Feb 9, 2015 etc
The Auckland City Mission’s Family 100 Project shows poor families are compelled to buy things in different and more expensive ways than middle-class New Zealanders. Debt creates more debt for those on very low incomes.
This story was first published in the December 2014 issue of Metro. Illustration by Anna Crichton.
Kim took out her first loan as a teenager. Having just given birth to her first child, she needed clothes and bedding for the baby. Like many young couples without assets or families to help, Kim and the baby’s father had no money for the things they needed for their baby son. So they bought items from one of the many “mobile truck shops” or “clothes trucks” that cruise the streets of low-income suburbs, offering items on credit.
When she was 20, Kim added a fridge and furniture for her home without knowing that Work and Income NZ might have helped — she was enticed by door-to-door salesmen offering tempting deals. By the age of 24, repayments were depleting her low income and it had all spiralled out of control. She continued to borrow when she needed things for her family, describing her use of credit as an addiction born of necessity.
“There’s been an impact for 20 years,” she explains. “For me, it was not having the money to pay for those things [on credit]. There was no extra to do hire purchase, but I’d done it and it’s unbelievably a struggle.”
As well as these debts, Kim has more recent loans with finance companies for household appliances and a car, which has recently been repossessed. Living far from her children’s school, she felt she needed a vehicle to transport them.
She was able to buy the van with no deposit, needing only to produce her Winz breakdown and driver’s licence when completing the contract. She was also given incentives such as $100 cash to buy her children treats, and a full tank of gas. “You get enticed and sucked in to the big, ‘You can have it today, no deposit, and you’ll be on your way,’” she explains.
However, she was unable to pay for the registration and warrant of fitness or the loan repayments, so she lost the van.
In spite of still paying for her previous vehicle, she has been approached by another car dealer. “My debt is ugly but he is still determined for me to have this car,” she says. “He was referred by a friend of mine and she referred my name, so he’s just been bugging me.”
Payment for the loans was taken from Kim’s benefit, leaving just $26 a week to cover power, gas and food. Soon she was visiting loan sharks to buy food and other basics, then reborrowing in order to repay these short-term debts.
Kim is now regularly going without meals and medical care. When some unexpected but essential expense such as a new school uniform turns up and she misses a loan repayment, there are administration charges and penalty interest rates.
“You never think about the $120 a week to pay that vehicle back, until you get about a month down the track,” explains Kim. “Then you realise, oh my gosh, we’ve got no food, the power’s due, but we’re still paying for the car. It’s just been an ongoing battle.”
Kim (not her real name) took part in the Auckland City Mission’s Family 100 Research Project. The study was led by the mission in collaboration with researchers from Waikato University, Massey University and the University of Auckland.
Following 100 families living in severe hardship over the course of a year, they sought to understand what stops people moving out of poverty. The mission wanted to hear the voices of the real experts on poverty in New Zealand — those who live it day in, day out — in order to find better ways to meet their needs.
“It’s such a big thrill for me and the kids. We could go just out to the end of the driveway, do our shopping and they’re like, ‘Yeah, we got new clothes!’ It is easier, and that’s the trap.”
One hundred householders with children spoke frankly with researchers every two weeks for a year, with interviews concluding in early 2013. Participating families had used the mission’s foodbanks over a significant period, and represent the diversity of users of this service, with 40 per cent Maori, 25 per cent Pacific Islander, 22 per cent European and 13 per cent Asian and other minority groups. Eighty per cent of those the mission spoke to were women.
The aim was to reveal the private, not the public, story of these families. The public story is told repeatedly by these families to social services, as they navigate a vastly complex landscape to get help from agencies. The private story, however, is rarely heard, the story of what it’s really like to live in Auckland on a very low income over a significant period of time. How do families cope when things go wrong? What informal support networks do they have?
Interview topics ranged from health and food insecurity to interactions with the justice system, and the study has revealed a picture of creativity and incredible resilience, as well as intense hardship.
Two things quickly became clear. First, the degree of indebtedness by virtually all the families to fringe or second-tier lenders.
