Nearly one in two Brits struggle to cope financially
Nearly half (44%) of the British population struggle to cope financially, and the same number of people expect their finances to worsen over the next six months.
The study reveals that four million people are worried about becoming redundant, and 11 million are saving less than normal.
Struggling Brits are feeling the pinch as inflation rises, and the possibility of an interest rate rise could be the final straw for many homeowners, with a massive 81% admitting they would struggle if their mortgage payments increased by £100 a month.
The future is no brighter
The result from the survey, conducted in the last quarter of 2010, show an increase of 13% in people thinking their finances will get worse and 6% more are worried about their current levels of debt compared with the previous survey carried out in the third quarter of 2010.
Younger generations are particularly concerned, with 57% of those aged 25-34 worried about debt levels. With unemployment, currently at 2.5 million, particularly hitting younger people, this result is hardly surprising.
Steven Law, president of R3, says since the survey was last carried out, there have been increases in the cost of living from the VAT hike and fuel and utility costs. This has happened against a backdrop of pay freezes, cuts and redundancies and it's understandable most people feel pessimistic about their finances.
"In these uncertain times, for many of those of working age there is a real fear that if they do suddenly lose their job they will struggle to keep up with their debt repayments," he adds.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.