The Independent‘s headline caught my eye today – ‘For the first time, Britons’ personal debt exceeds Britain’s GDP‘. Most of the debt is secured (mortgages particularly), so the significance is symbolic, but it highlights the attitude we have to borrowing – that ‘buy now, pay later’ is always an option. It’s an expensive, short-term way of spending, and the chickens do come home to roost eventually. Bankruptcies and repossessions are up 30% on last year, and last week the business analyst Datamonitor warned that 8.6 million of us could be refused credit by 2011.
I was wondering how linked this is to the figure I mentioned last week, that two thirds of us don’t think we can afford our basic needs. If people genuinely believe they are being denied things that are their basic needs, little wonder they take out loans. The report bears this out:
‘The boom in consumer credit is being driven not by poor people but by middle and high-income households suffering no financial hardship at all. Contrary to popular belief, the accumulation of consumer debt is not a result of poorer households being forced to borrow to cover living expenses but of wealthier households splashing out on luxuries.’
With the economy wobbling as it is, with a housing market barely under control, and with five interest rate increases in a year, debt is a very bad idea right now. But we’re still spending like there’s no tomorrow. We’ve made it far too easy to get credit, we encourage people to gratify their every want whether they can afford it or not, and a lot of people are going to get stung by this.
All told, another reason to make wealth history.
- update: I don’t agree with this obviously, but in the interests of debate, here’s a completely different take on this. With thanks to Phil Whittall for the link.