Financial pessimism leads consumers to cut spending

Nia Williams

June 10, 2011

The new Big Money Index from AXA also records a dramatic fall in financial confidence over 12 months across eight demographic groups.

The Index reveals that one in five regret some of their pre-recession financial decisions and are not confident investing in British shares. One in four consumers have used their savings in the last quarter in order to make ends meet.

AXA’s new quarterly report presents an in-depth view of financial confidence, behaviour and attitudes with a detailed focus on eight distinct demographic groups. It provides a comprehensive portrait of the impact that falling consumer confidence is having on spending habits and confirms that those with least money are feeling the most “squeezed”.

Reinforcing other recent figures, the AXA research carried out by YouGov shows that those feeling financially confident dropped from 23% to 16% in the period between Q1 2010 and Q1 2011. In particular, Under-funded Seniors’ optimism in their financial future plunged from 19% to 7% and confidence among The Stretched fell from 24% in Q1 2010 to just 11% in the same period this year.

As a result of this, a striking 40% of consumers chose to go out less between January and March this year, a 5% increase on the previous quarter. Half (48%) of those in the most pessimistic group, Young Professionals, cut back on going out. The proportion among The Stretched was even higher at 56%.

One in four were forced to dip into savings to fund everyday expenditure and 8% of consumers with debts of £5-10K are prioritising repaying their average monthly credit card bill of £151-200 straight after rent and bills. Seventeen per cent have ‘spent more on’ clearing some or all of the money on a credit card or loan since Q4 (an increase of 3% since Q4) and this rose to 30% for worried Young Professionals.

A disheartening one-fifth of the UK population agree that they regret some of the financial decisions they made before the recession. Those regretting their decisions the most are Nest Builders and The Stretched (both 23%), and Modest Middle Years (22%), compared to the overall score of 19%.

AXA UK’s chief investment officer, Eric Lhomond said: “These figures reveal a concerted effort by British consumers to claw back some financial security in the face of a significant drop in optimism that we found across all demographic groups. The result is that we are busy paying off debts, reining in unnecessary spending and clinging onto financial products to protect or grow our assets.”

For those with any money to spare, the number of consumers putting money into savings or investments has risen by 4% in the last quarter. The numbers taking out SIPPs or personal pensions suggest that longer term savings are important to consumers if they can afford them. Small rises are also evident in the proportion taking a punt with premium bonds – perhaps reflecting a desire for low risk investment.

Worryingly, those on low incomes – almost one in four of The Stretched and 30 per cent of Under-funded Seniors – are not using any source of financial information to help them manage their money.

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