Social and Psychological Dimensions of Personal Debt and the Debt Industry

Carl Walker, Serdar M. De?irmencio?lu, Carl Walker, Serdar M. De?irmencio?lu

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN:
  9781349572564
  9781137407788
• eBook ISBN:
  9781137407795
• Topic: Social Sciences
• Subtopic: Business General
• Index: Social Sciences

An understanding of personal debt requires an understanding of the complex social systems that produce poverty. By drawing upon international perspectives, this book investigates why more and more people are in debt, why it is causing so much mental distress and exactly who is benefiting from what has become the world's number one growth industry.

Part I

Austerity, Financialisation and Serial Asset Extraction: Understanding Institutionalised Suffering

1

Debt in the Everyday Lives of 100 Families Experiencing Urban Poverty in New Zealand

Darrin Hodgetts, Emily Garden, Shiloh Groot and Kerry Chamberlain

Debt is at once a personal, relational and structural issue. Debt, as discussed in this chapter, involves debtors (who are stigmatised in society) and entrepreneurial fringe lenders. Concerns regarding debt, inequitable profiteering and associated servitude have taxed the intellectual capacity of societies for millennia. Debt has proved to be a site for struggle between rich and poor grounded in debates regarding interest, the seizure of persons and property, rebellion and amnesty (Graeber, 2011). Societies as far back as 2400 BC have addressed the social instabilities that stem from exploitative lending practices, wealth concentration for some lenders and deteriorations in living conditions and debt slavery for others through the introduction of jubilee or debt forgiveness periods (Hammurabi Code, 1762 BC). Forgiving “the poor” for the parasitic actions of lenders is something that barely registers as a realistic option today. Reluctance to forgive such debt is, in part, the product of a misguided morality, which binds debtors and dictates that they should pay “their” debts despite the predatory actions of lenders. It also reminds us that debt is seen differently by debtors and lenders. For the former it is often about survival and for the latter profit. Yet we almost exclusively hear the lenders’ perspectives. This chapter challenges such symbolic power by engaging the perspective of debtors in New Zealand.

Ultimately, debt impoverishes; debt wounds; debt kills (Graeber, 2011; Walker, 2011; Sweet et al., 2013). These costs benefit the undeserving wealthy who, despite what they constantly tell us, have no more intelligence, talent or entrepreneurial zest than anyone else. Such people do not earn their money; they literally make money and exhibit a moral flexibility that allows them to exploit others for their own gains. This situation is particularly disturbing when we realise that debt is simply “the perversion of a promise. It is a promise corrupted by both math and violence” (Graeber, 2011, p. 391). Debt is a promise that families living in poverty often cannot afford to repay. Something has to give, and families that are experiencing the relational and health consequences of debt should not be the people who continue to pay more than their share. After all, sometimes we are all unable to keep our promises.

Societal-level processes are adversely affecting personal issues of debt that are explored in this chapter. In response to a growing national debt brought on by neoliberalism,¹ New Zealand is caught in a process of privatising communal assets, reducing welfare programmes, and higher living costs that drag more and more people into debt in order to survive. Austerity is the order of the day, for the poor at least. Reflecting on similar processes in the USA, The Debt Resistors’ Operation Manual (2012, p. 52) states:

mafia capitalism means that governments make cuts and the people have to go into debt to survive. The burden of sustaining “life” gets shifted from the state to the individual and household … Debt is a way of controlling us – making us weak, afraid and financially unstable.

As with many Organisation for Economic Co-operation and Development (OECD) states, increased disparities in income and rocketing personal debt among lower socioeconomic status groups in New Zealand are accompanied by a systematic dismantling of welfare supports that were established to reduce, or at least buffer people against, the harshest consequences of poverty (Hodgetts et al., 2013).

Conditionality, or the notion that support is only warranted for those who comply with punitive managerial controls (Bauman, 2005; Standing, 2011), is central to the efforts of the current New Zealand government to save NZD 1.6 billion (New Zealand dollars) in welfare spending by reducing dependency on government assistance (see http://www.national.org.nz/welfare-reforms.aspx, accessed 20 June 2012). Conditions for state-based support have been tightened and benefit payments are stopped if clients do not comply with reformed regulations (Bourdieu, 1998). A central technology here is intense economic control manifested through requirements for regular detailed professional budget scrutiny of household accounts. Current austerity measures exacerbate the dilemmas that are faced by families who are already living stressful and inadequately resourced lives (Boon and Farnsworth, 2011), around income insecurity, growing debt (Landvogt, 2006; Green, 2012), food insecurity (Dowler and O’Connor, 2012) and social exclusion (Boon and Farnsworth, 2011). Families whose incomes are insufficient to meet their basic requirements for food and shelter are increasingly being forced to access loans from fringe lenders in order to get by (Boon and Farnsworth, 2011; Walker, 2012; Hodgetts et al., 2013). Consequently, they face further inequities in that they are often charged interest rates upwards of 100% per annum. Until these fringe lenders are properly regulated and current austerity measures are reversed, New Zealand is left with growing inequality and debt-related instability, stress, hurt, pain and illness (cf. Graeber, 2011; Walker, 2011; Sweet et al., 2013).

