Family incomes rise and savings grow – but so do debts

Article date: 30 May 2012

  • Household incomes rise 4% over the past year to £2,150 per month Infographic of family finances in the UK
  • Savings pots grow by 6% year-on-year as families get into the savings habit
  • Average debts fall in last quarter to £9,314 – but still 58% higher than a year ago

In spite of the recession, families in the UK have seen their monthly incomes nudge ahead of inflation* as the typical monthly household income hits £2,150, a 4% increase over the past 12 months (£2,062 May 2011). This is according to research from the latest Aviva Family Finances Report, released today**. The report also shows that family savings pots are growing, and this edition includes a spotlight on families’ attitudes to saving (detailed in a separate news release)***.
 
Incomes rise for dual-income homes, but single parents struggle
The study shows that as unemployment slows and working hours creep upwards, families are taking advantage. Nearly three quarters (72%) of families now receive income from a full-time ‘primary’ income compared to 69% in January, while 36% also benefit from a secondary income earner, up from 33% over the same period. Twelve per cent of families also report that the primary earner has a second job.

However, single parent families are feeling the pinch after seeing an 8% drop in their average monthly incomes (£805 May 2012 vs £874 May 2011). While income from state benefits has decreased across the board following government reforms (18% May 2012 vs 23% May 2011) the picture is harsher for single parents with just 42% now reporting income from benefits, compared to 61% a year ago.

Savings pots swell as more families get into the habit
The typical amount held in savings by UK families has risen slightly over the last year from £1,163 to £1,228, an increase of 6%.  In line with this, the number of families with no savings at all has fallen to a record low at just 24% (compared to 28% in May 2011).

More encouraging still, the typical amount saved on a monthly basis has also increased significantly to £45, the highest level yet seen in this report series and a year-on-year rise of 41% (£32 – May 2011). However, single / divorced parents are still typically saving nothing each month.

Debts rise dramatically over the last year
Average debt levels have swelled over the past 12 months, with the typical UK family owing £9,314 compared to £5,878 in March 2011 – an annual increase of 58%. However, debts have fallen back 11% since the start of the year (£10,418 – January 2012), suggesting families are beginning to tackle their borrowings head on.

Credit cards (£2,266) loans (£1,895) and overdrafts (£1,650) account for the majority of debt, but both credit cards and loans saw borrowings fall since January 2012 (£2,589 and £2,014 respectively). In fact, since the start of the year, the only place family debts have grown is through overdrafts, increasing from £1,325 in January.

People wake up to protection
Families are becoming more concerned about their financial responsibilities, and for the first time since the report series began protection products held by families have taken a small upward turn. Now 42% of families say that they hold life insurance, (up from 36% May 2011), while 14% have critical illness cover compared to 13% a year ago. However, the number with private health insurance is static at 13%, and the proportion of families with income protection insurance is down from 11% (May 2011) to 9% (May 2012).

Families adjust spending priorities
The average monthly expenditure of UK families has remained remarkably steady over the last 12 months and stands at £1,680 in May 2012 (£1,681 – May 2011). However, the impact of rising inflation (annual CPI inflation 3.0% – April 2012) on the cost of essential goods and services means the typical shopping basket has become more expensive. This suggests that to maintain the same level of spending, families are economising and shopping around.

The biggest single year-on-year change is the average amount spent on housing (mortgage or rent), which has fallen steadily over the last year from 22% (May 2011) to 19% (May 2012).

This is probably as a result of historically low mortgage rates and a subdued housing market. Spending on food remains the second largest single monthly expense, rising slightly on the past three quarters from 10% to 11% (May 2012).

Richard Kelsall, head of savings for Aviva, says: “Many UK families have experienced tough times in recent years, so it’s reassuring to see that people are getting to grips with their finances to weather the storm. Incomes have risen and debts are falling, which suggests that families are working hard to get on an even keel.

“It’s also good to see that more families are planning ahead and trying to create a cushion against harder times. People are waking up to the value of protection insurance, and many seem to be getting into the savings habit, with more than ever stashing money away for a rainy day. Families face financial pressures on so many levels, with everything from car repairs to university fees to contend with. But by taking a step back and looking at their priorities in the long term, people can help to safeguard their futures.”

A separate news release with a focus on families’ views on savings is also available. 

Download the Aviva Family Finances report - issue six (PDF 2MB)

* ONS figures show UK inflation running at 3.5% in March

** The Aviva Family Finances report is an in-depth study into the financial needs of the 84% of the UK population who live as part of a modern family. Based on customer profiles and Government data Aviva has recognised the six most common types of modern family as:
–    Living in a committed relationship with no plans to have children
–    Living in a committed relationship with plans to have children
–    Living in a committed relationship with one child
–    Living in a committed relationship with two or more children
–    Divorced/separated/widowed with one or more child
–    Single parent raising one or more child alone

*** See separate news release at www.aviva.com/media

Methodology:

Data was sourced from the Aviva Family Index which used findings from over 12,000 people who are members of one of the six groups of families identified above via OpinionMatters. This report is a definitive look at the personal finances of families in the UK. Not only does it look at personal wealth, income sources and expenditure patterns but also tracks how these change across the different types of family unit.

In addition to the regular data, each quarter a spotlight will be shone onto a different relevant topic. This issue has a focus on how families prioritise their finances in relation to savings.

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If you are a journalist and would like further information, please contact:

Aviva Press Office: Sarah Poulter: 01904 452828 / 07800 691569: sarah.poulter@aviva.co.uk

The Wriglesworth Consultancy: Lee Blackwell / Ben Marquand / Emma Beresford 020 7427 1400 / l.blackwell@wriglesworth.com

      
Notes to editors:

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