Why half of us are struggling with our finances
More than half of people in the UK are finding it hard to stay on top of their bills and credit agreements, in another sign that the economic downturn has taken its toll on household finances.
Some 52 per cent of people are struggling to keep up with their commitments, according to a study by the government-backed Money Advice Service (MAS), compared with 35 per cent in 2006, before the banking crisis and credit crunch struck.
These are the conclusions of a survey of over 5,000 people and a study of 72 families who were followed closely for a year.
The research shows that many people suffer from poor financial skills and that the squeeze on families following the economic downturn has encouraged a “live for now” culture.
Income per hour has dropped by 6 per cent in real terms since the previous research was carried out by the Financial Services Authority, making it harder for people to make ends meet.
Falling living standards
A study by the Office for National Statistics (ONS) in February found that salary increases had failed to keep up with inflation.
"Real" pay, after inflation is taken into account, fell by an average of almost 3 per cent from 2010-12. This meant a drop from £12.25 an hour in 2009 to £11.21 in 2012.
Men working in the private sector have seen the biggest falls in earnings since the 2008 recession, according to the ONS, with average wages in 2012 worth less in real terms than in 2002.
One-in-five people surveyed (21 per cent) said they would rather have £200 now than £400 in four months’ time. Two-fifths (42 per cent) said they would have to think about how they could cover an unexpected £300 bill and a quarter (25 per cent) said they prefer to live for today rather than plan for tomorrow.
The report also uncovered a lack of financial knowledge, with 12 per cent believing the Bank of England base rate, which has been at an historic low of 0.5 per cent for more than four years, is over 10 per cent.
More than a third (35 per cent) of people did not understand the impact that inflation has on their savings and 16 per cent could not identify the correct balance on a bank statement.
But on the positive side, the pressure on household finances is encouraging people to be more vigilant. The proportion of people checking their bank statements has increased since 2006 and almost 84 per cent of people said they keep track of their money, with 85 per cent saving.
@Channel4News Yep, it’s what the cost of living in London does. #generationrent
— Danny Palmer (@dannyjpalmer) August 2, 2013
@Channel4News It’s surely more like 2/3. I’ve never been really rich but now its one great struggle. Like most oap’s I’m dreading the winter
— A John Coles (@AJohnColes) August 2, 2013
@Channel4News I’m tired of it, every month is the same struggle!
— Leanne bishop (@leannebishop72) August 2, 2013
Caroline Rookes, chief executive of the MAS, says in her foreword to the report: “In these tough economic times this report identifies those that can, and do, manage their money, and also those that don’t.
“The 18 million UK adults who run out of money before payday are brought into focus. They are not all on lower than average incomes – around a third of those who earn over £30,000 say they find it tough to live within their means.”
The MAS, an independent body set up by the government, has a statutory objective to raise public understanding and awareness of financial matters and is set to publish a strategy on how people can be helped to improve their finances in 2014.
Plans were announced in February for financial education to become compulsory in secondary schools across England.