[Closed] Consumer debt averages £13,000 per household

Over the past 10 years or so being mortgage free has been a very poor financial approach considering :

- how low mortgage rates have been
- how low interest rates have been on cash
- how high BTL yields have been
- how high CG have been

A massive opportunity cost for the warm feeling of being "debt free" when in effect for very little work and risk the return has been superb. It'd take a serious crash to wipe that out.

I learned many years ago no one ever tells you the whole story

Bob might have the big fast Audi with the black wheels. Maybe it's on credit maybe he earns more than you think. Perhaps his mum told him to spend his inheritance on fun.

Be happy with your lot and live your life not someone elses.

Now while that might sound very cliche'd there's a quite alot of truth behind it.

I learnt it when I was very young and didn't understand why my mates Lego collection was so vast.

Turned out his parents were divorced and his dad used to treat him with Lego.

Once I figured that out I realised there were usually other reasons for why some people appear better off than others. The grass isn't always greener.

Interesting comment from an economist on the radio this morning - central bankers now worried that with rates so low it's causing consumer debt to grow (which I know is kinda the reason rates are lowered) - storing up problems for the future. People aren't saving because rates are crap - and also not batting an eyelid at loading up the mortgages / unsecured loans.

So we'll be heading for another financial meltdown soon 😯

Its the consumerism based lifestyle that feeds it. Probably with Tory backing. Let the poor people build up large amounts of debt so they have little or no choice but to work longer or harder to service that debt.
Dial in very effective advertising and marketing so the other half just has to have the latest phone, laptop, car, sofa, table, kitchen and bathroom . All of sudden there is £300 a week on direct debit , all for things which hugely devalue as soon as you take possesion of them.

Then you have to include the fact the DFS sofa you bought on 5 years debt is made out of monkey metal and bamboo , stuffed with wood chippings and will be both out of fashion and knackered after 3 years so its time for a new one. still paying for the last one.

Living costs go up very slowly and wages ofen dont.

Im debt free , and saving 4 figures a month , probably be better off long term with mtg debt as mentioned above . But if all goes tits up I walk with enough to live on for a good few years , possibly retirement if I could stand a third world country. No wife or kids to finance.

I hope you have diversified the currencies your money is invested in singletrackmind. Jamba says the pound is fine but the Euro is about to crash. You know what I think.

@nickfrog - my mortgage was always very low LTV so the risk to me on defaulting was higher than someone with a 90% mortgage where the lender is shouldering much of it.

Mortgage paid and no debt, it's a good feeling. When I got made redundant there was much less worry than the others who've got mortgages, cars on credit loans etc to worry about paying each month.

Shiny things are nice, but so is sleeping well at night.

zanelad - Member

Mortgage paid and no debt, it's a good feeling. When I got made redundant there was much less worry than the others who've got mortgages, cars on credit loans etc to worry about paying each month.

Shiny things are nice, but so is sleeping well at night.

That's my take on it as well, + It should allow me to take a lower paid but less stressful job in a few years.

I have never saved always worked hard but spent what I had, never really been in debt, apart from going overdrawn sometimes.
Never thought I would ever own my own house.
But a very dear friend passed away and left me his.
I am very grateful for his gift but his passing has left me suffering anxiety and deppression so I don't feel as happy I suppose I should be being mortgage free and debt free.

Been called into work this week for one of those restructuring meetings, expecting redundancy or an offer that will make me want to ask for redundancy

Just finished paying off the mortgage, have £900 in debt that I think I'll pay off tomorrow

Takes so much stress out of the situation, rather than worrying about getting another job for the money, I'm thinking of re training and going in a different direction I've thought about for a long time. In fact I hope they do let me go

To me debt is a form of slavery, as a US economist put it "we need to keep people graying in the harness " marketing sells us what we don't need and credit keeps us on the treadmill

13k?

Woohoo! I'm finally above average with something! 😀

If the house is in the right catchment area, he is!

We have a credit card that probably gets to £1.5-2K every month before it automatically pays itself off never paying a penny of interest. Is my offering adding to the debt mountain? I never feel of it as debt as the money is sat in the bank before payday - it's just more convenient and more secure to use the credit card for everything. Also for the purposes of this exercise if one family had a debt of £20K and another had savings of £20K would the average of the two family's debt be zero or £10K?

With student loans and pcp both so common I'm amazed it's so low.

MOAB (I think) posted the global salary thing.

Even the UK one is sobering.

https://www.ifs.org.uk/wheredoyoufitin/

The growth of consumer debt does seem to be an issue for many societies, if only because it is increasingly being used to finance things that arguably aren't assets. (Nice bike on "0%" anyone?).

