'Universal credit will push people into 5,000% APR loans' blog discussion

Former_MSE_Helen

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "Universal credit will push people into 5,000% APR loans" Blog.

Please click 'post reply' to discuss below.

Simon_c_2

I think forcing everyone to monthly benefits it totally ridiculous. It should cost the government next to nothing to split payments weekly and not monthly, and when you consider the fallout hardship grants/loans, and the human impact that payday loans and the link will cause, it just shows they civil servants who devise these schemes aren't living in the real world.

Or maybe they are, I can just see Sir Arnold advising Humphrey that the staff they loose by moving everything to one benefit can easily be replaced once they have to handle the extra workload of dealing with the fallout of it moving monthly. (Yes Minister)

N1AK

If the cost of dealing with weekly transactions was truly negligible then just about every salaried organisation would pay on a weekly basis. Clearly some benefit to monthly transactions exists. Is that worth the downsides? I'm not informed enough to know.

What I will question about Martin's initial premise is whether it is fair to assume that, in general, people on benefits can't be relied on to manage money correctly. If he genuinely believes that then the rational thing to do would be to propose taking away more control from benefit claimants over how they spend money; for example we could give food vouchers rather than cash to stop gambling/drinking it away.

Surely we should give people the respect of assuming they can handle their finances until shown otherwise?

N1AK

Additionally, weekly payments also require the claimant to manage their money. If I need to pay the rent/electric/phone etc at the end of the month then I need to work out how much of each weekly payment I need to save to do this. If I get paid monthly I can schedule all payments to come out straight afterwards or transfer the required amount somewhere else straight away.

Again, if research has been done showing that weekly payments are noticably better at helping people then obviously it should be considered.

missprice

but rent/elec/phone etc. can be paid weekly anyway and for those on weekly benefits its only a week til the next payday if you suddenly have to replace the kettle, not so funny if you have to wait a month for the next payment.
In general I agree that most claimants can be relied on to budget well enough to get by but suddenly lumping them all with monthly probably wont work
just how will it be done? here is your last weekly payment, make it last a month?
cant be done.
plus there are still jobs that pay fortnightly I know because I have one of them, the others pay monthly mind.
so why not go to fortnightly and then in a year monthly, at least they will get time to get used to it

Faith177

I agree with it being phased in slowly as it is difficult going from weekly to monthly but I can't see a problem with being paid monthly. Thousands of people not on benefits manage it fine.

Just arrange for all DD's to go out day after you get paid anything else split between how ever many weeks till the next payday (4 or 5) it's not that hard.

Naf

I think it should be phased in if they do it at all, certainly. It is close to impossible to budget correctly on a low income as it is, let alone with a sudden shift like that.
On the flips side, though, people do need to learn to budget their money properly - I had a colleague in my last job who always asked for his wages a few days early, in part to bay money back to his mum that he'd borrowed to 'get by' - each and every fortnight.
I would hate to receive my benefits calendar monthly - I use the four-weekly figures to calculate over each month, so every now and then I get a payment over and above my budgeted figure and its really nice to treat the family.

MSE_Martin

N1AK wrote: »

What I will question about Martin's initial premise is whether it is fair to assume that, in general, people on benefits can't be relied on to manage money correctly. If he genuinely believes that then the rational thing to do would be to propose taking away more control from benefit claimants over how they spend money; for example we could give food vouchers rather than cash to stop gambling/drinking it away.

Actually I carefully didnt make a general premise I qualified it with 'some' each time. Yet there is no lack of evidence that benefits recipients sadly include some of the least financially capable, and many people with mental health and capacity issues.

atypical

Isn't part of the logic that most employers pay monthly, and benefits should be preparing people to enter the workplace.

You could argue it's a disservice to people on benefits to pay weekly in that it doesn't prepare them for the workplace.

N1AK

MSE_Martin wrote: »

Actually I carefully didnt make a general premise I qualified it with 'some' each time. Yet there is no lack of evidence that benefits recipients sadly include some of the least financially capable, and many people with mental health and capacity issues.

True, you qualified your statements and I did over-exaggerate your position. It detracted from my main point which is that if someone is incapable of managing their money then they will likely be incapable of doing so no matter how often they are paid.

For those people, paying them more often is, in my opinion, an ineffective way to try and address the symptom; assistance with budgeting and potentially outright intervention in spending decisions may be the only ways to solve the problem.

Keep fighting for the little guy, and ignore those who try and pick finnickity holes in minor points

wozearly

atypical wrote: »

Isn't part of the logic that most employers pay monthly, and benefits should be preparing people to enter the workplace.

You could argue it's a disservice to people on benefits to pay weekly in that it doesn't prepare them for the workplace.

I completely agree with that principle too, but there are flaws in the plan. Benefits, without exception, are paid in arrears. So in most cases people are always playing catch-up, and almost by definition the people on benefits are not starting from a good financial position. Many are in some level of debt as it stands.

But take someone who is actually managing along fine on the different bits of benefit money they get each week, not going into debt but (almost certainly) not building up savings either.

What happens in effect is that the payments in week 1, 2 and 3 all move to week 4 - so they suddenly get three weeks of no income at all. If you have no spare money, that's going to be pretty tough to cope with.

Every regular payment you normally make weekly will have to be changed to a monthly basis, and whoever you pay it to will have to be willing to let you effectively miss three weekly payments at the beginning. Not everyone will be minded to do that - most landlords, for example, ask for rent up front.

If you set up a direct debit with a bank account that's in an unauthorised overdraft, the bank will be very pleased, as they'll immediately snaffle the money that comes in to offset your debt to them.

And during these three weeks, you have no money coming in for food or any other expenses. Even loan sharks will look mightily attractive compared to starvation.

Plus, if you normally budget on the basis of "what money do I have in the bank? Okay, that has to last until Sunday..." its going to be a major culture shock to suddenly get a ton of money and have to plan over 4 and a bit weeks if that isn't how you currently do it. Especially given that housing benefit will be appearing directly in people's bank accounts for the first time, and that's usually quite a fair bit of cash.

I'm not arguing that it isn't a good thing for many people, and a lot of people on benefits will handle it absolutely fine - but for some, particularly the more vulnerable and less financially astute, its going to be a recipe to encourage them to completely misjudge their budgeting.

Of course, should that happen, the helpful friendly voice of Wonga will be there to help them plug that unexpected gap in their finances, with a 5,000% APR loan...