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Years ago the poor people would have just got thrown to the lions and we would have watched as they got their limbs torn from them in a bloodbath. Today, things aren’t that much different. We still look on as if at some Saturday-afternoon entertainment event that unrolls before our eyes. Only this time, because we feel guilty at letting people wallow in their own cesspits, we allow them to get pay-day loans and easy credit so that they can have a sense of direction to their lives, at the very least and imagine for one instant that they are part and parcel of the society that has been created for us by those that are supposedly in-the-know. But as one economist (Ann Pettifor) in the UK has just said “we have an Alice in Wongaland” economy, in which people can only subsist by fuelling spending sprees with debt and loans that will ultimately send them shooting down the rabbit-hole. Wonga being of course a payday lender charging ridiculous and extortionately high prices. But, when the market is depressed and the people don’t have money, there is always someone around that will be ready and more than willing to hang the people up and drip dry them until they have everything squeezed out of them.
UK
Payday loans are taken out by people that are on average in debt for just under half of the year (five months) and the spending goes on things that are considered aseveryday expenses.
- 69% of people use such loans to cover utility bills and rent as well as food bills and mortgage repayments.
- 16% use it to cover expenses that are not recurring and one-off surprises such as the car that needs repairing or medical expenses that had not been envisaged.
- It seems rather surprising therefore that some seem to believe that the Wongaland in which we live is fuelled by spending sprees that are running on payday loans.
- Payday loans are taken out according to studies not to cover just short-term needs for financial help but they are more to do with long-term and on-going needs arising from the lack of income that is readily available.
USA
The UK is not the only Wongaland country where Alice goes down the rabbit hole with the money of the people.
- There are 12 million Americans every year that use payday loans to get by.
- An average of 8 loans are taken out by them to the value of $375 each.
- Interest costs an annual sum of $525.
- If you are a white American woman without a college degree and you rent a home rather than own it and earn a salary of less than $40, 000 annually, then you are more likely to take out a loan than anyone else.
- The majority of payday loan borrowers are aged also between 25 and 44 years old according to studies carried out in recent years.
Interest rates can reach sometimes 30-35% per month. Credit has become too difficult for some people to get via conventional banks and so they have ended up turning to other means. We have strongly criticized China for itsshadow-banking, but is there a difference with the payday loans that are providing an alternative to traditional money-lending in our own countries?
Pawnbrokers have skyrocketed and mushroomed all over the place in the UK too, for example. The price of gold shot up after the financial crisis and that meant that the number of outlets stands at 2, 204 in the UK today, which is three-times more than in 2007. Revenue from this source stands at £865 million ($1, 347.75 million) today.
80% of the jobs that have been created in the UK over the past five years have been in low-wage industries, where people earn under £7.95 per hour. The UK economy today is nothing more than a low-wage, low-growth and low-productivity one in 2013 and that shows through in the fact that personal finances have taken a bashing too.
One alternative economic solution might be that we reduce the intervention of the state, that we cut the bureaucracy and that we cut the taxes. Otherwise, we could always believe that there is never going to be a solution and that this is as good as it will get. We shall just have to muddle through and survive if that’s the case.
Payday loans, we are told, are for short-term financial help. But, that’s not how they are being used by people that take them out. They have very little to do with small-dollar credit and everything to do with high-cost credit, however. Alice’s cash has drunk the magic ‘drink me’ shrinking potion from the vial and the interest rates have munched on her rabbit-hole cake to grow to oversized proportions. You’d have to be a mad-hatter to take one out, but what else is there to do in a growing crowd of people that is lacking in the financial stability to make ends meet every day in the month? Curioser and curioser!
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