Why is personal DEBT so high in this country?

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Generali wrote: »

It could of course be that mortgage debt so completely dominates the total debt of households that a link to house prices is likely.

I'm certain this is correct, mortgage debt represents over 75% of total personal debt. What's interesting about the graph is that the debt curve stays almost horizontal until 2013 (and probably longer if the graph went on), whilst house prices are crashing from the 2007 peak, a painful situation for many people and probably one of the main reasons this recession is going to hurt for a much longer period than previous ones.

evergreen

It doesn't help that as soon as someone reaches their 18th birthday they are inundated with credit card application forms, added to the fact that we don't teach much about the cost of borrowing in schools. Don't get me wrong I am not saying this is all down to youngsters, but I do think that we as a society should give everyone as much financial education as possible, so that anyone borrowing money is fully aware of the costs of paying back the loans.

DawnW

Going back to the original post, how can it be the Government's fault? No doubt many things are their fault, but I personally I have never been forced, required or cajoled by the Government into borrowing loads of money I couldn't afford in order to live beyond my means, or to buy a load of c**p!

Seriously, how can people blame the Government for this? Much of the debt referred to is probably mortgage debt to be fair, and we do have more of a 'culture' of owning property here than do many other countries. However, it is not, and never has been compulsory, and people can always rent. Selling off the Council houses so that people who now really need them cannot have them was a bad thing done by a Government - not this one however. Having said this, the present Government have been complicit in letting the right to buy system continue, so depleting stocks even further.

mbga9pgf

Going back to the original post, how can it be the Government's fault? No doubt many things are their fault, but I personally I have never been forced, required or cajoled by the Government into borrowing loads of money I couldn't afford in order to live beyond my means, or to buy a load of c**p!

Seriously, how can people blame the Government for this? Much of the debt referred to is probably mortgage debt to be fair, and we do have more of a 'culture' of owning property here than do many other countries. However, it is not, and never has been compulsory, and people can always rent. Selling off the Council houses so that people who now really need them cannot have them was a bad thing done by a Government - not this one however. Having said this, the present Government have been complicit in letting the right to buy system continue, so depleting stocks even further.

Because Dawn, we have this wonderful thing called the FSA, who are supposed to make sure that banks dont lend more money than is sensible and individuals can pay back their debts. Warnings were not enough:

http://business.timesonline.co.uk/article/0,,9063-2455507,00.html

They should have limited banks to 3.5X salary multiples and required a minimum 10% deposit in the boom years. Did they? Did they hell. I tell you why. As long as individuals were going out and buying their cheap imported tat, with debt, it was filling gordons coffers with gold (VAT, taxes on profit etc). He used it to propel the UK economy.

Individuals as a whole are stupid. We all know that. They will relinquish to their inner demons and spend. its human nature. Some times, it takes the more intelligent in society (government/FSA anybody!?) to say NO you cant have all you want and just put it on the plastic, as its all going to end in tears. 1/10 for Brown, 3/10 for the FSA, 5/10 for mervyn king. At least the FSA/Mervyn tried to warn people. They would have got more points for stricter regulation.

prowla

1. Low interest rates.
2. A belief that house prices can continue to rise forever.
3. Irresponsible lending by banks.
4. An "I want that" mentality, partly fostered by the celebrity for nothing fashion.

Dithering_Dad

I used to love those 'Bev and Kev' adverts from the AA car loans. They're the ones where 'rich' Bev and Kev pulled up next to 'poor' Bev and Kev at the traffic lights, and an hilarious "hello Bev, hello kev, hello Bev, hello Kev" exchange of greetings ensued.

'Poor' Bev and Kev were sat in their crappy old Volvo, wearing their threadbare clothes and generally looking a bit down at heel. The 'rich' Bev and Kev had a shiny new Volvo, shiny new clothes and shiny faces.

It transpired as the ad went on, that 'rich' Bev and Kev had gotten a loan from the AA to buy the car (and I assume got a loan for their new clothes and makeup) and looked every bit the success that we are all supposed to aspire to.

