Families face 'challenging and tough' times
Family finances are being crippled as inflation sends living costs soaring but average earnings are not keeping up – with just a £46 increase this year from £1,937 in January to £1,983 in November.
Everyday costs have soared this year with energy bills rising 18.8%, motoring 8.7%, public transport by 8.5% and food by 6.9%, according to the latest Aviva Family Finances Report.
To meet these costs, families are cutting back on luxuries and one in four have stopped spending money on holidays, while more than half are not spending anything on children's activities such as after school clubs.
Savings have also taken a battering and families only managed to put away an average of £19 in November – the smallest amount yet this year – and the typical savings pot is now just £967, down 2% from August.
The tough economic conditions have also pushed families into the red and now 52% have unsecured debts of an average £10,604 spread across credit cards, loans and overdrafts.
Families face "challenging and tough times" and are "caught in a difficult balancing act" between saving and spending, says Alistair Macqueen, marketing manager for Aviva. But he says there are some positives from the report, which show that families are paying out £224 on debt repayments each month, rather than soaring further into the red.
"For many, 2011 has been a tough year characterised by spending cutbacks, inflationary pressures and financial worries," says Paul Goodwin, director of workplace savings for Aviva.
"Typical UK families now save less than £20 a month, but the number of non-savers remains steady – which does suggest that those in the savings habit are still actively trying to save where possible. We hope that we will see a return to more favourable financial conditions for UK families in 2012," he adds.
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).