Payday loans for over 50s shouldn't be headline news

Posted in 'Personal Finance' by Richard Catlin

03 August 2012

New research suggests that an increasing number of people aged over 55 are turning to payday loans to make ends meet.

Primetime Retirement - a ‘retirement income specialist’ - claims that 8% of over-55’s have taken out a short term loan and owe an average of £163 each.

Low annuity rates, low interest on savings and high inflation are cited as the main reasons.

The findings might be headline-grabbing, but seem to be more of a wider reflection of the way consumers in general use credit today than a specific trend amongst people approaching retirement.

First off, it’s fair to say that the majority of people in their mid-50’s are still in employment – and with retirement ages being pushed further and further back, they hope to be for some time to come.

Figures released earlier this year show that the average retirement age for men has risen from 63.8 to 64.6 for men and from 61.2 to 62.3 for women.

With this in mind, annuity rates shouldn’t (yet) be a major factor in terms of monthly income amongst those surveyed.

It also seems odd to cite ‘high inflation’ as a reason for people being forced into short term borrowing to make ends meet. Official figures – measured using the Consumer Price Index (CPI) – put UK inflation at 2.4% in June 2012 (RPI was 2.8%). Compared to the same month annually, this puts CPI at its lowest level since 2009.

Despite this, disposable incomes are undoubtedly being squeezed by the on-going economic uncertainty, leaving many people with an occasional shortfall from one month to the next.

One thing the Primetime Retirement study fails to take into account (largely because it fails to make a comparison with past trends) is that this is nothing new, and that payday loans are simply replacing other forms of short term borrowing as a stop gap – and it’s easy to see why.

Payday loans are easy to apply for, the cost – although admittedly very high – is relatively clear, and the money can be in your account in minutes.

Any stigma attached to this sort of debt is also fading fast.

On the downside, there is no escaping the APR, and payday loans are fast developing a reputation for ‘trapping’ people in debt.

The FSA is investigating the payday industry over a number of issues, including inadequate lending checks, inappropriate customer targeting and the rolling over of loans that soon makes them unaffordable.

It will be interesting to see what, if any, changes come about as a result of the investigation, but it is unlikely to quell the demand for short term borrowing – which if anything, is likely to spread its demographic reach even further.

So if you’re one of the “one in twelve” people in their 50’s to have taken a payday loan, don’t feel like you’ve done something wrong – just make sure that repayment date is double underlined on the calendar.

Richard Catlin is Marketing Manager at checkmyfile.com. He has a degree in Geography from the University of Glamorgan and can be contacted at richard@checkmyfile.com