The latest survey from the UK Government-sponsored Money Advice Service released earlier today makes for grim reading. At least half of Britons are struggling to keep on top of their personal and household debt. That is about 26 million adults – nine million more than in 2006 before the credit crunch began.
Standard of living has dropped, and perhaps most worrying of all, those least financially-literate are also those most at risk of high debt.
While that would follow, it makes any notions the Chancellor has for economic growth that much harder to achieve, as the nation’s debt pile has been moved from households, through the banks, onto the government…and now back to households.
It also comes at a time when the government will be hoping for a windfall when it announces – as soon as next week – that Lloyds TSB Group may be returned to the private sector at a profit for taxpayers. Yesterday, Lloyds announced a return to profit – and did it in style with a GBP2.1bn headline figure.
The fact that, despite six years of financial compression for households, and the setting up of the Money Advice Service, people are running themselves further into the red must be down to two things. Firstly, the crisis has been deep and unprecedented. And secondly the Money Advice Service and other educational resources have not been publicised enough and people have relied on government social security to bail them out.
It indicates that Britain is not ready for any recovery that ministers might hope for from official data in the past few weeks. Not ready, because people are deep in the red with what we might call “off balance sheet” problems. Many are resorting to paying their monthly mortgage using a credit card, thereby leveraging up the debt and making it even harder for them to benefit from or indeed contribute to recovery.
It must not be overlooked that growth has typically come from small enterprises that grow fast, rather than sleepy large corporations. Hence, with the dot.com world things make it even easier for creative types to go out and earn. But if more of them are saddled with debt that gets bigger, while taking all manner of economising steps to try to contain it, this has two negative impacts. Firstly, people cannot set up businesses and invest in success. And secondly, their economising efforts prevent others from doing so too.
The path to growth will therefore be very difficult, and with two-thirds (!) of people apparently not saving for any pension, capital markets are about to get a shock when QE easy money starts to be reversed as government bond-buying becomes bond-selling.
While it is true that Britain is financially illiterate, even I was surprised by one media’s comments today on its front page. When I saw the coverage I had to look up the actual survey to see if it was in there. I admit, a quick glance did not appear to show a question such as posed in the paper.
It referred to the spendthrift culture, to how people prefer to live for now than the future. The London freebie paper ran: More than 20% of the 5,000 respondents said they would rather have GBP200 now than GBP400 in two months’ time.
Ask yourselves the same. If they had said GBP200 in a months’ time or GBP400 in two months’ time, it would be a constant rate. But if it is GBP200 up front, who indeed would want to settle for GBP400 in two months! So if anything, it was a tad depressing that 80% didn’t go for the instant cash!