Saturday, 7 March 2009

The Collapse of Household Budgets

Household budgets are a complicated area to look at. What is counted, how it's counted, like with like comparisons, the sheer heterogeneity that comes with the turf. What I wondered about is this:

How much time do households across the United Kingdom have before they run out of means to buy what they need, based on consumption over, say the last twelve months, each month? Do they get to the end of the month always, sometimes, rarely, never? If any of the last three, where are they putting the debt? We know it used to be put on credit cards and consolidated onto the mortgage. But where is it going now?

Purely anecdotally, looking when in the UK, people didn't seem to have a notably high standard of living. Food prices, clothes prices, fuel prices, transport prices, and housing prices were very high, but consumption behaviour was on a par with, or at a lower level than, casually observed consuming in Italy. The fuss about plasma screen tellies and foreign holidays and the use of processed and prepared foods was over the top. No-one visited had houses that were notably luxurious, nor cars particularly large and new, nor drank or ate better than elsewhere.

We know that living standards are falling from these pretty mundane levels into real disadvantage quite quickly. If people weren't managing to live on what they got to keep of their incomes even at the best of times with very little ostentatious consumption, what is happening to them now? So-called 'bail outs' for tens, hundreds of billions of pounds to collapsed banks are not reaching individual households or providing the household credit we know is needed for the maintenance of even a modest standard of living.

Extant data no doubt can be collated but is there a source that sets things out in 'how many households are facing meltdown within weeks, months, a year' terms available?


Nomad said...

Where are they putting the credit?

If my experience is anything to go by, the answer to that is enhanced available totals on credit cards. I recently received an unasked for and unwanted increase of over £3000 in my credit limit on one of my cards. The credit "available" on that card - which incidentally is one I rarely use - is now over £10,000 and as I do not bank with the organisation that issued it, I am at a loss as why I have been so honoured with such a huge increase.

Are banks doing this to/for others who are not even regular customers? If so, what can be their rationale (apart from reinflating the bubble) for tempting people to get even deeper into probably unrepayable debt?

hatfield girl said...

I don't think people without much money have their credit card limits raised unasked Nomad. The bank does it to my cards as well, (though I rarely use them for various reasons, not least leaving the numbers where I am not, which doesn't help); 'raining on water' as the Italians say. What happens when your cards don't have any credit left, and inflation keeps pushing prices of everyday things?

Caronte said...

You get another card, HG. It's reverse Pyramid Banking.

electro-kevin said...

This is going to be a huge problem for many.

It is not unusual for ordinary families with dual incomes to achieve circa £70k per year. Yet I know people who are struggling even on this amount.

It was stated in the press the other day that the average man earns £36k which I find difficult to believe; clearly this average includes the salaries of council officials, hospital managers and banker bonuses. If one was lucky enough to have bought a modest house at the right time then one might just be able to raise a family on this 'average' income without releasing equity - no fripperies though.

Without resort to cashpoint collateral I simply don't know how the typical man (on the mean wage of £23k) is going to survive.

With the collapse of the welfare system - as will happen - things are not looking good for ordinary Brits.

I'd say it could be the start of our recovery but who'd want to bet on that ? Get out if you can.

hatfield girl said...

All of this kind of discussion tends to be anecdotal, but it's really hard to find honest data.
What you are saying confirms what I'm seeing E-K. I would add this:

most of us are mostly healthy. If we feel ill we don't use the NHS, we retire hurt with hot lemon, dash of whisky, and a neurofen until it goes away. When we do use the NHS it's for things like childbirth and, were it possible, we would use it for teeth and eyes and deafness and hips. And really scary moments in the middle of the night with our children's temperatures over 104.

Schools aren't cheap to use. What with the costs of journey to school, special clothing, sports equipment, supplementary books, vocational teaching fees for things like music and (after 14) foreign-language teaching, not to speak of subjects that are supposed to be taught in mainstream school. Home schooling is much cheaper than state schooling, even with losing a second income from the teacher/parent. No wonder the regime is moving to close off that avenue of escape.

Welfare income is too intrusive to claim for many - not just the elderly. Or too destructive of family life.

And bankruptcy is not a mass solution. What kind of state has most of its citizens declaring themselves bankrupt? Yes, a New Labour state, but that's temporary and these problems are immediate and long term.

Debts, however incurred, can be retrospectively tied to any asset under New Labour legislation recently enabled under a long ago passed piece of legislation nodded through in better times.