The second “Big Money Index” from AXA shows there has been a shift towards a more cavalier attitude to finances in the second quarter of the year. It paints a worrying picture of a population borrowing more to fund a less restrictive lifestyle than in the previous quarter, with fewer attempting to pay off debts or save. It also reveals a slight rise in confidence in the economy among the under 50s, particularly among ‘Young Professionals*’, while optimism among those nearing or in retirement has plummeted.
AXA’s quarterly report presents a snapshot of financial confidence, behaviour and attitudes as well as views on topical money issues among eight distinct demographic groups*.
Financial optimism in the UK is increasing among the under 50s, although this is still notably far off the levels at the beginning of 2010. However, for those nearing retirement, confidence in their financial future remains bleak, especially for the ‘Under-funded Seniors’, whose optimism is nearing rock bottom. Even the wealthier groups – the ‘Exclusive Lifestyles’ and especially the ‘Prosperous Later Years’ - are feeling the gloom despite clearly having the most disposable income, and more than a third (35 per cent) of all respondents say that they do not have enough money to save for retirement.
The post-Christmas frugality seen in the first quarter of the year is however showing signs of easing, with a five percentage point fall in the four in 10 consumers who cut back on luxuries such as going out (40 per cent down to 35 per cent) and purchasing alcohol and takeaways (35 per cent down to 30 per cent). Notably, there was a far greater drop in frugality among ‘Young Professionals’ and the more affluent groups.
However, of great concern is that this more relaxed lifestyle appears to have been funded by borrowing. More than eight in 10 (84 per cent) have a credit card, and while just over one in 10 (11 per cent) borrowed on their overdraft and nine per cent borrowed more on their credit cards or loans, this increased borrowing was markedly higher among those finding it hard to make ends meet, especially among the ‘Modest Middle Years’ group. Their borrowing on credit cards or loans was up six percentage points to 11 per cent since Q1, compared to an average of nine per cent. For ‘Nest Builders’, “borrowing more” was at 13 per cent in Q2, a drop of three per cent since Q1 but still higher than average.
A further concern is that, in addition to this increase in borrowing, debt repayments and savings fell. ‘Young Professionals’ paying more off their overdraft fell from 10 per cent in Q1 to just 6 per cent in Q2 and this group paying more off their credit card and loan repayments fell from 30 per cent in Q1 to 17 per cent in Q2. The situation was again bleakest for the more disadvantaged groups, with almost a third (30 per cent) of ‘Under-funded Seniors’ continuing to be forced to dip into their savings and only five per cent managing to contribute more to any savings compared to highs of 19 per cent and 16 per cent “saving more” among the affluent groups, ‘Exclusive Lifestyles’ and ‘Successful Security’.
AXA UK’s director of customer partnerships, Nick Turner, said: “Caution must be urged against borrowing to make life more comfortable. We’re seeing an enormous drop in confidence from those in retirement, for whom life seems to have become ever harsher as the country continues to face the task of tackling the enormous deficit. The result is that savings are being depleted or ignored, debts are mounting, and risks are being taken with assets as financial products are being scrimped on.”
There has, however, been an encouraging rise in the number of people trying to educate themselves and stay on top of money matters. In Q1, around one in four of ‘The Stretched’ (23%) and 30 per cent of ‘Under-funded Seniors’ were not using any source of information on financial advice. In Q2, this fell to 18 per cent in both cases.
On wider economic matters, more than four in ten Brits (43 per cent) believe that we would be better off financially as a nation in the long-term if we withdrew from the EU and two-thirds (67 per cent) believe that NHS funding will get worse in the next five years.
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