New figures indicate that Britain's debt difficulties are
being compounded by those underestimating their debts.
According to research carried out by Mintel, consumers are
underestimating the amount of money that they owe by
billions of pounds. In a survey conducted by the market
research firm, borrowers were asked how much they had left
to pay on their unsecured loans. The average answer was
£5,251, however the Bank of England reports that the
typical adult actually has some £10,300 outstanding.
Consequently, the company suggested that "worryingly"
Britons are in twice as much debt than they are actually
aware of. As a result, it was purported that 21 million
people - a figure just under half of the adult population
(43 per cent) - are more than £100 billion in arrears
beyond their estimation. However, only a fifth of those
with unsecured debts currently claim to be worried about
how much they owe.
In contrast, secured loan borrowers were said to have a
more accurate idea about their finances. The Mintel survey
of mortgage holders showed that respondents believe they
have some £92,200 outstanding. Meanwhile, figures from the
Bank and various mortgage lenders state that the average
amount owed is £95,000. As a result, the study suggested
that Britons have a "much better handle" on their
property-based debts.
Commenting on the study, senior finance analyst Toby Clark
said: "While Brits do seem to have a good grasp of their
mortgage borrowing, they are wildly underestimating the
amount of money they owe on credit cards and loans.
Clearly, it is a lot easier to keep an eye on a single
mortgage, than it is to juggle a couple of credit cards, a
personal loan, a car loan and maybe even an overdraft as
well." "There is a major need for financial education and
for a drive to prompt borrowers to take a fresh look at
their debts. Without a detailed understanding of exactly
how much they owe and what rates they are paying, it is
easy to see how the situation could spiral out of control,"
Mr Clark added.
Research carried out by the firm indicates that those
households on low incomes - those who earn less than
£15,499 a year - are borrowing to help meet the cost of
day-to-day expenses. A reported 11 per cent of such
consumers were said to use credit to meet regular demands
for payment on areas such as phone bills. Meanwhile, 29 and
11 per cent of low earning adults are said to use money
they have borrowed to help raise their children and pay
taxes. However, these proportions fell to 21 and six per
cent for Britons judged to be wealthy with an annual salary
of £50,000 or more.
The findings also revealed that well off families utilise
credit to help supplement their assets. Just under
two-thirds (63 per cent) borrow to help meet mortgage costs
for their home, with 13 per cent using the money to fund
the purchase of a second property. Mintel also indicated
that paying for their children's higher education accounts
for about one in ten (nine per cent) of well off consumers'
debts.
In figures released by PricewaterhouseCoopers earlier this
month, borrowers of all types were reported to be paying
back more money servicing debts. During the three-month
period from April to June, households were said to be
putting 19 pence of every pound they earned towards making
credit payments - the highest proportion recorded since the
third quarter of 1990. Head of macroeconomics John
Hawksworth claimed that more consumers are facing pressure
on their finances as a result of increasing energy and
petrol bill costs combined with only "modest" rises in
annual earnings. As a result, he suggested that consumer
spending is set to fall over the coming years as debt
obligations impact more on household's day-to-day finances.
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