DEBT IS NOW A WAY OF LIFE -
BUT CAN UK CONSUMERS SUPPORT IT?
New research from MyEquifax reveals 40% of 26-40 year olds would not survive for more than a month if they lost their job
London – 9th May 2005 – www.myequifax.co.uk the UK’s only instant, online credit information provider, has recently conducted a comprehensive research study about debt and financial management amongst its customers*. The study shows wholesale acceptance of short-term debt, and the use of credit and overdrafts to fund every day expenses.
The most startling finding is that nearly 40% of consumers aged 26 to 40 could not survive for more than a month if they lost their job. With nearly 30% of this age group claiming they have short-term debts of over £5,000 and a fifth using their overdraft every month, this finding suggests an increasing dependence on short-term credit and loans by UK consumers. .
“This research was conducted to try to determine whether different generations of consumers were taking different attitudes towards managing their finances”, confirmed Neil Munroe, External Affairs Director, MyEquifax. (The full research results table is attached)
“There is enormous public pressure to ensure that consumers are managing their finances effectively, and not being drawn into bad debt. And what this research seems to indicate is that whilst many consumers use credit and short-term loans extensively, they have a pretty good understanding of what constitutes a bad debt and how it could impact their future. However, there is no getting away from the fact that the greater dependency on credit does seem to have put a reasonable proportion of consumers under financial pressure.
“With the new government figures on insolvency (released on 6th May 2005) showing a 10 year high in bankruptcy and the BBC ‘Real Story’ programme (9th May 2005) due to reveal cases of consumers getting into considerable debt, there is a clear need for as much to be done as possible to help consumers understand and manage their finances better and ensure that they enter into credit agreements with a very clear understanding of the real costs.”
www.myequifax.co.uk has recently been redesigned and relaunched to provide consumers with more hands-on advice and support on personal financial management. MyEquifax has also introduced Equifax Credit Watch, a new, unique credit management tool, which can play a crucial role in helping consumers who are credit active to manage their finances as effectively as possible.
Throughout all the age groups, there was a strong recognition of ‘bad debt’ being almost any payment outstanding for more than 30 days.
The Financial Pressures for 18-25 Year Olds
When it comes to the younger age group – from 18-25 – the financial pressures of education and early adulthood are particularly prevalent. 40% use credit cards for every day living expenses with 13% saying that credit card payments account for over 50% of their earnings every month. A separate study** conducted by MyEquifax in conjunction with the National Union of Students further illustrates the debt burden on young consumers, with nearly a fifth of students stating that they would consider declaring themselves bankrupt to get out of debts accrued in their early adult years.
Third Agers Stay Credit Active
For the ‘third agers’, aged 51-70, there is still active use of credit and short-term loans, but clearly less dependency on salary incomes. 78% pay their regular bills by direct debit – the highest proportion of all the generations. And 33% pay their credit card each month on receipt of the first bill – again, the highest proportion of all the generations. But this group still makes active use of credit and short-term loans with 31% saying they have short-term debt of over £5,000. 32% have 4-5 credit cards and 13% - the highest of all the generations – have 6-10 cards.
“What our research has revealed is that whilst everyone knows that credit has become an integral part of a consumer’s lifestyle, the generational attitudes towards credit and debt seem to be levelling out”, concluded Neil Munroe. “And that, aside from students, it is the ‘young consumers of the ‘80’s’ - those now in their late ‘30s and ‘40s - who are most dependent on short-term loans and credit.
”Clearly there is a requirement for consumers to have the best possible understanding of their credit and debts – MyEquifax gives them this understanding instantly online”, concluded Neil Munroe. “And With Equifax Credit Watch Gold, whenever a consumer applies for or takes out a new credit agreement, they will receive an email or SMS alert and can obtain a new copy of their Equifax Credit Report. This will enable them to see how the new loan is affecting their overall credit status. By getting a copy of their Equifax Credit Rating too they will be able to see how the new arrangement will affect their credit score.”
The new MyEquifax website is easy to navigate and offers consumers helpful tips and information to manage their credit. Visitors to the MyEquifax website can learn about factors such as life events that may affect their credit situation and how to protect themselves against identity theft. Consumers also gain access to a glossary of credit terms to make it easier to understand the terminology used by lenders and in their credit report.
* A survey was conducted amongst MyEquifax customers in April 2005. Over 1,400 responses were received.
