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Paper 3, following on from presentations of new evidence detailing associations between debt and mental health, introduced the potential human costs of unsecured debt. The paper focused specifically on associations between debt and divorce, and showed that evidence increasingly supports the hypothesis that debt is one of the undoubtedly multiple mediators which explain the wider relationship between financial problems and conflict; and divorce or separation. The breakdown of relationships as a consequence of debt is undoubtedly significant in itself – but for the majority of parents, it would not be unfair to suggest that, the development, future and psychological well-being of their children would be considered even more important than even their own relationship status. The research in this project, in line with the wider academic literature, has focused so far on indebted adults – there has been no examination thus far though on links between parental debt and the well-being of their children. In brief, findings suggest that parental debt has a relationship with children’s mental well-being; behaviour and future prospects. This will be the focus of Paper 4. 

 Context & Literature Review 

Firstly, the impact of socio-economic factors as a whole on childhood development is, of course, subject to a massive body of literature – both in terms of academic papers or analysis’, and government reports and reviews. In short, low socioeconomic status (defined by factors such as low household income etc) has been shown to negatively influence child health and cognitive development due to both lower availability of essentials like food, quality clothing, health care and housing; and also, poorer parenting behaviour. It should not come as a surprise, however, to any continuing reader of this project that the role of debt within this wider picture has until recently been understated, with no overall consensus established. 

It should be clearly understood that, as is becoming a common theme throughout this project, the relationship between finances, debt and children is a cyclical one. Having children more than doubles the probability of problem debt, and the recent analysis suggests that there is a particularly strong relationship between debt and having three or more children. Whilst 19% of adults with one or two children are over-indebted, this rises to 26% among adults with three or more children. Furthermore, it is estimated that 28% (over one million in total) of single parents in the UK are living with problem debt. This is almost twice the national average, and one and a half times more likely than two-parent families. Finally, Lawrence Berger from the University of Wisconsin has shown that parents with a disabled child were disproportionately likely to have debt. All of these findings are fairly self-explanatory –  having children increases expenditure, while income is not guaranteed to increase proportionately; lone parents deal with this expenditure without the advantage of sharing resources with a partner; and the need to fulfil the unique, special needs of a disabled child adds even further to this increased strain. Starting or expanding a family, generally speaking, then increases vulnerability to debt. A more complex picture, however, is precisely how this household debt then interacts with the mental well-being, behaviour and future of children in indebted households. The main body of this fourth paper will now attempt to outline this.  

 Children’s Mental Health & Parental Debt 

A report from the Money and Mental Health Policy institute revealed the extent to which children may be exposed to problem debt and its consequences. Almost 1.4 million UK families with children are currently in problem debt. In total, families with children are behind with payments of £4.8bn to service providers and creditors (including the national and local government.) There are around 2.4 million dependent children living within these households, and an additional 2.9 million families have struggled to pay their bills and credit commitments over the previous 12 months – placing them on the edge of arrears and falling into problem debt, thus millions more children on top of the current 2.4 million could soon become exposed. The most significant finding of the report, which was written following a survey of 2000 families with problem debt and 14 in-depth interviews, was that more than half of those children (58%) worried about their family’s financial situation. The MMHPI’s report demonstrates the extent of the problem. Millions of children are already exposed to problem debt, and though not responsible for it, their household debts do appear to have an effect on them psychologically. More alarming is that millions more are just marginally above the threshold of problem debt.  

Other studies offer us some more depth. Firstly in 2017, the Children’s Society found that over 500,000 of these 2.4 million potentially exposed children were reported to have ‘low well-being’ (defined by multiple factors, both mental and physical,) making them 5 times more likely to be so than children whose family were free of debt. Specifically, in surveys and interviews held with children aged 8-17, they found that for respondents, their parents’ debts left them feeling stressed, anxious and depressed – some reported specific symptoms like migraines, sleeplessness or losing weight. Children felt guilty, anxious and felt like failures because they were unable to help their parents deal with debt- in turn impacting their confidence and feelings of self-worth. The Children’s Society report serves to highlight specific effects household debt can have on the health of children – however explaining these associations is more difficult, and their report doesn’t offer the full picture. The report suggests that the spread of creditors, number of debts and total balance are what mediate the relationship – particularly asserting that “Children in families with multiple debt types are at greater risk of experiencing mental health problems than children in families with fewer debt types.” This, as a standalone point, may appear self-evident, but as has been mentioned previously in this project – to ignore the significance of debt type is to ignore the true picture.  

Type of debt and its significance has been referred to previously, and will be examined in more detail in the final paper of this project – but it is also perhaps the single most important factor in explaining the relationship between household debt and children’s mental health. Experts like Berger from the University of Wisconsin have shown that associations are driven almost entirely based on type of debt.  Higher levels of secured, ‘investment’ debts – like home mortgages, student or educational loans for example – were actually positively associated with greater socioemotional well-being and development for children, whereas higher levels of and increases in unsecured debt were associated with lower levels of and declines in child socioemotional well-being. 

