5 million Brits spend more than they earn

2007 saw the UK ‘spendemic’ spiral out of control.4.8 million adults spent more than they earned, 9 million just broke even and on average consumers had just £157 left at the end of every month.

A new report by independent price comparison and switching service, uSwitch.com, reveals the heights that the nation’s passion for spending hit, before the high street plummet that saw the worst December trading since 2004. Brits are working harder than ever before, yet almost one in three have nothing left in their bank account at the end of the month. Every month, 4.8 million consumers spend more than they earn, 9 million just break even, and the average consumer has just £157 left in their bank account when all else has been paid.

The study into the nation’s spending habits paints a picture of a ‘work hard, play hard’ nation, with consumers using debt to fund their luxury lifestyle. Between 1997 and 2007, spend on non-essential items has soared at 2.5 times the rate of inflation, growing by 65% against a modest 48% rise in net income. Over the same period, debt repayments have rocketed by 104% as almost 6 million consumers resort to borrowing every month to meet their outgoings.

Ann Robinson, Director of Consumer Policy at uSwitch.com, comments: “Britain is suffering from a bad case of affluenza. We are caught in the grip of a spiral of conspicuous consumption where it’s no longer enough to keep up with the Joneses, but instead we want to live like our favourite celebrities. But it’s clear that our salaries can’t keep up with our ‘Hello’ lifestyles. The shock reports from the high street are the first signal that this trend is changing and, with the credit crunch beginning to bite, consumers need to start paying serious attention to their spending habits.”

Spend, spend, spend

It is not just the younger generation who are frivolous with their spending. 15% of 45-54 year olds spend more than they earn, compared to just 9% of 25-34 year olds.

While spend on essential items (43%) has increased at a slower rate than net income (48%) over the past decade, spend on non-essentials has climbed 65% which is 2.5 times the rate of inflation. This indicates that goods are not only more expensive, but that as a society we are buying more of them.

Holidays: 3.4% of our hard earned cash is spent on holidays compared to 2.5% ten years ago. Spending on tourism has doubled over the decade and consumers now spend an average of £1,068 a year each ‘getting away’ compared to £528 in 1997.

Recreation and culture: spend on recreation and culture has risen by 76% since 1997. We now spend £252 a month enriching our lives through activities such as going to the gym and buying the latest audio equipment,compared to£143 a month ten years ago.

Alcohol and tobacco: despite the image of ‘binge-drinking’ Britain, expenditure on alcohol and tobacco has increased at a slower rate than net income, rising just 27% over the last ten years. Brits currently spend £80 a month fuelling their drinking and smoking habits.

Borrow, borrow, borrow

With people spending more, consumers are increasingly relying on debt to fund their extravagant lifestyles. The rise in debt repayments since 1997 (104%) is more than double the rise in income (48%) and individual monthly debt repayments have doubled from an average of £174 per person in 1997 to £356 in 2007.

In 1997 debt repayments accounted for £1 in every £10 of net income, in 2007 they accounted for £1 in £7. 12.8 million adults now owe more than £5,000 in non-mortgage household debt and 11.9 million adults claimthat their household debt has increased over the last 12 months. Worryingly, bankruptcy rates have also risen by a third, from 43,357 in 1992 to 57,783 in 2007.

Mortgage repayments have also contributed significantly to the rise in debt with monthly mortgage interest payments having increased by 71% from £122 in 1997 to £209 in 2007.

As a result of this spending frenzy, half of those living beyond their means (2.5 million) are relying on their overdrafts to fill the gap between their income and their outgoings. Meanwhile, the number of credit cards issued has increased from 36.6 million in 1997 to 70.9 million cards in 2007, an increase of 94%. Unsecured loan repayments have also risen by 73% over the past decade.

Because the trend is aspiration-led, it doesn’t just apply to lower income families. The report reveals that consumers in higher income households are more likely to rely on short-term borrowing (from credit cards and overdrafts) than savings to fund the spending gap. 49% of those with a net monthly household income below £2,000 use their overdraft to balance their budget, compared to 65% of those with a net monthly income of £2,000 to £5,000.

Regional Variances

When it comes to the regions, people in Yorkshire have racked up the most debt, a staggering £7,484 per household. This is almost £1,000 more than the average London household debt and almost double the debt owed by residents in Northern Ireland. People in the South West are the worst offenders for living beyond their means. More than one in three (34%) have no money left at the end of the month, compared to one in five Londoners.

Ann Robinson, Director of Consumer Policy at uSwitch.com, continues: “The disastrous December sales figures show that consumers have started reining in their spending. But the shock reports barely scratch the surface of the struggle facing consumers this year. Now is the time for a financial makeover and for everyone to take a long hard look at their budget.

“Short-term debt solutions may seem an efficient way to fund spending, but they can also lead to long-term debt if not managed properly. The average UK adult has just £157 left over at the end of every month – but by switching providers and managing expenses in a more efficient way this could be almost doubled.”

According to uSwitch.com, households can save over £1,500 on household bills and financial services through a simple makeover.

Stay in control. It’s easy in the face of feeling impoverished to let go of the spending reins altogether. Recognise that risk and don’t fall victim to it – otherwise the ‘skint cycle’ just gets prolonged. The most important thing is don’t feel impoverished – feel empowered!

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