A Tale of Two Irelands

A year into the pandemic, it has become clear that Ireland has a severely divided society in terms of household debt and financial wellbeing.

Dr Amie Lajoie, Senior Researcher at TASC, asks policymakers to not remain complacent in terms of supporting those who experience continued financial hardship during the pandemic.

While scrolling through Facebook in March, I came across a news post on my feed: “Seven ways to use the savings you have built up in the bank during lockdown”. What struck me most was not necessarily the article itself, with its idyllic stock photo of a sunny beach that felt disturbingly out of place during rainy March and after a year of lockdown blues, but the comments underneath. Anger and frustration filled the replies, as well as accusations that the article was “insensitive”, “tone deaf”, “insulting”, “outrageous”, “a disgrace”, and “written for wealthy elites”.

“I don’t normally comment on things but I’m sorry I am shocked horrified & disgusted at this... how dare you... people’s lives livelihoods have been turned upside down & inside out & you have the gall to talk about savings!!! Like seriously live in the real world.”

In my view, the reaction to this and similar articles on household savings exposes the glaring discrepancies in terms of the impact of the pandemic on personal financial wellbeing. While national figures from the Central Bank show a massive increase in household wealth and savings deposits on the aggregate, the dominant narrative that families and individuals are ‘saving like never before’ is clearly not universal.

Arguably, those able to save during the pandemic are in a privileged position to not have experienced damaging changes to their employment and/or living expenses, perhaps already in higher-paying jobs that allowed them the ‘luxury’ of working from home. The ability to save is unequivocally related to the ability to receive consistent income; and for those who have lost their jobs, welfare supports must be sufficient to cover essential expenses, including existing debt repayments, and rarely allow any wiggle room to build savings. In April 2021, the Central Bank warned that 100,000 jobs will be permanently lost post-pandemic, with consumer-facing industries with traditionally high levels of low-paid and younger workers, for example leisure, tourism and hospitality, being the worst affected.

In March 2020, TASC released a report that explores the situation of low-income households and non-mortgage or insecure/consumer debt (debt that includes personal loans, credit cards, overdrafts, moneylender loans, and so on) and we note that this form of debt has increased in recent years as a percentage of overall household debt. TASC’s research informed the development of a financial capability training that we have been delivering to adults in North Dublin since October 2020, in partnership with MABS (the Money Advice and Budgeting Service) and Northside Partnership. We have witnessed first-hand the effect of the pandemic on low-income families and single parents in particular in terms of financial deprivation and debt, including increased borrowing from high cost and informal lenders, growing arrears for utilities and rent payments, difficulties accessing online financial services, challenges adjusting to changes in income, and so on.

Two recent reports commissioned by St Vincent de Paul and MABS provide additional insight on this topic. St Vincent de Paul, who reported an extremely alarming 20% increase in calls for help in the first 4 months of 2021 (the highest number of calls during the first quarter in any year during the past decade), released new survey data that 43% of persons had reported experiencing at least one form of financial strain due to the pandemic, and 22% have had to use their savings to make ends meet. 7% also have had to increase their debts out of necessity and to cover essential living costs. These findings shed light on the significant number of people living in Ireland who have been consistently struggling to heat their homes, to pay their rent and to keep food on the table for themselves and their families – persons definitely not in a position to enhance savings.

The second report, a comprehensive analysis published by MABS, found that there was a notable increase in new, first time clients to Dublin MABS services when the pandemic initially struck; illustrating that many people were experiencing significant financial hardship for the very first time. Groups already at higher risk of low financial wellbeing, including private renters, social welfare recipients and single persons, were disproportionately represented in this cohort. In addition, while many financial institutions and utility providers demonstrated leniency with customers during the early days of the pandemic – this has shifted in recent months. More and more MABS clients who have not necessarily recovered financially are now facing utility disconnections, eviction notices and mortgage liabilities. The reports outline the grim lived experiences of financial deprivation and the drastically unequal impact of the pandemic on the whole – with grave concerns for the long-term and wide-ranging consequences of these growing inequalities.

It is also important to bear in mind that, from the onset, direct government support was arguably limited for people with loans and debt servicing commitments, with 6 month mortgage payment breaks being the primary policy-supported form of debt relief. However, while welcome, this intervention was not a universally applied freeze, as applications for mortgage breaks were considered on a case-by-case basis. These breaks also did not include relief from paying interest – which accrued during payment break period to be paid back at the end of the break or over the lifetime of the loan. There was a lack of top-down policy interventions for those with insecure loans and non-mortgage debt as well as no protected consumer right to defer debt repayments. Those who needed relief in order to prevent arrears had to get in touch and plead their cases directly with creditors, or through the support of a debt services such as MABS – and their needs were assessed on a case-by case basis.

The primary obligation continues to be with individuals themselves to advocate for debt relief; this is contrast to a State-enforced consumer rights framework that would be much more advantageous to low-income and vulnerable households in particular. Such an approach would provide blanket support (versus ‘case-by-case’ assessment) and challenge the fundamental power imbalance between creditors/ financial institutions and individual consumers.

It is imperative that government policy does not remain complacent in face of these challenges and expect that all households will be in a position to equally weather the long-term economic fallout of the pandemic. To date, government action has taken on a significantly more ‘household-supportive’ approach to countering the impact of the pandemic in comparison with the policy interventions that followed the financial crisis of 2008. Pre-emptive policies that work to continually ensure the most at-risk households are supported long-term, including income protection, protected rights to defer mortgage and non-mortgage debt repayments without penalty, blanket moratoriums for utility costs, expanded rental supports and tenant protections, and so on, remain necessary. Lessons learned from the 2008 crisis demonstrate that the journey to getting the country ‘back on track’ will not be a smooth one. It is vital that no household is left behind during this period of recovery, and that the divide between the ‘Two Irelands’ outlined in this article does not deepen further.

Posted in: Banking and finance