Second was the impact of this debt on every aspect of their lives. Whatever topic was scheduled for the fortnightly Family 100 interviews in the small assessment rooms at the mission’s foodbank, debt emerged as a central theme.
Kim’s story was one of many in which debt begets debt for families in hardship, leading to a cycle of indebtedness that can perpetuate itself indefinitely.
Kim’s story also reveals that the very poor are enticed and sometimes coerced to buy things in very different ways from the rest of us — through door-to-door sales, “clothing trucks”, finance companies, pawn-brokers and payday lenders.
People with access to regular credit don’t have to deal with the consequences of this. If you live in a middle-class suburb, for example, you might not even be aware of the clothing trucks that trawl the streets where the poorest people live. This is truly a tale of two cities.
“In a way they’re good; you can pay as you wear, or pay as you use,” explains Charlotte, another Project participant, who lives with her six children and also supports her brother living in the garage.
Charlotte describes the lure of clothing trucks when her children urgently require new clothes. “The truck’s coming up the road, so you’re gonna go shopping,” she says. “It’s such a big thrill for me and the kids. We could go just out to the end of the driveway, do our shopping and they’re like, ‘Yeah, we got new clothes!’ It is easier, and that’s the trap. Them and loan sharks are a big trap.”
Pirihira, a widowed mother, lives with her children and a number of her grandchildren. She pays out money to mobile trucks and different finance companies and is behind on her car payments. The interest is building as time passes.
Despite the huge impact of these repayments on her finances, Pirihira cannot imagine a life without the option to buy on credit. “People must remember solo mothers cannot go out and buy with cash,” she says. “They cannot. They haven’t got the money to do it. Like me, for example. I’ve been on the trucks for nine years simply because I could not afford the clothes for my girl.”
Trish, too, has been advised to stop her regular use of mobile trucks, and she knows they charge inflated prices. But she sees them as her only option. “I go to the Salvation Army [for budgeting advice]. I’ve been with them for a while… They said, ‘This has to be paid off and you shouldn’t really be doing this,’ but I still do it anyway, cos it’s easy to do.
“[They said], ‘But, you could really afford [this], if you just saved that money or even just went to most of the Chinese shops, which are way cheaper.’ But the problem with that is getting to the place and also having the money at the time.
“With the clothing trucks you’ve got easy credit. You can just access this, pay off three or four payments and then you can get the item.” Debt allows Trish to have clothes and bedding for her kids when she needs them.
Many of the participants, like Trish, describe the positive function of debt in their lives. However, there was often great personal stress, and many people spoke of the health consequences of long-term financial strain.
Kim has been battling depression for years, and explains how the weight of her debt has affected her. “It’s more like a guilt or shame thing because I’ve lost the car,” she says. “We’ve moved so many times and there’s hardly any food and I just get this real terrible guilt and shame as a parent… I’m cooking from scraps from the day before and I’m trying to scrounge up what I can for tea. You go to bed worried, you wake up worried.”
Struggling for day-to-day survival also makes it hard to take a long-term view, trapping families in the present. For Kim, stress around her financial situation is all-consuming and prevents her being able to plan and move her life forward.
“Anxieties go up to the roof, it’s shocking,” she says. “You’re waiting for people to knock on your door to repossess something and it’s, oh, my gosh. Then when it comes to the simple stuff… you just can’t do it because your anxiety’s gone to the roof because I’ve gone and put myself through all this financial stress. When it comes to the real stuff, what I should be doing, I can’t do it because I just haven’t got that energy. I haven’t got that stamina to move forward because I’ve dragged myself backwards.”
Yvonne cares for her husband, who suffered brain damage in a car accident, forcing them both to give up work. The couple’s debts are for medical expenses, mobile truck shops and the local dairy. Yvonne says they have never missed payments to loan companies, as they know the consequences. Nor have they been visited by debt collectors.
However, she describes lying awake at night, trying to balance the books. Debt weighs on her. “I just can’t concentrate. My mind is all over the place. Thinking about how we are going to do this… It is always money that weighs heavily.”