The reality was (and I used to shout this at the TV every time the advert was aired, much to the annoyance of my missus) that 'rich' Bev and Kev were actually debted up to their eyeballs and in reality were poorer than 'poor' Bev and Kev.

No doubt if they did another one of those adverts, 'poor' Bev and Kev would be wearing their worn clothes and driving their old car past 'rich' Bev and Kev queued up at a soup kitchen after Kev lost his job and they had all their material things reposessed.

I noticed the other day that 'Kev' is now an MC at boxing matches, dunno what 'Bev' is doing or even if they're still together. I hope their financial worries have not driven a wedge between them.

cogito

I've always viewed with amazement the fact that so many people have been willing to borrow money with scarcely a thought as to how they're ever going to repay it.

Theoretically, at the height of the credit boom, my wife and I could have obtained a £500k mortgage but never once even considered doing so. Instead, we concentrated on paying off what we already owed and putting our money to work for us rather than the lenders. I never doubted that this was the right thing to do and I'm so glad we did.

carolt

Actually astonished that no-one has mentioned that part of the reason for an increase in debt over the past decade has been the fact that real salaries have not kept pace with the rising cost of living for most.

For many debt has been on essential not luxury spends. Those without the dubious luury of being able to MEW in many cases had little choice but to borrow on cards/loans to get by at all. (And as others have pointed out, it's all just borrowing by another name.) Inflation figures have been heavily massaged and mean salary levels ignore the fact that the figures were skewed by huge leaps for those at the top of the pile.

300 billion has been MEWED since 2000 alone, plus the huge amounts taken out on CC's etc. But for most, this has not meant a hugely improved standard of living.

Plus factors like immigration have meant that salaries for the unskilled have not kept pace with real inflation. Not to mention an increased tax burden.

I think in blaming it all on the "want it now" culture, people forget how relatively cheap what were seen as luxuries have become eg tv's, mobiles (my last mobile my mobile co. actually paid me to take, thanks to various offers/loyalty schemes, for example - so hardly a luxury), etc. But the cost of essentials, eg housing, have become increasingly more expensive.

SingleSue

I used to do exactly the same thing DD when that advert was on!

I actually feel as if I did something right in my life (for once!) as I was not one of those who took out oodles of credit, or had a keeping up with the neighbours mentality...the arguements that caused with Ex hubby though as he was/is def the sort of person who wanted (and was convinced it was a need) the latest games console, the expensive watch etc and there was little old me being the pain in the bum saying no.

He has only lived away from this town 2 years and he already has 20k+ of debt...I still have none.

CLAPTON

DawnW wrote: »

Going back to the original post, how can it be the Government's fault? No doubt many things are their fault, but I personally I have never been forced, required or cajoled by the Government into borrowing loads of money I couldn't afford in order to live beyond my means, or to buy a load of c**p!

Seriously, how can people blame the Government for this? Much of the debt referred to is probably mortgage debt to be fair, and we do have more of a 'culture' of owning property here than do many other countries. However, it is not, and never has been compulsory, and people can always rent. Selling off the Council houses so that people who now really need them cannot have them was a bad thing done by a Government - not this one however. Having said this, the present Government have been complicit in letting the right to buy system continue, so depleting stocks even further.

Although I agree with a lot of the previous posts, there is one area where the government's direct action have encouraged debt. That is in the area of student loans.
Leaving aside whether they are good or bad, it does mean that most graduates leave Uni with debt.
And consider debt as 'normal'.
I've spoken to many graduates who are off on a gap year on borrowed money.
When asked about using borrowing to fund a what is basically a holiday they take the view they are already in say 15,000 of debt so a few extra grade makes no difference.
And I've found it a little difficult to make a convincing case for saving first them travelling.
I'm not making an excuse for them and of course many don't do this but it's been one more contributory factor to a change in attitudes even of otherwise sensible level headed people.