The best financial education I had was typing thousands of letters at a big Citizens Advice Bureau as a student / part time job from 2001-3. Even then, it was clear to me that easy access to debt can come with a sting in the tail. I was later a trustee there for 6 years, so have stayed in touch with the growth and changing forms of consumer debt.

That doesn't mean that I've not used it, but I think I see debt for what it is: a service to me, but also an instrument to make money for someone else. Without education, support and sometimes self discipline, I've seen it be a big headache. It's also inflating complete bike prices in higher priced segments IMO.

The people I have seen become and stay financially stable understand compounding (of interest and growth of assets). They make the compounding that makes the lender so much money over time work for them instead.

The Mr Money Mustache blog (please, do Google it!) explains much of what I'm getting at more clearly than I can. You can take or leave the early retirement and financial independence bits, but the analysis is a sound read.

If interest rates stay low for longer, then there will continue to be a view that paying debt off isn't worth it. But it's worth doing the sums on paying off debt and then investing afterwards - there are no right answers, but a need for a lot more critical thinking IMO.

It should allow me to take a lower paid but less stressful job in a few years.

Me too, I've taken a job where I'm only working four days a week. Can't wait to start in all honesty.

Mind you, looking at the lists Mrs Z is preparing of jobs to do around the house, I may regret ithat. Still as long as she's not spending the redundancy package, I'm happy.

 

Us. 2 Mortgages excluded and the 3 quid I nicked from the wife purse to pay my TT entry tonight but that's a secret. Not that hard. Wife a social worker but I'm only a supply teacher. Don't buy anything on a CC.

Thankfully in my earlier life I did well in my 1st career path so no mortgage to pay. 2nd career doing something that doesn't pay brilliant but I love to do.
Mrs L has always been in nursing so combined income isn't great now but we were both brought up by parents who instilled "if you haven't got the money to buy outright, save up". I'm grateful that means no debt now.
We are by no means we'll off but we do get Whistler and the Alps every year and are prepared to be semi-skint so we have wonderful family experiences in life and nice bikes.
Only use C/Cs when on holibobs and pay off by saving during the year.
We have tried to instill the same ethos in the brats who both have weekend jobs and save for the future.
I would not want to be 13k in hock to anyone, that would give me nightmares 😯

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High five BenH

Another mustache follower

I think you attitude to debt depends how old you i.e if you grew up with free tuition, reasonable rents and 25 year mortgages that were not 8 times your income you are probably ok.

As a really quick aside Totalshell you mention that your building an identical extension to your neighbour. It sounds like you putting in strip footings compared to next doors piled foundations.

Please tell me someone has checked the ground out, it is feasible for the ground to vary wildly, normally on an IStructE exam question :-), but I'm hoping your neighbour has a very conservative engineer overseeing their build.

Just make sure you're happy that the foundations your putting in will be sufficient otherwise you'll have a false economy. Building control may be able to help but if you haven't had an engineer look at it it could be worth it before progressing too far.

If I've got this arse about tit I apologise profusely, and enjoy the build process, want to go this route myself but wife has pointed out I need to spend time with my kids and bikes at the weekends. She's right about the bikes at least!

I think you attitude to debt depends how old you i.e if you grew up with free tuition, reasonable rents and 25 year mortgages that were not 8 times your income you are probably ok.

If you grew up with paying for tuition ( when you earn enough ), expensive rents and high property prices, then how does getting into debt actually help you with any of the above ? Is it a case of saying I owe £40000 in tuition fees, what is another couple of thousand on top of that, or is there an element of impatience and entitlement "I'll buy it on credit because I want it now and I deserve it " ?

I think you attitude to debt depends how old you i.e if you grew up with free tuition, reasonable rents and 25 year mortgages that were not 8 times your income you are probably ok.

Not sure I agree. Me and my immediate circle of friends all grew up without free tuition, expensive rents and mental house prices - we're all pretty debt adverse (other than our mortgages). We certainly don't see debt as an easy solution.

If you grew up with paying for tuition ( when you earn enough ), expensive rents and high property prices, then how does getting into debt actually help you with any of the above ? Is it a case of saying I owe £40000 in tuition fees, what is another couple of thousand on top of that, or is there an element of impatience and entitlement "I'll buy it on credit because I want it now and I deserve it " ?

Impatience, perhaps. For me the rationale is "I can afford stuff, so I'll buy it", afford is relative, but I'm not worried about sticking stuff on a credit card, I rarely pay any interest, at most it's <£50 on a balance I've not cleared if it's been a heavy month. I have a fairly modest car loan, which puts our household debt right about the average, but income is above.

Paid my student loan off 2 years ago; got a mortgage, but meh, not too worried about that. I sleep fine at night, have never thought "oh shit, going to run out of money", could manage for a while without a job.

I'd rather live the way I do than scrimp and save every penny and not enjoy myself. You can't take it with you. YMMV.

