Borrowing out of confidence or necessity?
A lot has been said recently about consumers increased appetite for saving. We recently wrote a post on this blog in fact discussing the improved saving habits of the younger generation compared to previous ones. Recent figures released regarding the amount of money we are borrowing however have revealed that not all of us are saving at the moment and that the amount of money being borrowed on credit cards and through unsecured loans actually soared massively in the month of July to £1.1 Billion, compared to £655 million in the month of June.
Some would argue that this increased borrowing is down to increasing consumer confidence in the economic recovery but with wage growth again falling below the rate of inflation in recent months, resulting in an overall lack of wage growth for the past few years, the question will again be asked as to whether people are borrowing because they want to borrow or are they borrowing because they need to borrow to fund day to day living, especially when it comes to credit card borrowing which more than doubled in the month of July compared to the previous month.
My gut feeling is that a lot of people are probably ‘just about getting by’ at the minute, earning enough to cover their monthly expenses but not being able to afford much in the way of luxuries – which poses a bit of a problem for families when the summer months arrive and they inevitably have to spend more to keep their kids entertained and take them on some kind of holiday to break up the 6 week school holidays. If the money hasn’t been available to fund these extra expenses then it would make sense that people may have been reaching for their flexible friend again in order to make up the difference. I’m not condoning it by the way; I’m just saying that it wouldn’t surprise me at all if this is what has contributed to the increase in borrowing during July.
Good news or Bad?
I’ve always found consumer borrowing figures to be quite an anomaly when it comes to analysing the state of the economy as they can indicate so many different things. On the one hand they could show that people are finally feeling confident enough to borrow and spend money again, even if they aren’t spending with their own money. On the other hand it could be a huge warning sign that the on-going squeeze on living standards is finally catching up with people, tipping them over the edge financially.
I suppose the only way we can really find out what is truly going on is by analysing other statistics and stories highlighted in the news – like this one about the increasing problem of short term loan hardship for example. The other thing that we could do is to go straight to the source and ask the consumers themselves, so with that in mind we would love to hear your opinion.
What do you think? Is the jump in consumer borrowing down to increased confidence or do you think people are borrowing out of necessity?