Debate House Prices


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Spending more than we earn

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Graham_Devon
Graham_Devon Posts: 58,560 Forumite
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in Debate House Prices & the Economy
Briton's, on average per household, spent £900 more than they earned in the same year, for the first time in 30 years last year.
To fund the deficit people have been borrowing more and saving less, encouraged by years of record-low interest rates. Even in the run up to the 2008 financial crisis, when homebuyers were granted mortgages covering the entire value of the property and sometimes more, households were still net lenders, the ONS said.

As the article points out, even at the height of the credit boom, we still didn't spend more than we earnt on average.

So what's going on now? How can this possibly end up in any way positive?

https://www.bloomberg.com/news/articles/2018-07-25/indebted-britons-are-unprepared-for-retirement-lawmakers-warn
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  • Malthusian
    Malthusian Posts: 10,961 Forumite
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    So things are as bad as they were in 1988, when we were about to embark on the longest stockmarket bull run in history (so far)? Cool.

    Savings have to be spent at some point. Why is it a problem that Britons spent £25bn net when it won't even dent the hundreds of billions of net savings since 1988?
  • Graham_Devon
    Graham_Devon Posts: 58,560 Forumite
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    Malthusian wrote: »
    So things are as bad as they were in 1988, when we were about to embark on the longest stockmarket bull run in history (so far)? Cool.

    Something happened to the stock markets the year previous though....
    Savings have to be spent at some point. Why is it a problem that Britons spent £25bn net when it won't even dent the hundreds of billions of net savings since 1988?

    It's not savings that's being spent, it's debt - hence the outcome of spending £900 per household more than is earned.

    Household debt is also at it's highest level ever....
  • pumpkin89
    pumpkin89 Posts: 640 Forumite
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    Strange that, at a time of unprecedented spending, we are also seeing unprecedented problems in the retail industry. It would be really interesting to know what all that extra money is being spent on.
  • Graham_Devon
    Graham_Devon Posts: 58,560 Forumite
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    edited 6 August 2018 at 4:09PM
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    ilovehouses wrote: »
    Usually a sign that people are feeling confident about their future ability to manage with a reduction in savings and/ or increased debt payments.

    Maybe the good times are about to roll again?

    Hmmm. I don't know how it can "usually" be a sign, as it's the first time it's happened in 3 decades. The last time it happened, there was a massive slump. So where you get the "usual" bit from I don't really know.

    The poorest 10% of the country spent 2.5x their income in 2017. Who si handing them this debt? I thought this was all supposed to have been sorted out?
    By contrast, the poorest 10 per cent of households had a disposable income of just £5,000 but spent nearly £13,000.

    I doubt the poorest 10% of the country are doing this because they feel their future is cushioned in a fragrant luxury of roses.

    Something has gone very wrong.

    Worse still...
    The report !!!8211; titled !!!8220;Making ends meet: are households living beyond their means?!!!8221; !!!8211; found that the deficit among UK households, equivalent to 1.2% of GDP, contrasted with a surplus in France equivalent to 2.7% of GDP and a surplus equivalent to 5.1% in Germany.

    Over the same period, the richest 10% of the country have enjoyed a 20% increase in the speed at which their wealth is growing.

    Doing a bit more research, the main reasons for the expansion of debts are:
    - "Supersize" mortgages (not my words).
    - Car finance
    - Credit card debt
  • Sea_Shell
    Sea_Shell Posts: 9,452 Forumite
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    How have they gained this data?

    If surveyed, we spend more than we earn NOW, but after years of saving and accumulation.

    Have they included those people in a planned drawdown phase of their life?
    How's it going, AKA, Nutwatch? - 12 month spends to date = 2.38% of current retirement "pot" (as at end April 2024)
  • lisyloo
    lisyloo Posts: 29,625 Forumite
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    How have they gained this data?


    Good point.
    We are putting loads into our pensions so our income might look low.
    We have a large debt as we are stoozing it.
    We might look in debt too.


    Have they included those paying for care homes or in retirement?
    The ageing population means there will be more people not earning at all and just spending.
    Did we just reach a tipping point?
  • Malthusian
    Malthusian Posts: 10,961 Forumite
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    Graham_Devon wrote: »
    It's not savings that's being spent, it's debt


    No comprende. Why does the nation need to take out debt in order to spend, when according to your figures, the nation squirreled away just over a trillion pounds in net savings since 1988?
  • pumpkin89
    pumpkin89 Posts: 640 Forumite
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    No comprende. Why does the nation need to take out debt in order to spend, when according to your figures, the nation squirreled away just over a trillion pounds in net savings since 1988?

    Presumably because the squirrels are not the ones doing the spending?
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    pumpkin89 wrote: »
    Strange that, at a time of unprecedented spending, we are also seeing unprecedented problems in the retail industry. It would be really interesting to know what all that extra money is being spent on.

    Holidays, cars, eating out. The older generation have little interest or need in "things" in the High Street. There's an over capacity in the High Street. Travel elsewhere and there's not the same abundance of shops.
  • Graham_Devon
    Graham_Devon Posts: 58,560 Forumite
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    Malthusian wrote: »
    No comprende. Why does the nation need to take out debt in order to spend, when according to your figures, the nation squirreled away just over a trillion pounds in net savings since 1988?

    This whole thing is about averages.

    Making up some numbers here, but if 50% of the nation hold the majority of the savings, that leaves 50% without (or at least, with minimal) savings.

    Same as the debt - it's not held by anyone, but has been averaged out.
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