If you grew up with paying for tuition ( when you earn enough ), expensive rents and high property prices, then how does getting into debt actually help you with any of the above ? Is it a case of saying I owe £40000 in tuition fees, what is another couple of thousand on top of that, or is there an element of impatience and entitlement "I'll buy it on credit because I want it now and I deserve it " ?

You are missing the point that (I think) was being made. There are copious young households who fall into this £13K debt bracket before they have done a (professional) days work. I think people of my generation and older think of people who rack up debt as either doing it with frivolous n+1 style purchases or not managing to balance incoming and outgoing sufficiently - i.e. their fault. There is a generation that drop straight into this category day one of being a proper adult before they have had time to make any errors doing something that society thinks is laudable (furthering their education).

It has little to do with generation but with luck - if you are, say 40 to 55
years old today, you've probably surfed some very very good years (1996-2008 and to some extent 2011-2016) which have put you in a very positive asset situation, so your perspective is a little distorted when talking about "the youth of today" who simply won't get access to those assets that easily/quickly.

If you grew up with paying for tuition ( when you earn enough ), expensive rents and high property prices, then how does getting into debt actually help you with any of the above ?

Really!? maybe because you have no money, because of all of the above.

If renting where you are is too expensive - move to Middlesbrough - you can get a flat share for £55 per week.

Houses there, and elsewhere in the less fashionable parts of the north, can be found cheap. It might be that you *want* to live somewhere expensive, but we can't always get what we want.

I appreciate that there are quite a few people that have been mis-sold a university education by an industry rather more interested in itself rather than outcomes for its customers and consequently have consequential debts without great jobs to pay them back, but you can live cheaply in parts of the UK if you [s]want to[/s] if your budget mandates it.

At the end of the day, buying anything on interest bearing credit is stealing from your own future.

EDIT:

When I was straight out of university back in <mumble> I took a temporary contract in another city, I'd been used to the lifestyle that my parents had and didn't want to live anywhere too shabby and ended up working for a year only to pay bills and almost break-even. It was a lesson in budgeting and ensuring that my cost of living is lower than income - you cut your cloth to suit your purse.

At the end of the day, buying anything on interest bearing credit is stealing from your own future.

Or from another angle, it is bringing the future to you now.

Tell me why I should save up for a year to have something that I could have now on a 1 year credit deal as I am not understanding the anti credit logic on this thread.
Whatever it was I wanted to buy I will have had the use of for a year more than you. Only I can say whether that extra year of use was worth it.

Too much binary thinking. Not enough critical thinking.

A mortgage is a very virtuous thing. Not having a mortgage doesn't mean you don't have liquidity for a rainy day - actually NOT having a mortgage might actually mean that you don't have liquidity.

Spend a little, save a little.

Whatever it was I wanted to buy I will have had the use of for a year more than you. Only I can say whether that extra year of use was worth it.

I guess it depends if the object in question has a finite life. For most objects it is not an extra year's use, it's having it a year early and paying whatever the fee for the credit was as a payment. I agree though that it can make sense when the fee is low (or nil) or getting the object now is worth it in other ways. If you have to have a car to get to work* and your old one is beyond repair or costing a fortune to keep on the road having the car today would make sense if the alternative was not being able to work. Taking the loan to buy a prettier or nicer car when the current one will do fine probably doesn't.

* - I appreciate that 'have' and 'car' and 'work' are emotive words when in the same sentence. [url= http://singletrackworld.com/forum/topic/high-interest-car-loan-companies-work-of-the-devil ]I started a thread about it a week or two ago.[/url]

from the BoE (via FT):

Source doc [url= http://www.bankofengland.co.uk/publications/Documents/fsr/2017/fsrjun17.pdf ]here[/url]

[url= https://c1.staticflickr.com/5/4263/34777958073_e157410471.jp g" target="_blank">https://c1.staticflickr.com/5/4263/34777958073_e157410471.jp g"/> [/img][/url][url= https://flic.kr/p/UZd8hM ]Consumer Credit Growth[/url] by [url= https://www.flickr.com/photos/brf/ ]Ben Freeman[/url], on Flickr

[url= https://c1.staticflickr.com/5/4253/35456888241_9d1023d05e.jp g" target="_blank">https://c1.staticflickr.com/5/4253/35456888241_9d1023d05e.jp g"/> [/img][/url][url= https://flic.kr/p/W2cPzk ]UK indebtedness[/url] by [url= https://www.flickr.com/photos/brf/ ]Ben Freeman[/url], on Flickr

The example often used is something along the lines of: "why delay having a certain thing by a year, when I can have it now?".

The answer is more than just simply any benefits of a "delayed" purchase (which obviously include no costs of finance that will be present even if hiding behind the attractive "0%" tag).

