People struggling with credit card debt accounted for more than a third of those seeking help from the Office of Fair Trading last year.
One hundred and sixty-four people with debts totally £2.1 million contacted the Douglas-headquartered OFT office in 2013 - a slight increase in the number of individuals but a marginal fall in the total debt level. In 2012, the 155 people who sought help owed a total of £3m - an average of more than £19,000 per case.
So, on the face of it the island’s personal debt problem is stable. However, the OFT’s figures are purely a reflection of those seeking help - what’s not known is how many other island residents are sinking in a sea of debt in silence.
Andrea Tabb, advice centre manager at the OFT in the island, agrees but points out that the picture in that regard is no clearer for the authorities in the UK.
It is calculated that personal debt, including mortgages, in the British Isles amounts to £1.4 trillion - close to an all-time high. Average household debt now stands at £54,000, nearly twice the level of a decade ago, according to the Centre for Social Justice (CSJ).
Asked how the OFT defines ‘financial difficulty’, Ms Tabb said: ‘I think there are two categories: the first is those people who believe they are in financial difficulty because their money is running out as they get towards the end of the month. But they might be the type of people who can tighten their belts . . . cut back on takeaway coffees, take packed lunches to work and in a couple of months’ time they’ll be okay.
‘Then there are the people whose income is being swallowed up paying debts - they would fit our definition of someone in financial difficulty. Somebody who is at the stage where they are no longer able to make their contractural debtpayments or they are making these payments to creditors to the detriment of other bills such as gas or the electricity.’
Nearly nine million people across the British Isle have serious debt problems, according to a report published by the Money Advice Service (MAS) - that’s 18 per cent of the population.
So how did we get into this mess? Part of the problem lies in the fact that we live in a consumer-crazed society. Britain’s economic growth is being driven by consumer spending, which accounts
for nearly two-thirds of
economic expenditure.
But living beyond our means is only part of the problem - a growing number of those in serious debt are victims of circumstances beyond their control: unemployment/irregular or low income; the rising cost of living, which has rocketed by 25 per cent over the past five years while wages have remained static or fallen; family breakdown or crippling unexpected bills.
The CSJ study revealed close on four million British families do not have enough savings to cover their rent or mortgage for more than a month. Some cannot even cover the costs of buying new school uniforms or having the car repaired.
Ms Tabb believes there are a number of reasons behind the rise in debt in the British Isles.
‘We certainly have moved away from a make-do and mend society. We’ve become a throw-away society. People’s attitude to money is changing. There is much more consumerism.
‘Also, gone are the days when people saved up for something they wanted . . . practically every TV advert for large-purchase items now notes that “credit is available”.’
Ms Tabb does not believe that the finger of blame for the debt problem can be pointed at either the lenders or the borrowers.
‘I think it’s a combination of factors . . . a cultural change in how society views debt.’
Most people seeking help from the advice centre cite bad budgeting as the key reason for getting into difficulty.
Ms Tabb agrees that teaching money management at school is very important but notes that as a topic it is competing for time with other important issues such as sexual health, obesity and drugs.
‘It needs to be weighed up against everything else that is covered in terms of PSHE (Personal Social and Health Education) life skills lessons . . . it is down to the individual institution to decide how they run it.’
The OFT is available to assist schools if necessary in helping to make children aware of the dangers of poor debt management.’
Ms Tabb says that parents can play a key role by, for example, encouraging their children to save from an early age.
In the UK, the government is concerned that some payday companies are unscrupulously exploiting the rise in personal debt. But this does not appear to be a problem in the Isle of Man. Based on the findings of a survey conducted in the island last summer, it was concluded that there was no need to change Manx regulations for payday loan companies operating in the island.
The OFT found no evidence of significant concern from local consumers who chose to take out payday loans. Also, local payday lenders here appear to be far more compliant with the UK standards of responsible lending than their UK counterparts.
Asked how the advice centre gauged its progress in terms of dealing with debt problems, Ms Tabb said: ‘To my mind a measure of success could be the person gets to sleep at night. Some people say success should be measured in terms of getting everybody out of debt, but . . . there is no such thing as bad credit, there’s poorly managed credit. It’s about making sure people understand credit.
‘There may be people who, due to their age or their financial circumstances, have debt problems. We will help them to get a plan in place whereby they maybe make only a token payment every month. They maybe making only a token payment for the rest of their lives but the success is that it is manageable and they are able to sleep at night and get on with their lives. What we don’t want is people jumping off the roof of car parks.
‘We can’t measure success by saying that we’ve got to get everyone who comes through the door out of debt - that would be unrealistic.’
Another measure of the advice centre’s success if how effective it is in getting the word out that there is help available to people struggling with debt.
‘A really large percentage of people in the UK with debt problems have said that they didn’t know where to turn. We want everyone on the island who is having debt problems to know we are here to help.’
It seems likely that the important service the centre performs will be in greater demand as interest rates inevitably start to rise, tipping already stretched households into severe financial difficulty.