Women vulnerable to high cost credit
Gender inequality of women starts early and follows them for their entire lives. Girls receive 11% less pocket money than boys, female students graduate from university with a lower average salary than men, women earn 24% less and retire with just over half the superannuation of men and women occupy just 15% of CEO positions in Australia.
More disturbing news has come to light when it comes to women and money. Research now supports what we have always suspected. There is a surge in the number of women turning to high cost payday loans in Australia. This suggests a growing number of women are being excluded from the financial mainstream.
Payday loans are a highly expensive form of credit. With annualised interest rates of around 240 per cent, they can force many people into a spiral of debt. Repayments are typically direct debited from a borrower’s account on their payday, leaving many without enough money left over to cover everyday living essentials. Many borrowers end up taking out further loans just to get by.
In short, payday loans are a form of credit that makes many women’s financial situations worse.
The market for these loans had been booming for over a decade. Driven by an increase in online lending and primetime television advertising, the number of people using payday loans in the past three years grew by 80 per cent between 2005 and 2015 (Digital Finance Analytics, 2015). Sadly, one thing growing even faster than the industry is the number of women using these loans. Over the same 10 year period the number of women borrowers grew 110 per cent.
While the average loan size dropped by $165, the average loan for women increased by $165. Women are using high cost credit more often and they’re borrowing more.
So what’s driving the move toward high cost credit? Women are more likely to be employed on a casual basis, and many industries affected by casualisation, such as education and health, have high levels of women employees. So underemployment is likely playing a part. But this is only part of the story.
Research by Digital Finance Analytics (2016) shows that single mothers are overrepresented among payday lending borrowers. Just 15 per cent of women are single mothers, yet they represent 47 per cent of women using payday loans.
Single mums, whose carer duties often limit their earning potential, are also over represented in repeat borrowers and those with concurrent loans, and are far more likely to borrow for essential items like food, children’s needs and school trips. These women are having to borrow at huge interest just to provide for their children – and they’re being charged a premium for it.
In my work as the Chair of Good Shepherd Microfinance, and my former role as the Chair of the Victorian Bushfire Reconstruction and Recovery Authority, I have seen how ill prepared some women are to deal with a major financial loss. Sometimes this loss is the result of a natural disaster, and often it’s the outcome of a relationship breakdown – where the male partner was the main breadwinner.
At Good Shepherd Microfinance, we’re looking forward to seeing the outcomes of the Australian Government’s review into Small Amount Credit Contracts (SACC) laws which regulate the industry. It was pleasing to see the interim report highlight that a key outcome of regulation is to facilitate financial inclusion. In order to stem these growing numbers of women using payday loans, Government must continue to invest in microfinance and financial capability initiatives. And as a community let’s look for cost of living pressure points and make sure they’re not excluding people.
School is a great example, a 21st century education increasingly requires a tablet and an affordable internet connection. Schools, telcos and technology companies can play a role in lowering costs and including people.
The positive outcomes of financial inclusion often sound modest – owning a fridge to store fresh food, paying for medical expenses, or sending a child on school camp – but the impact on the individual is often greater than you can possibly imagine.
Dr Christine Nixon APM is the Chair of Good Shepherd Microfinance