Will Personal Insolvencies Rise As Spending Surpasses Average Income?

A recent survey, carried out by financial researchers, has produced figures showing that 1 in 10 Brits are spending more than their wages permit. Furthermore, of the 4,200 surveyed, almost 20% are leaving themselves short at the end of the month relying on overdraft facilities and credit cards to bail them out in order to keep on top of monthly bills and expenses.

Although last year's personal insolvency figures revealed a drop by 16.4% in the final quarter of 2007, fears are now arising as to whether or not higher debts may push insolvency numbers back up again as this year takes off amid a slowing economy.

Analysts believe that the effects of the credit crisis, which have lead to an outlook of softer economic growth, could very well lead to an increase of people declaring themselves insolvent within the course of 2008.

Predictions of a rise in unemployment are also being made as a result of a distinctive slowdown in the economy. The fact that many sub-prime borrowers are set to refinance their current loans and mortgages, as their fixed-rate terms come to an end this year, this could lead many towards the path of insolvency as they struggle to keep up with repayments on less favourable deals.

After analysing data on both income and expenditure from the Office for National Statistics (ONS), researchers have arrived at the conclusion that the UK is now entering a period of uncontrolled spending which has been termed as a "spendemic".

So with Christmas now out the way, just what is it that Brits are spending their money on? According to the survey, the average consumer is left with approximately £157 at the end of the month, after the normal expenditure has been deducted from their income. It appears that we are now spending much more on non-essential items, which accounts for up to 65% of our total spending.

Unfortunately, with average incomes and essential living costs rising by 48% and 43% respectively, it is no surprise that many are now plagued with missed repayments as mounting debts are outweighing our average earnings. We simply cannot afford to continue spending beyond our means as our salaries clearly do not meet up to our overindulgent lifestyles.

It would seem that the biggest chunk of our spending goes on recreational activities reaching some £250 a month, while the amount spent on holidays has doubled to an average of over £1,000 a year compared to figures produced 10 years ago.

As we are now experiencing far higher mortgage costs and ever increasing energy bills, as a direct result of the credit crunch, surely we need to refrain from the temptation of greed and pay more attention to how we spend and what we spend our money on. Excessive spending over the festive period has already put many in the red and resulted in an impressive increase in the dependency of credit cards. The average income has been more than stretched to the limit leaving overdraft facilities and newly applied for credit cards as the source of funding for monthly mortgage payments and general household bills.

It is estimated that over the past decade average debt repayments have jumped from £174 in 1997 to £356 in 2007 showing an increase of 104%, while the number of credit cards issued has almost doubled from 36 million to over 71 million.

Financial analysts are predicting with confidence that before the end of the first quarter of this year, over 28,000 people will have declared themselves insolvent. The number of personal insolvencies for the year 2008 is estimated to total anywhere in the region of 120,000. The previous year of 2007 saw insolvencies reach a level of 106,645.

Published on February 5, 2008