As with many OECD nations, New Zealand is witnessing a rise in the precariat with people surviving on inadequate benefits, low wages, disrupted and part-time (“flexible”) employment and debt (Standing, 2011). The debt industry has grown to exploit the situation of the precariat (cf. Walker, 2011). Psychology is implicated in these processes through the application of the dominant Anglo-US model of the self-regulating autonomous individual and corrective technologies directed at addressing the supposed personal deficits and enforcing conditionality in welfare provision (Cromby and Willis, in press; Walker, 2012; Hodgetts et al., 2013). Intense supervision based on behavioural principles is sold to the public as being central to the rehabilitation of the poor.

Our focus and broader project

This chapter documents how debt involves relationships between debtors, their families, retrenched welfare institutions and fringe lenders, and how it links the personal and the structural. We draw on insights from conversations about debt with 100 impoverished families in Auckland to explore the psychosocial impacts of debt. Our analysis offers further understandings of debt as relational from Simmel’s (1908/1990) observation that money can “invade” kinship and social relations in ways that can dehumanise debtors and obscure the responsibilities of lenders. We document how debt may be used to sustain some relational practices but can also dissolve familial and community supports.

The Family100 project is located within the Auckland City Mission. It seeks to develop alternative understandings of families in need and to promote initiatives that better meet their requirements (Hodgetts et al., 2013). Households, contextualised within their familial and service networks, are the unit of analysis. Specifically, every two weeks over the period of a year, 100 householders spoke frankly with social workers about their experiences using a range of drawing² and interview exercises. The participating families were selected to be representative of families who were regularly accessing the mission’s foodbank. The cohort consisted of 40% Māori, 25% Pacific Islander, 22% European and 13% Asian and other minority groups. We met with the social workers every week to conduct training, collaboratively develop research materials, review participant responses and ensure continuity in the project.

The materials for analysis consisted of discussion notes from the fortnightly interactions, various participant drawings and bimonthly recorded interviews. The concept of phronesis (practically orientated knowledge regarding how to address issues) (Flyvbjerg et al., 2012) was central to our analytic approach. People who are experiencing hardship have a stock of intimate, practical experiential knowledge of their situation (phronesis) that other people lack. Such experiential wisdom is not simply cognitive in nature; it is embodied in stress, humiliation, frustration, fear, depression and anxiety. Scholarly engagements with participants’ knowledge of debt and their associated daily practices are centrally important in challenging the neoliberal structures that reproduce the structural inequities of a debt society (Graeber, 2011). A key consideration was how general (societal) structures and relationships are reproduced via particular (personal) situations (Hodgetts et al., 2013). In this regard, our work is informed by Simmel’s (1903/1964) principle of emergence of social phenomena and his orientation towards looking locally in order to understand systemic elements of the sociocultural world within which people reside and make do.

Acceptance of debt as a reality of life in a reformed welfare state

Many participants found it impossible to imagine a life without debt. On a minority of occasions, debt is used to buy “discretionary” items, such as TVs. More often than not, debt is a means of responding to a chronic shortage of resources, addressing day-to-day expenses and coping with unanticipated expenses, such as funerals and illness scares. As Walker (2012, p. 535) notes, “problematic personal debt arises from a persistent disparity between income and expenditure, insecure labour market experiences and the financial impact of normal life events”. Taking on debt allows people to obtain essential items that are necessary to sustain both life and relationships. Debt is where survival meets fringe lending. Below we establish the pragmatic requirement for families to take on debt and the role of budgeters in failing to address the structural causes of debt. We then consider how the abusive and punitive approach to welfare that is endemic in welfare agencies (Hodgetts et al., 2013), such as Work and Income New Zealand (WINZ), forces families to rely even more on exploitative fringe lenders.