Working with her personal budgeter, Kim has resisted buying another car or taking out further loans with finance companies.
This hasn’t reduced her day-to-day hardship, but she can see the value of working towards being debt free one day. “I just caught up with my finance company, paid them $200, which just left me and the kids with bugger all, and now I’m pretty much in the same situation but with a different insight,” she says.
Budgeters advise their clients to prioritise loan repayments and refrain from taking on further debt, to save for the things they need. While many families found this advice invaluable, others argued that such borrowing is something they can’t do without.
Helen, a mother of two, is unwilling to give up the finance companies despite her budgeter’s advice. Like Kim, she finds that after paying off loans and rent by automatic payment, food and power have become discretionary items and there’s little money left to pay for them. It’s a constant juggling act to meet expenses. It is then she turns to fringe lenders.
“The worst thing about having debt is when you really need something, you have to use the most expensive options, such as the mobile trucks.”
Helen incurred her first debt when just 16 after receiving her first credit card. “I was young and dumb,” she says, racking up debts that she had little hope of repaying. By 25, Helen had unpaid debts of over $10,000 on store and credit cards, which has damaged her credit rating ever since. Remarkably, she has repaid these historical debts over a decade by drip-feeding small payments each week.
Five years ago, she separated from the father of her children after experiencing domestic violence and moved into a two-bedroom Housing NZ unit. This more affordable rental property has helped her dramatically reduce her debt. Working with a budgeter, she is close to paying off a five-year debt to a clothing truck as well as the final repayments for her car.
However, Helen still relies on finance companies for unexpected costs, which has kept her in hardship. She describes finance companies as her “saviours” on these occasions. She recently took out a $2000 loan to pay off some bills and buy her daughter a birthday present, and is paying $125 a week back in credit repayments from her benefit.
Helen feels loyal to her finance companies. “They’re the people who help me with car repairs or anything like that, and that’s when Winz isn’t available,” she explains. “I tell you what: they’ve saved my bacon a few times. There’s all sorts — just the unforeseen costs that no one else will cater for.
“I even went to my budgeter and they got me to sign a contract saying that I wouldn’t take any more finance out and I told them I wouldn’t sign. I actually wrote a clause in saying that unless you know someone who will do car repairs for free, I am still with the finance company until further notice and I will do a top-up.”
Helen’s low income and poor credit history mean she cannot access more affordable credit. “I tried to get a bank loan, which is cheaper, as everyone knows, but I don’t clear enough money a week.
“Debt causes debt. The worst thing about having debt is when you really need something, you have to use the most expensive options, such as the mobile trucks.” She says with a bank loan, the repayments from her benefit would be $60 a week rather than $120 for her current loans. She is aware of these broader issues of exploitation but must address her family’s immediate needs.
Vincent, a father of seven, also lives week to week on small loans. He has two major debts with finance companies: one for the family car, the other for household appliances. Repayments cost $160 a week. Vincent relies on pawnbrokers during tough weeks when the family food budget is short.
During the time of our interviews, his local pawn shop held Vincent’s phone, TV and stereo, along with his son’s computer game. “Sometimes it can get to the point where we’re just about in there maybe every second week, third week,” he says, “getting a little bit of money so we can get some bread and some butter and some milk and all the rest of it… You get $50, I think it’s $65 back. That’s not too bad when you haven’t got anything.”
Pirihira also borrows from finance companies out of desperation. She describes tough weeks going without power for a day or so until she can top up on her Glo-bug pre-paid account, and skipping meals so her kids can eat. When this is not enough, her father is her first port of call for a loan. If he cannot help, she relies on revolving loans with a number of finance companies. “This is where the finance company comes in,” she explains. “I can ring them up and say, ‘Have I got a top-up? I need this for this or I need this for that.’
“I don’t get big loans,” she says, “I get $300, something like that. It doesn’t go far. I pay out three lots. Only because they help me through life. Without that finance company, I’d have no money.”
Pirihira worries about the impact her frequent borrowing from family has on her relationships, and the shortage of food at home means she avoids social situations.
