We Don’t Know Our Own Debt

It seems that we British are unconcerned about our growing debts. Indeed, in many cases it seems we don’t even know the amount of debt we’ve got.

Research by market analyst Mintel has shown that people in the UK owe altogether around £100bn more than they are aware of, and the comment was that they are ‘burying their heads in the sand’ with regard to debt. It seems many borrowers owe twice as much as they think they do on loans, overdrafts and credit cards. The average amount owed by individuals in unsecured debt, according to Bank of England figures, is £10,300, but the average person thought it was only £5,251.

The number of adults owing money on loans, credit cards and overdrafts is now at 43%, but only 20% said they were worried about the debt they had. Interestingly, people with a mortgage were much more accurate in knowing how much they owed, with their estimations being an average of £92,200 and the actual figure being £95,000.

It seems that it is easier to grapple with a single mortgage figure than it is to deal with what might be owed on a loan, a moving overdraft and the fluctuating figures on one or more credit cards. Also, recent focus on interest rates and mortgages may have helped remind people of the debt on their house loan.

Analysts at Mintel were concerned that people did not understand the extent of their debt and said it was easy to visualise the situation getting out of control. There appears to be a greater need than ever for more financial education as well as a drive to get people out of debt.

It should perhaps come as no great surprise that households with low incomes are more likely to have difficulties with debt than those with high incomes. The research showed that households with income of more than £50,000 a year were borrowing money to increase assets or to help pay for education. Conversely, those with earnings under £15,500 were using borrowed money simply in order to meet everyday expenses.

Around two in every three high earners had taken out a mortgage to buy a house, whereas this figure was only 15% of low earners. About 13% of high income households were buying a second home, but of low earners the figure was only 1%.

When it came to university education, 9% of higher earners were taking loans to fund their child at university, and 7% were funding school fees. For the low income group the figure was a mere 2% for both university and school fees.

Around a third of low income households had to borrow money just to cover the everyday costs of bringing up their children, this figure being 21% for the high income group.

To pay for tax bills and regular bills such as phone and utility bills, about 11% of low-income families were using credit of some sort, but for higher income families the figures were 6% for tax bills and 4% for other regular bills.

Tom Smith
1st August 2007