Our Personal Finances Are the Worst They’ve Ever Been
Sep 4th, 2008 | By David Stevenson | Category: International InvestingThe start of September and it’s throwing it down. Autumn’s on the way already. And come winter, for many people, it could be feeling even more like Bleak House.
Not only is the British economy about to get really nasty, but our personal finances have now fallen into even worse disrepair than at any time in our national history. Which means that the upcoming recession will bite a lot harder, and for a good while longer, than most peoples’ worst fears…
UK personal debt mountain has been growing at £254m per day
By the end of July this year, total UK personal borrowing had surged to an eye-watering all-time time high of £1.45 trillion, of which just over £1.2 trillion was mortgage debt, according to the money education charity Credit Action. The overall total has risen £93 bn - almost 7% - over the last 12 months. Another way of looking at it is that the loan mountain has been growing at £254m per day (including Sundays).
Source: Credit Action
In fact personal debt has now pulled well clear of Britain’s GDP of just over £1.4 trillion. In other words, the country no longer produces enough each year to pay off what its citizens owe personally, let alone all the debt the government’s racking up.
And though the growth in household borrowing has showed signs of slowing, Credit Action tells us that the average debt, including mortgages, has risen to over £30,000 per UK adult. Over the past 12 months the average interest bill paid by each household was some £3,900 – all out of an average wage of less than £25000 per annum, according to National Statistics.
This is where that debt mountain starts to look very menacing. Over the last 15 years personal debt has soared 260%, massively outstripping the growth in average wages of ‘just’ 75%. That didn’t seem too painful when the economy was going well, and of course interest rates are lower these days than they were in 1993. But as we’ve said at Moneyweek many times, the good times are very much at an end. Now Messrs Mervyn King and Alistair Darling are singing off the same hymn sheet.
Source: Our Personal Finances Are the Worst They’ve Ever Been
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David Stevenson joined MoneyWeek as Associate Editor in May 2008. Having started a career in the City with Morgan Grenfell, David joined Oppenheimer as a fund manager in 1983, starting on the UK desk before managing the European fund in 1986. He has subsequently managed equity portfolios for Hill Samuel, Cigna and Lloyds TSB subsidiary IAI International, and has worked as an analyst for stockbroker BNP Securities. After a brief period running his own business, David then returned to the financial world in 2007 as investment writer for the Motley Fool.