“I stress over having no food in the cupboards. I feel embarrassed when people come to my house. Even for coffee,” she says. “I’ve had a lot of embarrassing situations where I’ve had to make excuses, ‘Sorry, there’s nothing there.’ To me, it’s embarrassing all the time. I hardly have anyone come to my house.”
Some participants — particularly young women — are in debt because of other people. They have felt forced to borrow to help out partners, other family members and friends who could not get credit themselves.
Tiare, a mother of six, guaranteed a loan for her ex-partner under pressure. His subsequent default on repayments means she is now pursued to repay the balance of the loan. “His mum passed away maybe four or five years ago,” says Tiare. “He already had a loan but he needed money for his mum’s funeral, and the only reason he could get a top-up at the time was for me to step in, which I did. Now they can’t find him and they’re hounding me, threatening to repossess my kids’ beds and stuff that my kids are living on.”
Jade has debts to finance companies of more than $30,000. The mother of four says these were mostly incurred when she was aged 18 to 20 as she “tried to please those around me”. These friends and family members often couldn’t get credit themselves so loans were put under her name. “I never got anything good out of it,” she says.
Loans for the father of her children make up the bulk of her debt; she also took a loan for her mother-in-law: “It was because my son’s biological family, his biological nana, at the time she was going through rough stuff but she really needed money and I was able to get it for her. I said, ‘That’s fine,’ and I got a grand and a half or a couple of grand — and she was supposed to make the weekly payments but that didn’t happen.”
Alison finds it hard to imagine life without these debts, and the worry about repayments consumes her: “All I can think about is bills, bills, bills.”
Alison shares a similar story. Her first “proper” debt was when she was in her 20s — for a furniture set. It wasn’t until she became involved with a partner that she found herself in problem debt. He was controlling with money as well as being abusive, and forced her to take out loans under her name because he had a poor credit rating. She was always too terrified to say no. Although they are now estranged and Alison is supporting four children, she is still repaying the loans, currently with Baycorp.
One option Alison uses is to get the $50 offered by one finance company when friends she refers take out a loan. “I have made referrals, which has done me good. Because I’d already paid a loan off with them, they told me that if I refer somebody, they’ll give me $50. At three different times, I referred people and if their loan’s approved, then they’ll pay me $50 for the referral.”
Alison’s debts are growing despite her regular repayments. One loan was taken out five years ago with a finance company — $1500, two-thirds for a car and the rest to pay off her Baycorp debt as ordered by the court. In little over five years, with low repayments and three months of cancelled instalments, this debt grew to $8000.
This experience is common among the families spoken to: with interest rates ranging from 25 to up to several hundred per cent (rates charged by fringe lenders are not capped in New Zealand), a once-small loan can quickly balloon to unmanageable proportions.
A cycle of indebtedness is created that perpetuates itself indefinitely. Alison finds it hard to imagine life without these debts, and the worry about repayments consumes her: “All I can think about is bills, bills, bills.”
Much rhetoric and public policy frame these issues in terms of individual capability, including lack of financial literacy, poor choices and an inability to defer gratification or make sensible priorities. However, the Family 100 participants speak of a chronic lack of income, resources and opportunity, which is seldom acknowledged.
For some families, debt is indeed an abstract long-term concern, while their children’s need for food, shoes and clothing are real and immediate. For them, borrowing is a pragmatic strategy for survival, and in spite of budgeters’ advice, they therefore see the finance companies as their friends.
We live in a culture where credit is used in order to live beyond our means. Call it “weakness of will”, if you like, but it’s common at all levels of society. Many of us spend all the money we earn and more, living deeply in credit-card debt and paying off no more than the interest.
If you’re well off, the consequences of this are merely that you do not save and therefore lack money for big life goals. It doesn’t hurt you day by day: you can still buy the things you need.
But if you’re not well off, things are very different. For the Family 100 participants, any small weakness or misfortune can have enormous consequences, threatening their families and making them desperate.
Judgments about their weakness by the affluent are particularly unfair. These families pay a premium for power, food and housing, and their credit costs them more too. They say affordable credit would make a huge difference to their lives, and that is surely true.