic crisis are those companies operating in the high cost credit market. The real losers are the children and families who are financially excluded.

The heavy burden of credit

Our latest report at Barnardo’s, A Vicious Cycle: The heavy burden of credit on low income families, exposes the scandal of unscrupulous lenders. We found that ‘rent-to-own’ arrangements can increase the cost of household goods by almost two and half times more than it would cost to purchase the same items outright on the high street.

Because of the lack of transparency in the industry, a parent could all too easily see an advert to pay £5 per week for a washing machine over a couple of years and sign up, thinking they had found a great deal.

In total that person would pay £780 over the odds, as a Beko washing machine from a rent-to-own company would cost £1,250 over a three year period. The same product from a high street retailer can be found for just £470.

The case for tackling the financial exclusion and financial exploitation of the poorest families is overwhelming. Debt plunges families into an almost inescapable cycle of poverty. Poverty impacts severely on children’s life chances – poor children are only a third as likely to get 5 GCSEs at A* to C than those from richer backgrounds.

Any progress on tackling child poverty will be impossible unless the burden of high interest debt carried by poor families is also addressed.

The government must take action

We don’t think that the high cost credit sector should be abolished altogether, but the government must take urgent steps to ensure that it’s better regulated.

Rent-to-own credit providers should be compelled to be more transparent about their deals. And a strategy needs to be in place to reduce the demand for high cost credit in the first place.

The government could start by ensuring that all families have access to mainstream financial services through a bank or Post Office card account.

Without progress, basics will continue to cost more for the poorest, and the situation will remain unchanged. As Gary, a father of two young boys, told us:

‘They get the poor people all the time. People that can’t afford to pay standing orders because they haven’t got bank accounts; they’re the people who get shafted.’

If we do nothing, families will continue to struggle at the hands of this morally bankrupt lending industry, and that is unacceptable.

Which? Conversation provides guest spots to external contributors. This is from Neera Sharma, Assistant Director of Policy at children’s charity Barnardo’s – all opinions expressed here are their own, not necessarily those of Which?


There has been talk recently in the broadsheets about banks wishing to charge customers for the privilege of having an account–if this should happen it could result in more people being stuck in the debt trap.

Sophie Gilbert says:
30 May 2012

I don’t understand the statement, “we don’t think that the high cost credit sector should be abolished altogether”. I think it should.

I would agree, Sophie, but others have presented reasons why high cost credit is an important lifeline to people in financial difficulty.

It is difficult to deal with financial hardship caused by illness, unemployment and breakup of marriages and relationships, but there is plenty of scope to encourage people not to live beyond their means. Some poverty is very much self-inflicted and children can suffer as a result.


If there was a government funded loan company that loaned money at a reasonable rate to people in real poverty – you could be right. But there isn’t – I know dozens who cannot get loans in any other way due to circumstances beyond their control. So legal pay day type loans are the only answer.

Sophie Gilbert says:
31 May 2012

I’m always glad when I spark up a debate, so thanks for your replies, Wavechange and Richard. The reason why I think the high cost credit sector should be abolished is because it seems that it makes matters worse for people much more often that it helps them. There are several things that we could do as a society (this includes the government). None of them will be easy to say the least, but we’ve got to put up a fight, like against alcohol abuse. A cultural change has to occur and encouraging people not to live beyond their means is spot on, including somehow curbing (we’ll never put a stop to it) rich celebrity worshipping. A government-funded loan company loaning money at a resonable rate is also spot on. We’ll never get rid of loan sharks any more than we’ll get rid of celebrities, but this surely would be a big help. I’m convinced that where there’s a will, there’s a way. Do we care enough as a society? Does the current government have even a tiny clue about what goes on in desperate people’s lives?