Personal Finance

Welcome to the UK: DIY burials and payday loans for kids

The tight financial conditions faced by Brits were highlighted again this week with reports on how cash-strapped young people are using payday loans and impoverished relatives are burying their loved ones at home.

One in eight young people say they have borrowed money from lending firms, according to a new report released Thursday by the U.K. children's charity Action for Children. The report interviewed 1,058 people in focus groups between the ages of 12 and 18 and found that 41 percent of those that had borrowed had done so with payday loan providers.

The charity also found that store cards are also be used more and more, with over a third of the young people saying they had used them. Its anecdotal evidence suggested that young people were using the debt to replace household goods, set up their first home or to keep up with their friends.

Read More SocGen tells investors to dump UK assets

"Baffling financial jargon and a lack of knowledge will dramatically create a vicious circle of debt, increasing the risk of mental health problems and unemployment," said Tony Hawkhead, the chief executive of Action for Children, in Thursday's report.

Payday loan companies have been heavily criticized by policymakers in the U.K. for the four-figure interest rates they tie to cash advances. Regulators have moved to introduce new rules to cap charges and these firms have made changes to their lending criteria in response.

The companies stress they have strict rules on who can receive loans, with the minimum age being 18 years. However the breakdown within Thursday's study shows that minors are receiving these loans with 46 percent of the 12-year-old respondents saying they had borrowed money from a payday lender.

Read More Angelina Jolie takes aim at UK 'mansion tax' plan

ArgentHewitt | iStock | 360 | Getty Images

Spiraling costs of funerals

These payday lenders are also being used to cover the rising costs of funeral services, according to U.K. lawmaker Emma Lewell-Buck. Speaking in the U.K. Parliament on Tuesday, Lewell-Buck told colleagues that a woman from the area she represents had seen her debts spiral after using a payday loan to buy a headstone for her brother's grave.

Lewell-Buck, who is a member of the opposition Labour Party, added that the case was not isolated and highlighted that people are having to turn to even more extreme measures.

"Some are holding do-it-yourself funerals, and even having to bury relatives in their back garden," she said.

Read More Poverty blamed for return of rickets and gout to UK

"A number of companies are offering cut-price funerals, including 'direct' cremations that have no formal service attached to them."

Over recent years the average cost of a funeral in the U.K. has risen sharply, according to statistics by the insurance and pensions provider Royal London. The company - in conjunction with polling firm YouGov - surveyed 1,988 people who had organized a funeral in the last five years. It found that 19 percent of respondents had struggled to meet funeral costs and had gone into debt using a credit card or a loan. It also estimated that the average cost of a funeral in the U.K. now stands at £3,551 ($5,569), a 60 percent rise in seven years.

These increases are also above the rate of inflation and wages in the U.K., which has become a hot topic with the country nearing parliamentary elections next year. The U.K. has been singled out as being one of the major recovery stories since the global financial crisis but critics have argued that the economy is still unbalanced and households have yet to fully realize any return to growth.