Non-essential spending falls

Nia Williams

November 15, 2011

This is according to research from the latest Aviva Family Finances Report. The report also highlights the prevalence of inter-family lending and the impact this can have on a family’s finances.

Average monthly incomes have only risen by £46 since January 2011 (£1,983 – Nov 2011 vs. £1,937 – Jan 2011) but families have been faced with significant inflationary increases on essentials. The cost of energy bills (+18.8%), motoring (+8.7%), public transport (+8.5%) and food (+6.9%) have all soared – which means discretionary income has been squeezed.

To meet these increased costs, UK families have cut back – or cut out – spending in other areas and between August and November the number of families spending on ‘luxuries’ or non-essential items has fallen to new lows.

Currently 25% of families are spending nothing on recreation and holidays, 39% spend nothing on leisure goods, and 52% spend nothing on children’s activities. More than half of UK families (52%) have unsecured debts and the typical amount owed is £10,604. This means that UK families now owe just under half their annual household income (£23,796 – Nov 2011).

The most common type of borrowing is on credit cards (average £5,629 – 43% of families), overdrafts (£4,723 – 26% of families) and personal loans (average £8,052 – 25% of families).

While the amount owed is significant for some people, the typical indebted family spends £224 or 9% of their monthly income on debt repayment.

While the majority of families appear to be meeting their borrowing obligations, Aviva says it has seen the number of people who are spending money on debt repayment drop from 58% (Aug 2011) to 52% (Nov 2011). It remains to be seen whether this is because they have repaid what they owe, or whether they are defaulting.

The typical savings pot (excluding any pensions or property) is now just £967 (Nov 2011) – down 2% from £982 (Aug 2011) – as the average family saves just £19 per month (£34 – Aug 2011). This is the lowest monthly savings rate recorded in 2011 and a clear sign that inflation is making it harder for families to put aside money than ever before.

Women (£4 – Nov 2011 vs. £16 – Jan 2011), who traditionally do much of the day-to-day household budgeting, have seen their savings fall while men (£58 – Nov 2011 vs. £39 – Jan 2011), have seen a slight increase in the typical amount saved each month.

While increases in the cost of basic necessities (a concern for 61%) remains UK families’ biggest financial worry over the next three months, people seem to be adjusting to the sustained period of high inflation (64% were worried in Aug 2011). However, the advent of the festive season and the approach of winter mean that families are now more concerned about unexpected expenses (42% – Nov 2011 vs. 40% – Aug 2011).

Paul Goodwin, director of workplace savings, Aviva commented: “For many, 2011 has been a tough year characterised by spending cut-backs, inflationary pressures and financial worries. Incomes have only risen by £46 since January so to make ends meet, we have found that UK families are cutting out luxuries, economising on spending and reducing the typical amount they save.

“Typical UK families now save under £20 a month, but the number of non-savers remains steady – which does suggest that those in the savings habit are still actively trying to save where possible.

“We hope that we will see a return to more favourable financial conditions for UK families in 2012.”

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