Helen accesses fringe lenders to help her to cover her day-to-day expenses. She feels loyalty to these institutions that provide her with capital that she has no other means of accessing. Broader issues of exploitation, which she is very aware of, are less important to her than addressing her family’s immediate needs and unexpected expenses. Her account situates debt in the context of inadequate welfare support and the futility of budgeting:

What I do is I have Aotea Finance and they’re the people that help me with car repairs or anything like that, and that’s when WINZ (State welfare agency) isn’t available … I tell you what, they’ve [Aotea Finance] 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 that will do car repairs for free I am still with Aotea Finance until further notice and I will do a top up … I tried to get a bank loan, which is cheaper, as everyone knows, but I don’t clear enough money a week because I’m on the minimum Domestic Purposes Benefit … I receive 386 per week. The rent itself is 380. There is no accountant, even a PhD, that can budget this … Now, why would anyone [WINZ] refer me to a budget agency given the situation? … The simple fact is when the expenditure exceeds the income, “I’m in trouble”. That is basically why I am reliant on charity [food bank] … What’s the option? The option here is borrow, which I have done, heavily in debt. Friends, families and no one wants to be a friend anymore. And rightfully so …

Such participants accept that they simply have to pay more to access the necessities in life and go into debt merely to survive. Their focus is on the immediate situation, and the pragmatic strategy of borrowing to survive requires an acceptance of exploitation. Most of our participants were engaged with budgeting services because they were required to be by WINZ, which often presented this as a punishment.

A few participants reported positive experiences with some budgeting services, where some budget advisors acted as advocates for clients and helping them to access their entitlements for government support. However, budgeting was generally presented by our participants as an exercise in “ticking boxes” that failed to address the base causes of their financial difficulties. Budget advisors were depicted as telling our participants not to take on any more debt with fringe lenders, but they offered little in terms of sustainable solutions to the structural causes of their clients’ debts. Budgeting services were overwhelmingly presented as agents of control that worked for WINZ:

I’ve come across some budgeting people that’s just full of shit, they just write down everything what Work and Income [WINZ] wants to see and yet they don’t actually budget for budgeting … At the end of the day, whatever she had written down on that piece of paper just didn’t add up to our income … She writes up what WINZ wants to see and sends you off. She doesn’t actually help in any way so if we fall short on food, nothing like that … We’ve got so many debts and the majority of it is loaning and things like that just to support us to get by the next day. It’s just brought us to more debt on top of debts because we can’t afford to pay it back … Yeah, it’s too frustrating because their [government welfare] laws have changed and they need so much more from us. We only get so much on the benefit or whatever benefit we’re on. The travelling for budgeting and everything else they want us to go collect, they don’t think about the gas, how expensive it is and things like that. Instead of going to WINZ for help, we’d rather just go to finance companies, knowing that you’re gonna be in debt again, but it’s the easiest way to get money to feed your family at that time.

(Kali)

As Kali demonstrates, “There is commonly confusion between financial competence and financial difficulty” (Landvogt, 2006, p. 2). The debts of these participants are less the product of financial incompetence and more the product of inadequate resourcing and exploitation (Walker, 2012). Families who are living in poverty have to be good money managers, although they are vulnerable to exploitation and crises that get them into further strife. In these extracts we get a sense of the almost frivolous nature of budgeting as a form of governance of the poor (cf. Walker, 2011). There are broader, sanitising implications of these processes. Forcing families to undergo budgeting by strangers signals how the money that families use is not their own (Zelizer, 1994): it belongs to the state or the lenders. This reflects the estrangement of families from society (Simmel, 1908/1978), particularly when family priority setting for spending is disrupted by the competing priorities of budgeters and WINZ. Intense budgeting and micromanagement of these household budgets works to transform poverty into an “arithmetic problem” around how much money is coming in and how much is going out (Simmel, 1908/1978).

In contextualising their debts, our participants invoke a lack of sympathy from WINZ regarding the realities of their situations and comment on abusive responses to their requests for assistance (Hodgetts et al., 2013). Many prefer loans from fringe lenders to advances from WINZ due to the arduous process involved in getting welfare assistance, the length of time to get support, feelings of shame and poor treatment from staff. Fringe lenders are more accessible than welfare support. A key strategy for neoliberal governments in avoiding their obligations regarding welfare support is to make it so difficult for families to access support that...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Tables and Figures
• Acknowledgements
• Notes on Contributors
• Introduction
• Part I: Austerity, Financialisation and Serial Asset Extraction: Understanding Institutionalised Suffering
• Part II: The Public Face of the Debt Industry: Discourse and Wellbeing
• Part III: Political Histories of Personal Debt: Managed Decline, the Debt Industry and Wellbeing
• Conclusion: Thoughts for the Future
• Index