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Brits increasingly turning to credit to make ends meet as finances stretch and economic pessimism grows in UK households

  • Three quarters of Brits use credit to make ends meet and more than a third of households are worried about their level of debt
  • More than four in ten households unaware of the level of interest they are paying on their debt
  • Median UK household has £1,067 left each month after paying for essentials

The latest Disposable Income Index (DII) published today by ISA provider Scottish Friendly reveals that three quarters (76%) of British households are reliant on credit to make ends meet. Nearly one in five (17%) Brits who are credit dependent found themselves short of money on more than five occasions in the last 12 months and needed credit to support themselves until their next pay cheque.

Moreover, a third (36%) of Brits are worried about their level of indebtedness, while 49% of households with children are concerned about the amount they borrow. Alarmingly, more than four in ten (44%) Brits said they did not know how much interest they were paying on their most recent line of credit.

The quarterly report has been compiled in conjunction with leading think-tank the Social Market Foundation and it shows that the median UK household has £1,067 left each month after paying for absolute essentials of housing, energy, water and a broader basket of goods including groceries, transport, childcare and broadband internet. These goods are required to play a full role in modern society. The money left at the end of the month is available for other key items like clothing, furniture and savings as well as luxuries like holidays.

The majority of households are downbeat about their financial outlook, with nearly one in five (18%) saying they are currently better off than 12 months ago and 42% saying they have less cash now than a year ago. Furthermore, with inflation rising, real wages contracting and an increasing number of households worrying about their job prospects post-Brexit (30% in Q2 2017 compared to 25% in Q1 2017)  it is unsurprising that only a minority (35%) of individuals believe they will be financially better off in 12 months’ time.

Worryingly, 58% of 18-24 year olds and two-thirds (66%) of those aged 25-34 are anxious about their ability to cover an unexpected bill (for example, if the car or washing machine broke). The pressure younger people are under to make ends meet becomes clear when you consider that one in five (20%) 18-24 year olds and one seven (14%) aged between 25-34 spend more than they earn on housing costs and essentials, compared to just 4% of over 65s.

The findings also illustrate a clear generational divide when it comes to credit. When asked if households were using credit more or less often than 12 months ago, millennials were the most likely to be using it more often: one in five (20%) reported this, compared to one in six (17%) of Generation X (those born between 1965 and 1980) and one in ten (11%) of Baby boomers (born between 1946  and 1965).

Prices accelerating

Increases in fuel prices and airfares during the Easter holidays pushed CPI inflation to 2.9%; this is the highest level of change since summer 2013 when the rate was also 2.9%.

The CPI forecast for mid-2018 is 2.8%; this should reduce to 2.2% in mid-2020. The Bank of England cites the depreciation in the value of the pound as the key reason for the growth in prices that it predicts.

Despite high levels of employment, CPI inflation grew quicker than wages, rendering real wage growth negative for the first time in over two years. Employees felt the squeeze on their finances as the average weekly earnings grew by 2.4% in the three months to March 2017, a 0.2 percentage point fall compared to the same period in 2016.

The Bank of England forecasts real wage growth to turn positive again over the course of the next few years.

Calum Bennie, savings expert at Scottish Friendly, said:

The findings of our latest Index put into context the real-life impact of rising inflation and poor wage growth. Many households are finding managing their money hard going and are under pressure to make ends meet on a monthly basis. But with Brexit undeniably beginning to bite, it’s Brits on lower incomes who will really feel the pinch over the next year.

Alongside this, we’ve found that younger people and households with children are also struggling and are most likely to become over-reliant on credit. Whether it’s a credit card, overdraft, loan or cash from friends and family, Brits are becoming increasingly dependent on credit just to get by. The knock-on effect is that as debts pile up, the likelihood of these people setting any money aside for savings becomes very low. The Government and the Bank of England are rightly keeping a close eye  on the growth in consumer credit and together they must focus on protecting the families that are being squeezed the most to ensure they do not carry the long-term financial burden of Brexit.

Data appendix:

  Income after housing costs Income after essentials Proportion spending more than income on housing costs Proportion spending more than income on essential costs
Region

Scotland

£1,429

£1,143

5%

10%

Northern Ireland

£1,727

£1,124

0%

3%

Wales

£1,255

£949

7%

12%

South West

£1,383

£1,024

5%

13%

West Midlands

£1,338

£970

3%

8%

North West

£1,427

£1,123

6%

12%

North East

£1,086

£828

5%

8%

Yorkshire

£1,578

£1,122

3%

8%

East Midlands

£1,398

£1,011

1%

7%

East England

£1,539

£1,077

7%

13%

South East

£1,281

£985

6%

12%

London

£1,685

£1,403

9%

14%

Age Group

18-24

£1,038

£787

13%

20%

25-34

£1,576

£1,185

8%

14%

35-44

£1,038

£911

7%

16%

45-54

£1,375

£943

3%

8%

55-64

£1,438

£1,134

3%

7%

65+

£1,784

£1,529

1%

4%

Employment Status

Employed full-time

£1,537

£1,128

5%

11%

Employed part-time

£1,201

£868

10%

14%

Self-employed

£1,396

£1,031

4%

12%

Unemployed

£948

£606

8%

16%

Student

£1,144

£953

13%

20%

Retired

£1,781

£1,529

1%

4%

UK Median

 

£1,426

£1,067

5%

11%

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