Research recently published by the Money Advice Service (MAS) gives a chilling insight into levels of personal indebtedness in this country. Tracking similar research undertaken by the financial Services Authority in 2006, before the financial downturn we are only now starting to recover from, it reveals a picture of millions struggling to meet their monthly bills.
There are some positive signs, however. 88%, or nearly 9 out of 10 of the 5000-strong sample recognised that saving for a “rainy day” is important and 85% reported themselves as saving something, but only 53% reported themselves as saving regularly each month. In other words, most people recognise the need to save and would like to do so if they could. However, I suspect that this like health questionnaires where everyone reports themselves as being in better health than they really know themselves to be. The ONS work on wealth and assets last year painted a somewhat grimmer picture, with roughly a third of adults having no savings at all, a third with savings of less than £2000 and a third with more than this figure, hardly a picture of financial resilience. The MAS research also identified 52% of the sample reporting themselves as “struggling” to keep up with bills and credit commitments each month, up 17% since 2006. With 8.2 million pay day loans issued in 2011/12 according to research for the Guardian newspaper, we can see we are looking at a serious situation. For many, it’s a case of “one false move, and game over”.
This matters because consumers will, on the face of it, be unable to support a recovery based upon their spending more – they have nothing left to spend. Equally, it paints a picture of a society whose ability to save for the future in a sustainable way may be very limited indeed, implying high levels of benefit dependency and high levels of financially distressed people when interest rates rise, as they surely must. Opt-out levels from automatic enrolment into pension saving are currently at the low end of expectations. It will be interesting to see the effects as “phasing” of contributions bites into already stretched finances.