In fact, you may decide over time not to actually buy said thing at all - which will make you better off. Such a decision would instantly increase your independence and means.

Delaying and / or not purchasing non-essential things will have a very big cumulative impact on your finances in the medium and long term.

[quote=kerley ]At the end of the day, buying anything on interest bearing credit is stealing from your own future.
Or from another angle, it is bringing the future to you now.
Tell me why I should save up for a year to have something that I could have now on a 1 year credit deal as I am not understanding the anti credit logic on this thread.
Whatever it was I wanted to buy I will have had the use of for a year more than you. Only I can say whether that extra year of use was worth it.

For me that one is about the unexpected.
What if you sign up to the agreement, then you lose your job or something.
And if its something you won't get a lot of money back selling (say, a TV) and you've done this for a few items then it can suddenly be a problem.

I'm not saying i'm right and you're wrong or anything. Just my approach.

Houses there, and elsewhere in the less fashionable parts of the north, can be found cheap. It might be that you *want* to live somewhere expensive, but we can't always get what we want.

You can find somewhere cheap, but can you find a decent income? Reducing outgoings may help, but not if it harms income overly.

It is the ratio of income to outgoings that matters not the absolute level of either.
See also reducing the deficit / national debt.

What a lot of people don't understand is the concepts of Net Present Value and Internal Rate of Return - maybe makes this compounding interest thing clear. Once understood the decision of when to borrow to get something early becomes far easier. If taken to an extreme though you'd never buy anything except essentials as you'd see how much not spending £2k on a bike now would impact you in, say, 30 years time when you retire.

You can find somewhere cheap, but can you find a decent income?

nickfrog - Member
It has little to do with generation but with luck - if you are, say 40 to 55
years old today, you've probably surfed some very very good years (1996-2008 and to some extent 2011-2016) which have put you in a very positive asset situation, so your perspective is a little distorted when talking about "the youth of today" who simply won't get access to those assets that easily/quickly.

I think there is a lot in this. As I mentioned before, it seems many are 'set up' in many ways through either direct support from parents or through benefiting the rise in house value / income / etc through the '90s and early 2000's. This can be small things - like being given house deposit, or given a car etc, but which over a decade or two add up.

We have some of our family who have never paid any childcare (for three kids), have been given the cast-off three year old cars from grandparents, never had to pay for a holiday (in-laws own a place in Madeira) and the kids are often sporting many a toy/new clothes/day out from the in-laws generosity. This leaves them many hundreds of pounds a month better off, multiplied over 15 years of their marriage...

I think that todays 'youth' (below mid-30's!) have not got that slow increase in wealth going on. The middle and upper classes *do* have that grandparents wealth staring at them for an inheritance at some point. Some of the others in our family are openly talking about debt not being a problem, because it will all magically be sorted when granny dies...

That said, there are also a lot of hardworking and good-decision making folk around, who then surfed that increase of house prices and wages well, and are now benefiting from it.

If only I hadn't had a business go pop as the global financial crisis loomed... 😥

@ Footflaps - I came to the thread to say the same (only I'd read it in the paper copy, so wouldn;t have had neat links).

What's interesting is the apparent conflict between the banks being asked to strengthen their balance sheets and the fairly open arguments among the members of the MPC about whether or not to raise rates.

Raising rates will help manage inflation (esp as it's largely externally driven due to the value of sterling) but I can see the credit card and car loan bubble shrinking much faster as a result. Plus, with wage inflation not happening, increased rates will have an additional impact on the wider economy.

Hmm. I've largely missed the benefits of the asset boom (house price aside) and am about to extend my mortgage to renovate the house. I don't think I've quite got the hang of this..!

I firmly believe that a *lot* of issues in the UK could be improved by evening out the north/south divide, with Westminster actually focussing on how to spread further north.

I find it funny that there are people saying 'I don't have any debt, well apart from the mortgage' - that's something you need to pay back so it's a debt.

Debt free to me means no mortgage, no credit cards, no car loans, no overdraft, etc.

I think we established right at the start, secured debt and unsecured debt are very different things.

I find it funny that there are people saying 'I don't have any debt, well apart from the mortgage' - that's something you need to pay back so it's a debt.

Although it's normally secured against an appreciating asset which you would need anyway (else you'd have to rent) so pretty different to most other consumer debts.

Plus, in most case repayments are less than or equivalent to the rent, so a mortgage can be cheaper than renting.

Yes. Mortgage = good debt as the asset is extremely likely to grow in value long term and you can even use it to sleep in or to generate an income which is a multiple of (at least current) interest rates at the same time.

But then the 'really cheap housing' in Middlesbrough will no longer be really cheap.

It is a long path, but one I think that would work...