Incomes and savings fall while debts rise

Nia Williams

August 31, 2011

As inflation bites, families are more worried than ever about the rising cost of living, according to research from the latest Aviva Family Finances Report.

While families saw annual inflation increase dramatically on essentials such as food (+6.4%) and fuel and lighting (+7.45%), their actual monthly income fell by 2% from £2,062 (May 2011) to £2,018 (Aug 2011). This appears to be partially as a result of a decline in women’s monthly income, which fell by 8% from £1,935 (May 2011) to £1,777 (Aug 2011).

The typical UK family has just £982 (Aug 2011) in savings, down 16% from £1,163 (May 2011). However, while average savings have fallen, this might be due to the fact that the smaller relative savings pots of some new savers have brought down the overall average. Since the start of the year, the number of non-savers has fallen from 40% (Jan 2011) to 37% (May 2011) to 36% (Aug 2011). The typical amount saved each month is £34 (Aug 2011) which is up slightly from May (£32).

The typical UK family now has debts of £79,816 (mortgage and unsecured borrowing) which is higher than the January 2011 figure of £73,690. This increase is due to additional mortgage borrowing as unsecured debt actually fell very slightly from £5,360 (Jan 2011) to £5,353 (Aug 2011).

The average family with unsecured debt spends 9% of its income on repayments, but total borrowing has only fallen by £7 since January 2011. This appears to show that living with a certain level of debt has become normal and while people do make repayments, they continue to borrow at the same time.

With high inflation levels, falling incomes and an uncertain economy, families are more worried than ever about the cost of living rising over the next six months (64% – Aug 2011 vs. 57% – Jan 2011). The more financially vulnerable single parent families are most worried about potential increases (67%). Loss or changes to benefits (21% – Aug 2011) are a concern to one in five people, with those who are most reliant on this type of income – single parents – most worried (45%). Divorced/separated/widowed families (31%) also saw this as a cause of anxiety.

In keeping with the increased worries around the cost of living, families are feeling increasingly financially unprotected. Now only 5% feel completely protected (7% – Jan 2011) and 49% feel under / unprotected (43% – Jan 2011). This shift highlights the precarious state of many families’ finances and the peace of mind that could be provided by the purchase of protection products such as life insurance, critical illness cover and income protection.

Louise Colley, head of protection for Aviva said: “Faced with rising costs and largely static salaries, UK families are more worried than ever about their finances.

“However, we have seen some positive signs that people are looking to change their financial behaviour for the better. For example, almost half of all families now acknowledge they are under-protected, which suggests at least a growing awareness of the need to protect their families. It’s also reassuring to see that some people who had previously not saved have started to put money away – albeit small amounts.

“However, while people are improving their attitudes to finances, many families – especially single income families – are very vulnerable to a loss of income. We therefore urge people to turn this awareness into action and seriously consider some form of protection which can offer peace of mind against the unexpected.”

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