I recently wrote a piece reflecting on debt culture, credit unions and payday loans for the Guardian. Informed by research into my latest project at FutureGov, Popcash - a money management tool to help financially vulnerable individuals stay on top of their personal banking and essential payments. Find out more about the project here. Read the original article here.

Payday loans: good financial behaviour lessons in school are the solution

High-interest loans have become an easy scapegoat, distracting attention from the issues around why people get into debt: these include late payment and overdraft charges – and avoidance

It's a grey day in a town in the north-west of England. I watch the growing queue of young women snaking back between rows of benches from a desk in the community centre. The local credit union is running its child benefit loan pop-up service, as it does every Tuesday morning.

I'm here to observe the union's processes, and to chat to its staff and members. I am in the midst of the design-research phase of FutureGov's latest project, Popcash.

The brief is to design a mobile product that enables credit unions to serve a 21st century clientele and compete with payday lenders such as Wonga by pointing people to more responsible sorts of loan, and building financial literacy and resilience.

I hope the app will be an alternative money-management tool to help people with their essential payments (and avoid incurring penalties or other charges, which can so often be the cause of a downward spiral).

The app works to signpost sources of help at the first signs of trouble, by encouraging the user to get in touch and build a relationship with their lender as soon as it sees they may have trouble keeping up with their payments. It will channel people towards organisations that can help with debt, as well as more responsible loan sources such as credit unions.

The incentive for creating this app is well documented: Consumer Focus estimates that the number of payday loan borrowers rose from 0.3 million in 2006 to 1.2 million in 2009 .

Our research study in Lewes, East Sussex, showed that payday and doorstep lenders now play a very real part in the daily lives of those living on the financial edge. Credit unions are often touted as a solution to the dangerous slide toward high-cost, short-term loan culture. As not-for-profit financial cooperatives owned by their members and run for their benefit, they are willing to offer low-interest loans to people who are likely to be refused credit elsewhere; the same people most likely to be tempted by the payday lender's promise of fast, anonymous credit with no or very few questions asked.

But as I watch Mary – the loans registrar – digging into her own purse to dole out her customer's withdrawals (it's been too busy to nip to the post office for more cash), I begin to question whether they can be solution to the payday loan dilemma, at least on their own.

Awareness and access are two issues vital for a credit union's success. Wonga seem to have an ad emblazoned across every second London bus at the moment (they spent over £16m on advertising in 2011) and deliver an average money-to-bank time of just five minutes. While credit unions are a diverse lot, not only is marketing at that scale a stretch, but from what we've seen they struggle to match the user experience the payday lenders provide; almost without exception they lack the infrastructure to support such speedy loans.

What's more, the APR cap of 26.8% means credit unions make a big loss on servicing small loan amounts: on a loan of £300 for one month they can only charge a maximum of just £6 interest.

The longer I spend around those in debt and those who work with them, the more I begin to question whether payday lenders are really the biggest problem. Time and again we heard stories of people whose debt problems have grown out of late payment and overdraft charges, which were the start of a downward spiral of managing interest repayments but never managing to pay off debt. This spiral is exacerbated by the typical response of avoidance. Step Change debt charity say that of 950 clients surveyed, more than 40% had struggled with mounting debts for a year or more before seeking help. We have heard of – and seen – several situations where carrier bags full of unopened letters are shoved behind the sofa.

Payday loans are undoubtedly a bad thing, but they have become something of an easy scapegoat distracting attention away from many larger critical issues around ethical practice and financial literacy. Broadly speaking, the solution is to teach better financial behaviour in schools. In the meantime, it's vital that existing council and independent advice services are clearly signposted and councils work to support their credit unions.