Despite people making cutbacks to their outgoings and savings pots growing, household debts remain high, with the average family owing nearly £10,000, according to Aviva’s latest Family Finance Report.
The report highlighted that households are starting to take action when it comes to making necessary financial provisions. As the average household incomes has risen ahead of inflation at a 4pc increase on last year - from £2,062 to £2,150, people are making more effort to put money aside. Since May 2011, the average household savings have also shown growth, from £1,163 to £1,228,
Families cut back on ‘nonessential items’
Although inflation levels have increased the of the price of living, many families have made cutbacks and evaluated their necessities in order to make the most of their money. In spite of inflationary rises, Aviva’s research showed that average household expenditure has remained ‘remarkably steady’ decreasing a pound from May 2011 to £1,680 this year. This suggests that consumers are making the effort to cut back and shop around for the best deals.
While mortgage and rent payments remain the biggest monthly consumer of household finances at 19pc, food is the second greatest taking around 11pc of families’ incomes. In order to save money, 21pc of families admitted that they had stopped eating out or ordering takeaways, 3pc more than in August 2011.
Even more families will not be taking a Summer holiday this year in order to try and improve their financial situation. 24pc of respondents said that they will be spending nothing on holidays, entertainment or recreational activities this year.
Richard Kelsall, Aviva’s Head of Savings commented:
"Many UK families have experienced tough times in recent years, so it's reassuring to see that people are getting to grips with their finances to weather the storm.”
“Families are working hard to get an even keel.”
Debt rising significantly faster than incomes
Despite Britons’ notable efforts, the acceleration of the debt problem in the UK is making it hard for many consumers to keep up. The average household debt has almost doubled since May 2011 from £5,878 to £9,314. This equates to 36% of their typical household income of £25,800.
The report showed that majority of the household debt problem is due to credit card debt with the average family owing £2,266 on their cards. The figures showed significant differences between the credit card debt accrued by couples planning to have children (£3,304) compared to single parent families (£602). Other significant sources of debt were personal loans (£1.895) and overdrafts (£1,650).
Loans from friends and families were most commonly offered to divorced, separated or widowed with an average of £1,435 owed by these respondents.
However, Aviva’s report showed debt repayments are taking a backseat for many families. The amount of respondents admitting that they make no debt repayments whatsoever from their income has risen from 42% (Aug 2011) to 53pc (May 2012).
Families are more concerned about the impact that other short term fears could have on their finances. 57pc of participants stated that their biggest worry was a significant increase to the price of basic necessities such as food. Concerns about long term unemployment have fallen since 3pc January to just 7pc.
Richard Kelsall said:
“Families are under pressure from all sides but servicing debts is crucial if they are to be reduced and eventually paid off.”
Millions still struggling to make ends meet
Although Aviva’s research highlights that people are starting to take action to help their finances by making cut backs and saving more, it is feared that with debt increasing at a considerably faster pace than incomes, the problem may continue to worsen.
Una Farrell, of debt advisers Consumer Credit Counselling Service said:
“Many millions of households are struggling to make ends meet and are turning to credit to plug the gap. This is leading them into a spiral of unmanageable debt, as they then struggle to repay their debt as well as pay for basic living expenses.”