Incomes rise for UK families but debts soar over last six months

Article date: 29 December 2014

  • Typical household income is up by four percent since July 2014
  • But household debt more than doubles in same period to more than £16,000
  • More families are saving regularly, but the size of savings pots has shrunk
  • More families protect their loved ones with life insurance and critical illness cover

UK families are facing a challenge of re-balancing the books, as incomes and debts have risen in tandem, the latest Aviva Family Finance Report reveals.

While family income has risen to £2,012 a month on average, up four per cent in six months, families have seen a three per cent increase in expenditure and are taking on more debt, while the spectre of interest rate rises, which would increase mortgage costs, is troubling more families. On the other hand, more families are taking steps to protect their families from the unexpected, with increasing numbers taking out life insurance, income protection and critical illness cover.

Dealing with debt:

Families are juggling household debt, which has soared, and now typically stands at £16,300 per household against £7,840 six months ago – reversing the sharp drop seen between July and December last year. Much of this is on credit cards. Six months ago the average credit card debt was £1,720, and it is now £2,940. Families also owe more on personal loans up from £1,210 to £2,090, while the amount owed to payday lenders has more than tripled from £350 to £1,290.

More families save – but are saving less:

The study shows that more families are saving regularly, with the proportion who save nothing each month at a record low of 24% - a step forward from the 39% who weren’t saving three years ago. However, the average monthly amount put away has dipped slightly - an average of £84 compared with £85 a month six months ago - and savings cushions have declined to £1,770 against £2,274 six months ago.

House prices and mortgage rates lead to challenges for (would-be) homeowners

Aviva’s data shows that the average family home is worth £244,100 – the largest figure ever recorded by the Family Finances Report series. In December 2013 the average home was worth £222,280 so this means an increase in property wealth of £21,720 in a year, or nearly 10 per cent. This is good news for those who bought when prices were lower, but a challenge for those trying to get on the property ladder.

The number of families in privately-rented accommodation has leapt, from 16 per cent to 24 per cent, while the fear about rising mortgage rates is up seven per cent – with more than a quarter of the population listing this as one of their top three financial concerns.

Families take steps to protect their loved ones:

There are some encouraging signs that more families are taking responsibility for their finances. There are fewer people than ever without a savings cushion at all, while more people are taking out protection insurance for their families including life insurance (42% vs 36% six months ago), health insurance (15% vs 13% six months ago), critical illness cover (16% vs 11% six months ago) and income protection (10% vs 7% six months ago).

Louise Colley, protection director, at Aviva, said:

“Our biannual Family Finances Report reveals that some families are feeling the dual pressures of debt and high housing costs, but hopefully some of these demands could be eased by rising incomes.

“It’s also encouraging to see more families are getting the message that it is important to protect your finances against sudden shocks – building up a savings cushion and taking out insurance. The Family Finances series has shown UK families to be a resilient and resourceful bunch, as finances have fluctuated over the years, so now it’s great to see that people are taking actions to make sure they’re prepared for whatever life has in store.”

View the Family Finances Report PDF (1.7MB)

View the Family Finances Video

- Ends -

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

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

Notes to editors:

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

Methodology:

Data was sourced from the Aviva Family Index which used findings from over 24,000 people who are members of one of the six groups of families identified above via ICM research. 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. Due to a change in research methodology, some median values from previous reports have been re-calibrated in this edition to allow direct comparisons with previous years.

In addition to the regular data, in each edition a spotlight is shone onto a different relevant topic.

This issue has a focus on the working habits and financial challenges of those with children aged 0-5, many of whom use childcare to enable them to work.

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