Household finances reach new low
Household finances are falling faster than at the height of the recession, according to a new survey.
Almost 40% of people saw their finances worsen between July and August in contrast to just 6% who reported an improvement.
The survey of 1,500 adults by Markit, a financial information services firm, found that August saw the biggest fall in take-home pay at the same time as inflation continued to squeeze people's spending power. As a result, there was the sharpest drop in savings this month since March 2009 and debt levels have risen for the fifth consecutive month.
While the gloom reportedly affected all income groups, age ranges and regions included in the survey, there was a geographical divide. People in the north of England reported the fastest deterioration in their finances, while people in the south-east of England experienced the slowest decline.
The findings have been supported by a separate report from the British Retail Consortium (BRC). Its quarterly survey of footfall - which measures the number of people hitting the shops - showed a 1% drop in the past three months compared with a year ago.
"Fewer people are shopping because households are facing high inflation, low wage growth and uncertainty about future job prospects," says Stephen Robertson, the BRC's director general.
Things are not expected to improve any time soon as the consumer prices index (CPI) is expected to hit 5% by the end of the year – it's currently 4.4% - as the effect of higher oil and gas prices filter through to households budgets.
Improve your finances
So what can you do to improve your own household finances? Here are three top tips:
1. Check your utility bills - with all the major providers announcing price rises, it's never been a better time to shop around to find the most competitive deal.
Check out the Moneywise Energy Switcher to see if you could save money on your utility provider
2. Check your savings rate - if you have savings, take a few minutes to check what interest rate you are getting. Many accounts offer an introductory interest rate for the first year but after that the rate drops to below 1%. One of the best rates available at the moment is Coventry Building Society's Poppy Online Saver with a rate of 3.15% for the first year.
3. Move your debt - anyone who has built up some debt in recent months should make sure they aren't paying over the odds for it. If it's on a credit card consider moving it to a 0% deal while you clear the debt, and if it's a personal loan make sure you have got the lowest interest rate possible.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).