** MyEquifax surveyed over 1,500 students through the National Union of Students (NUS) web site on their financial habits in December 2004.
THE MYEQUIFAX FINANCIAL MANAGEMENT RESEARCH FINDINGS
| 18-25 | 26-30 | 31-40 | 41-50 | 51-70 | ||
|---|---|---|---|---|---|---|
| How often do you use your overdraft? | Never | 19% | 25% | 29% | 32% | 40% |
| Every Month | 20% | 20% | 21% | 18% | 22% | |
| Always | 30% | 22% | 19% | 12% | 12% | |
| How many credit cards do you have? | 1 | 23% | 25% | 24% | 19% | 18% |
| 2-3 | 51% | 45% | 44% | 40% | 35% | |
| 4-5 | 17% | 24% | 24% | 29% | 32% | |
| 6-10 | 6% | 6% | 6% | 10% | 13% | |
| What proportion of your earnings does your credit card expenditure account for? | Less than 10% | 28% | 31% | 36% | 42% | 50% |
| 10-15% | 8% | 15% | 13% | 19% | 13% | |
| 15-20% | 14% | 17% | 13% | 13% | 13% | |
| 20-25% | 13% | 7% | 9% | 9% | 8% | |
| 25-30% | 7% | 6% | 6% | 3% | 1% | |
| Over 50% | 13% | 6% | 8% | 4% | 4% | |
| What is your attitude to paying your credit card bill each month? | Full amount | 15% | 20% | 23% | 25% | 33% |
| What I can afford | 55% | 51% | 47% | 50% | 6% | |
| The minimum | 13% | 14% | 12% | 11% | 9% | |
| What short-term debt do you have? | None | 10% | 12% | 15% | 12% | 17% |
| Under £500 | 17% | 18% | 11% | 12% | 11% | |
| £500-£2,000 | 30% | 26% | 26% | 25% | 26% | |
| £2,000-£5,000 | 26% | 23% | 19% | 17% | 15% | |
| Over £5,000 | 17% | 21% | 29% | 34% | 31% | |
| What do you use your credit card for? | Big expenses | 39% | 46% | 43% | 50% | 64% |
| Emergencies | 44% | 47% | 46% | 53% | 57% | |
| Luxuries | 42% | 35% | 35% | 38% | 43% | |
| Day to Day expenses | 40% | 33% | 35% | 26% | 35% | |
| To cover me over at the end of the month | 27% | 20% | 16% | 8% | 6% | |
| If you lost your job how long could you survive without a salary? | Less than a month | 33% | 22% | 21% | 11% | 7% |
| Up to one month | 24% | 21% | 18% | 15% | 11% | |
| 2-3 months | 20% | 28% | 25% | 22% | 13% | |
| 3-4 months | 5% | 8% | 7% | 9% | 6% | |
| 4-5 months | 4% | 3% | 6% | 4% | 7% | |
| Over 6 months | 3% | 10% | 10% | 16% | 14% | |
| Over 1 year | 1% | 8% | 13% | 23% | 42% | |
| What is your perception of a bad debt? Late payment of more than a month on the following |
An overdraft | 45% | 31% | 29% | 33% | 23% |
| Mortgage | 76% | 87% | 86% | 84% | 86% | |
| Council Tax | 65% | 67% | 61% | 69% | 76% | |
| Bank Loan | 90% | 91% | 91% | 87% | 89% | |
| Rent | 64% | 68% | 60% | 58% | 57% | |
| Electricity | 50% | 58% | 53% | 53% | 72% | |
| Phone | 54% | 61% | 53% | 53% | 69% | |
| Mobile Phone | 67% | 64% | 58% | 52% | 58% | |
| Gym Membership | 27% | 30% | 26% | 26% | 29% | |
| Car Insurance | 55% | 58% | 55% | 58% | 69% | |
| Friend | 43% | 49% | 42% | 50% | 54% | |
| If you have experienced financial difficulties, what have been the key reasons? | Studying | 43% | 41% | 18% | 10% | 8% |
| Loss of Job | 27% | 24% | 30% | 26% | 29% | |
| Illness | 6% | 6% | 9% | 15% | 11% | |
| Travel | 9% | 6% | 5% | 1% | 4% | |
| Having a family | 9% | 11% | 20% | 26% | 33% | |
| Marriage | 4% | 5% | 9% | 11% | 10% | |
| Divorce | 14% | 12% | 23% | 31% | 33% | |