This is not overly surprising. Debt, after all, can be used efficiently. Secured debt in particular can allow families to invest a home and other assets; human capital such as a degree to enhance their own earning prospects; and the provision of resources crucial to a child’s development and well-being. On the other hand, unsecured debt is often negatively associated with children’s socioemotional development because it is often used to supplement inadequate income, can be difficult to repay, and may be a signal of financial distress – this of course in turn impacts a parent’s ability to provide the best caregiving environment possible in countless ways. Berger found that children whose households have unsecured debt exhibit, on average, 0.12 of a standard deviation (SD) more behaviour problems than those whose parents do not have unsecured debt. In Berger’s sample, the average unsecured debtor owed $10 000 – children in these households exhibited a 0.5 SD increase in behaviour problems from those whose households were debt free. The mean Behavioural Problems Index score for the full sample was 8.8, a 3.1 point increase on the SD- representing a 35% increased likelihood of psychological behavioural problems in children in problem debt households as compared to their household debt free peers. This is a large and significant result, such an increased likelihood of behavioural problems must surely have substantial impacts on child well-being, development and prospects.  

 Future Prospects 

With the associations between debt, children’s development and well-being now clear – it is important to assess the longer-term impact of this relationship. Evidence suggests that household debt significantly influences the experiences of a child in their developmental and formative years – their school years.   

The MMHPI’s series of interviews referred to above found that over one-half of children aged 10-17 in problem debt felt embarrassed because they lacked the things that their peers had – as a result, over one-quarter were unhappy with life at school; and nearly one-fifth were bullied. In all cases, children in problem debt families 2x as likely to suffer these problems. Other studies have also shown that schoolchildren in indebted households felt embarrassed by being unable to afford normal things like their peers and being unable to socialize; go on outings; take part in activities like sports or school trips; missing out on events like birthday parties or going on yearly family holidays. These factors are clearly incredibly damaging to development of children – without even considering the impact on their grades and attainment, this influence of debt on their school experience hinders their opportunity to learn basic social skills and competency. Again, this damage is done in the child’s formative, developmental years – making extent of damage in terms of time difficult to put a cap on, it could easily be argued that the consequences are carried for the rest of the child’s life. 

Perhaps more significantly, evidence suggests that household debt can serve to damage a child’s chances of higher qualification and attainment; and thus, surely their career prospects. Probability of further educational / degree attainment falls to 23 per cent amongst children in the lowest percentile of financial wealth. Obviously, measures of overall family wealth are somewhat wider than the scope of this project, but it is probably fair to hypothesise – given the importance of debt in mediating relationship between finance and things like common mental disorders or divorce – that debt plays a significant part in this. Karagiannaki’s finding in 2013 that that parental asset poverty (parental debt) has a significant negative association with employment at age 25 appears also to support this hypothesis.  

Finally, it should be noted that 67% of households across the UK headed by 18–25-year old’s have unsecured debt. Of course, generational changes in attitudes towards debt and credit probably explain this in the most part. However, a question for future exploration could be how significant were these head of household’s experiences as children in terms of exposure to debt and education in shaping these attitudes? The MMHPI’s study showed that one-half of children aged 10 to 17 said they saw advertising for loans or credit ‘often’ or ‘all of the time’. Yet only one-fifth of children said that their school had taught them about money management and debt.  Assessments of the education system and recommendations will be kept for Paper 5, but for now it should be noted that children are clearly exposed to consumer culture, household problem debt and its consequences, yet are not educated sufficiently on money management. Could this have a role in explaining why so many young heads of households accumulate unsecured debt disproportionately?  

To Conclude 

In closing, following on from an analysis of debt and divorce, this paper has aimed to highlight a further and arguably more serious human cost of household unsecured debt – the impact it can have on children. It is fair to say that for many if not most families or parents, their children’s well-being and future are unrivalled priorities. Evidence growingly suggests however that household debt levels has an effect on both of these. Parental debt has been shown to have a negative psychological effect on children in terms of stress, anxiety, depression and behavioural problems. However, it must be reiterated, type of debt is a crucial variable in this instance – and in cases, some secured debts related to assets and educational or career investment can actually have a positive relationship with a child’s well-being. Finally, evidence suggests that unsecured household debt negatively impacts a child’s development and future prospects. Socially, children are made to feel embarrassed, lean towards isolation and in turn perhaps fail to cultivate social skills essential to basic competency in adulthood. Also, academic attainment and employment by age 25 have a proven negative association with household unsecured debt.  

Going forward, the fifth and final paper in this project will cover a fair degree of ground. It will recap all content and analyse key themes; provide analysis specifically on consumer/credit culture and the special role of credit in this wider picture; and finally it will, in consultation with a range of sources, present a variety of recommendations to tackle the problem going forward.  

Researched and written by Craig Lynch

Previous Essays

Associations between Debt and Mental Health – Outline of Realities

Associations between Debt and Mental Health – Associations & Responses

Associations between Debt and Mental Health – Human Cost Pt. I – Debt and Divorce