Sunday, January 4, 2015

Sometimes, handouts are not enough

Dec 28, 2014

Helping the poor to clear their debts will give them a fresh start in life

By Theresa Tan

Two charities are giving poor families a fresh start in the new year by helping them pay off their household debts.

The Methodist Welfare Services (MWS) will give an average of $2,000 to each of 850 needy families to clear their rental, phone bills, utilities and other arrears.

Care Corner is also giving $2,000 each to 500 poor families for the same purpose.

Both charities, which are raising funds for this, are doing so to celebrate Singapore's 50th birthday next year.

MWS, the Methodist Church's social service arm, is marking the church's 130th anniversary in Singapore next year.

It has also rolled out an innovative scheme to match every dollar of debt cleared by its clients, and plans to match every dollar they save as well.

Both charities say this is a one-time help project, but it shows they recognise that, sometimes, poor people just need a break.

This is a wonderful initiative to help families living from hand to mouth get out of the debt trap. Or, at least, to stop them from sinking deeper by borrowing from Peter to pay Paul.

This is especially critical as social workers say they are seeing more low-income people borrowing from licensed moneylenders, who charge up to 40 per cent interest a month and impose hefty late payment fees.

The debt burden of low-income families deserves greater attention, especially when the poorest simply do not earn enough to make ends meet.

The latest Household Expenditure Survey by the Department of Statistics shows that the bottom 20 per cent of families earn an average of $2,022 a month, but spend an average of $2,231.

So, these families are short of $209 every month.

Often, these families can afford to pay only their most pressing bills first, social workers say. Or they pay part of what they owe. This is how they fall into the debt trap.

Many also do not know how to manage their money well and raise themselves out of debt, compounding their financial woes.

Overwhelmed by their piling bills, many simply ignore their debt. So it snowballs, landing them in greater financial distress, says social worker Cindy Tay.

Some are of the view that the poor have only themselves to blame for their situation by being irresponsible in their choices and careless with how they spend. Or that they are plain lazy and sit around expecting help.

But Ms Tay points to new research that shows that poverty taxes the brain to such an extent that poor people are more susceptible to making bad decisions.

So, the poor need help to sort out their money problems, and to cope.

For families without savings - and some do not even have $100 in the bank - having to pay for an emergency such as a sick child's treatment or an aged parent's funeral - can push them over the edge.

When friends and relatives stop lending them money, what do they do?

Increasingly, they turn to licensed moneylenders and end up borrowing from one lender to pay another, or even going to loan sharks to pay off the licensed lenders, social workers note with deep concern.

Many poor families need one-on-one money management advice and support to help them clear their debts.

This means getting down to basics; someone will have to check how much money comes into the household and where it goes. It means helping them tell needs from wants and prioritising. It means looking at their debts squarely and finding ways to deal with them, however tough that may be.

It may be hard to do, but someone may have to ask the man of the house if he really can afford to continue smoking when unpaid bills are piling up and taking a toll on everyone in the home.

None of it is easy, and social workers who have started helping this way say it can be slow, painful work.

Their efforts would get a welcome boost if debt management professionals stepped in to help too. Overseas research has found that debt management support can go a long way in enabling poor families to confront their money problems.

Another area lacking in Singapore is the provision of low- or even no-interest loans to the poor by non-profit groups.

In Australia, for example, Good Shepherd Microfinance, the country's largest microfinance outfit, offers interest-free and low-interest loans to poor families that need small sums for essential goods and services.

Independent assessments have found that its clients are better able to manage their finances and avoid borrowing from high-interest moneylenders, among other benefits.

Similar initiatives, if implemented here, would give poor families a lifeline when a crisis crops up and they have no one to turn to.

Christmas has just passed, and Chinese New Year is not too far away. Festive seasons are often the most stressful periods for the poor as they are hard-pressed to cough up the extra cash needed to celebrate the holidays.

One gift Singapore can give the poor is to devote more resources to find ways to help them escape the debt trap. A fresh start in life is a priceless present.

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