Does excitement for Christmas hold constant among lower-income families? Amidst all of the celebration that comes along with the winter holidays, one might forget how expensive this time of year can be. Shoppers in the United States racked up an average of $1,054 USD of debt in 2017, with only about half of those surveyed expected to repay the debt within three months while others needed five or more. Research has shown that the holidays can greatly impact the quality of life and finances of poorer households. In particular, Christmas expenses have proved to be a component of what is known as the “poverty premium,” defined as “the additional costs associated with being poor that exert even more pressure on families who are already struggling.” In a recent study, researchers at the University of Bristol estimated that in 2016, the average low-income UK household paid a poverty premium of £490. However, more than one in ten of these poorer households pay at least £780.
How Does the Poverty Premium Come into Play During the Holidays?
Shortfalls between income and expenditure demands arise more often for lower-income households. This can come from the costs of birthdays, unforeseen events, and yes, Christmas. Recent data shows that 83% of the lowest income quintile households in the UK say that they would find it difficult to find £200-300 in an emergency without borrowing, and 88% would struggle to save £500 for a special purchase. About half of these households would find it impossible to save. Consequently, families may turn to high-risk loans.
Lower-income households are less likely to have access to mainstream credit due to a greater likelihood of having poor or little credit history and are more likely to have exceeded a credit limit in mainstream or low-interest schemes. Research from the University of Bristol has also revealed that Christmas was the single most common reason why households had used higher-cost credit, with over one-fifth of respondents using loans for this purpose.
While this is an undesirable solution, it is one that accommodates many financial realities of low-income households, as the funds are available in small amounts or with shorter approval times. In terms of the poverty premium, the data suggests that a couple with two children may face an additional weekly cost of buying items for Christmas to be as much as £31.30 per week if using high-cost credit compared to £5.12 per week if using a mainstream or personal loan.
The methods of Christmas shopping in low-income families can also be an unquantifiable measure of personal labor that wealthier families who do not have to search for deals need not face. The study reports that low-income families often would buy clothes from catalogues as a budgeting tool.
Perhaps more detrimental, low-income households may turn to illegal loan schemes. Users of illegal money lenders are primarily in the lowest income quintile and concentrated in the most deprived communities. Another option is to simply go without. Many families plan for Christmas through savings, but low-income households often save not through more rigorous budgeting but rather through deprivation.
Being poor is expensive. It seems that the holidays have the potential to add to the long term stress of the poverty premium. Alternatively, the negative effects of the season could appear in health outcomes associated with lowering one’s standard of living to accommodate other costs, such as malnutrition. Further, the persistent remitting of holiday loan debt is likely to be one of many transmitters of intergenerational poverty, alongside limited access to education, poor nutrition, social discrimination, and household composition.
The Responsibility of the Charity? Or of the State?
Nonetheless, many people are aware of the costs of Christmas and the winter season in general. The role of civil society groups has grown immensely to help individuals in need during an era of austerity measures. Yet, this beckons a more philosophical question, is it their job to do so? Is the state’s current reliance on charity a way of offloading its responsibility to serve and provide for the needy? Examples of overreliance on charities can be seen in New Zealand, where the queue for food supplies can be up two hours long.
With all the shortfalls that exist presently, the state should look into improved policy solutions. For instance, low-income families could have access to affordable small-sum loans to cope with peaks in expenditure. Other organizations have suggested the UK government expand benefits, such as lifting the two-child limit for families receiving child tax credits. Currently, the UK only offers a “Christmas Bonus“ of £10 to individuals who qualify for other benefits. The province of British Columbia in Canada provides the “Christmas Supplement,” which is $35 CAD for a single person without dependents, $70 CAD for a childless couple, and $70 for CAD households with a $10 CAD increase per child. Perhaps this more generous example could influence legislators to get into the true holiday spirit of giving.
Note: This article gives the views of the authors, and not the position of the Social Policy Blog, nor of the London School of Economics.