Around 2.4m children are living in families with problem debt totalling almost 5bn according to a major new study that highlights the suffering the recent recession has caused to relationships at home.

A further five million children are in families that are struggling to keep up with repayments and risk falling behind. The shocking statistics that reveal how many families are trapped in a downward spiral of borrowing are found in The Debt Trap, a report from The Children’s Society and StepChange Debt Charity.

The findings show the psychological damage debt inflicts in children who are enduring anxiety and bullying from school friends as they go without daily essentials due to their parents struggling to cope.

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Almost half of children in families with problem debt say it causes arguments in the family while 58 per cent say their worry about their family’s financial situation. Nine in ten families in problem debt say they have had to cut back on essentials like food, clothing or heating for their children in order to keep up repayments.

Highlighting how well known payday lenders such as Wonga and QuickQuid have become even to under-18s, more than half of children aged 10 to 17 said they saw advertising for loans ‘often’ or ‘all of the time’. In contrast only one in five children said that their school taught them about money management and debt. The report, which coincides with The Children’s Society’s launch of ‘The Debt Trap’ - a campaign lifting the lid on the massive impact of debt on children’s lives, calls for tighter restrictions on advertising to children, as well as piloting savings accounts for children through credit unions. It also says schools and families should do more to teach children about borrowing.

Many families struggling to cope with their bills believe taking on credit is the only way to make ends meet but the report says this is the moment when they are caught in the debt trap that is almost impossible to get out of.

Families caught in the trap feel local authorities are failing them with a third of parents (32 per cent) in problem debt said that councils were not helpful at all when they sought help and 42 per cent of parents in problem debt said payday lenders treated them ‘badly’ or ‘very badly’. The report calls on every council to create a debt collection strategy which takes into account the impact on families with children.

The Archbishop of York, John Sentamu, who is supporting the report and campaign, said: “Parents living in poverty face incredibly difficult choices. What is to come first? Heating your home or putting food on the table? Many choose to go without themselves so they can provide the basics for their children. Parents want to make the best choices for their family, but low wages, expensive childcare and inflexible jobs make this very difficult.

“When the monthly struggle to pay the bills becomes too much, often families think they have no option but to borrow money to provide the basics for their children. We need to make sure families living in poverty have somewhere to turn other than to usury-lenders.”

Matthew Reed, Chief Executive of The Children’s Society, said: “Families are increasingly relying on debt as a way to make ends meet – but we’re in danger of ignoring the impact this is having on children now and in the future. We cannot allow children to pay the price of debt. With little savings to fall back on, it can take just one unexpected setback - like illness or being made redundant – to tip a family over the edge and into a debt trap that can feel impossible to escape from.”

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Mike O’Connor, Chief Executive of StepChange Debt Charity, said the report is a “stark warning to policymakers, creditors and the wider society of the devastating effects of debt on children”.

He said: “Repay the payday loan or put food on the table? Pay the council tax bill or buy clothes for the kids? These stark choices are facing families up and down the country. Debt can have a devastating impact on people's lives; especially the 2.4 million UK children living in families with problem debt.

“All too often, credit is seen as the only way to plug the gap. Payday loans may look like a lifeline but in reality they can be a financial death sentence.

“StepChange Debt Charity and the Children's Society see the lengths parents go to protect their children: 10 per cent of families tell us they borrow to buy food for children; frequently they have to cut back on what most of us would regard as essentials. We need to protect children through encouraging creditors to offer breathing space to allow families to recover their financial footing.”

Case Study

Gary, 55, from north London, is divorced with two children - a son aged 18 and a daughter aged 11. He separated from his wife in October 2011, and went to stay with his sister before moving to a new flat. Despite no longer living in the family home, he continued to pay the mortgage, bills and childcare costs, as well as paying for a deposit, rent and furniture on his new home.

“I felt obliged to do it, to juggle my responsibilities but after a few months I just wasn’t ready for what was coming,” he told the Independent. “I knew things were getting bad when I had to start using my credit card to pay for food. I began spending what I didn’t have.”

The biggest difficulty was telling his children he just could not afford to treat them in the way they were used to. “They wanted the same stuff I was providing before, after school activities and holidays, and didn’t see my situation as a problem. They just saw me as their dad and couldn’t understand what had changed.”

Gary believes the lack of financial education in schools plays a big role in hurting relationships in families that have to go through situations such as his. He wants a change in how children taught so they are better prepared for financial realities.

“It wouldn’t be a big change,” says Gary, who after contacting StepChange and finding the help he needed was able to restore order in his everyday life.

“I’m sure something could be introduced in either maths or economics in the curriculum My kids, like so many, just had little idea of how much everything costs. We live in a different world now and it’s crucial for them to know how much it costs to live.”