OREANDA-NEWS. Family household debt rose by 42% in the last six months to the highest level seen for two and a half years as family incomes and savings habits stalled, Aviva’s latest Family Finance Report reveals.

Average family debt – excluding mortgage borrowing – now stands at £13,520, up from £9,520 six months earlier in summer 2015. The latest figure is the highest seen since summer 2013 when the average family owed £16,300.

The overall rise in household debt means the average amount owed is now 24% higher than in winter 2011 (£10,870) when Aviva started tracking this data.

Winter 2011 £10,870
Winter 2013 £7,840
Winter 2014 £9,050
Summer 2015 £9,520
Winter 2015 £13,520

Comparing family types, married parents have almost twice the level of personal debt (£14,500) as parents raising children alone (£6,370). Couples with two or more children have the most debt of any family type examined by Aviva’s research, totalling £18,830. This is more than three times the average £5,070 owed by single parents, who borrow the least across all family types.

Average credit card debt rose by 21% from £1,960 in summer 2015 to £2,370, while the amount owed on overdrafts increased by 37% from £870 to £1,190.

One in four families now owe money on a personal loan, up from 23% a year ago with an average outstanding balance of £2,080. Over the last five years, mortgage debt is also 21% higher than the £51,850 owed in 2010.
Families able to save more but pressures on family finances will continue in 2016

Despite the worrying debt levels, the amount families are able to set aside each month has increased by 50% since 2010. Over the last five years the amount a family is able to save from month-to-month has risen by 50% from £70 in 2010 to £105, even though levels have stalled in the last six months.

The typical family savings pot now also stands at £3,150, almost five times more than the typical pot of just £636 in winter 2010. With the Bank of England base rate having remained unchanged at 0.5% throughout this period, families have managed to grow their pots during a difficult period for savers. The number of families also making no saving or investments each month has dropped consistently since winter 2010.

 

Winter 2010

Winter 2011

Winter 2012

 Winter 2013 Winter 2014 Summer 2015 Winter 2015
Monthly savings/ investments £70 £77 £78 £80 £99 £113 £105
Families making no saving or investments each month 35% 38% 34% 32% 27% 26% 25%
Typical family savings pot £636 £696 £1,031 £2,016 £3,303 £3,116 £3,150

Families have also been helped by low inflation with the latest Consumer Price Index (CPI) registering a rise of just 0.1% in the year to November 2015, having fallen 0.1% in the year to October 2015.? The latest Aviva data highlights that the average family’s weekly food shop has decreased by 3% in the last six months, with savings of £7 a week adding up to £364 over the course of a year.

Nevertheless, saving looks to set to become harder in 2016. With debt levels on the up, the typical amount families are able to save has fallen in the short term by 7% from £113 in summer 2015 to £105 – the first decline since winter 2013.

Moreover, after a 2 year period of continued rises, the typical family income has also dropped for the first time since July 2012 with a 4.8% fall since summer 2015. The typical family’s monthly net income now stands at £2,024, a drop of more than £100 from £2,126 six months earlier.

It means that current family income levels have actually dropped back below the £2,053 first seen when Aviva started tracking data five years ago. When placed in the context of the average saving pot, families currently have close to only 1.5 months of income saved.

             

Winter 2010

 Winter 2011 Winter 2012 Winter 2013 Winter 2014 Summer 2015 Winter 2015
Monthly net income £2,053 £2,076 £1,793 £1,917 £2,043 £2,126 £2,024
Change N/A 1.1% -16.5% 10.6% 6.6% 4.1% -4.8%

With the strain increasing on family finances, Aviva’s data suggests the impact could be beginning to trickle down into how families make financial preparations for the future. One in five families now say they have made no financial preparation for the future, up from 18% a year earlier.

“The alarming levels of rising household debt, along with a recent reduction in income and savings levels, paints an uncertain picture for the family purse in 2016. With the possibility that the Bank of England could raise interest rates this year, families who have grown accustomed to cheaper credit – particularly those who have spent heavily over the Christmas period – need to ensure they are still fully prepared to manage debt repayments, as well as other monthly outgoings, should rates go up.

“That said, it is welcome news that families are now putting more money aside each month compared to five years ago. The fact that the average saving pot has increased against a backdrop of historically low interest rates is especially encouraging, although this progress could quickly be reversed if circumstances change.

“The low inflation rate has also eased pressure on the family finances, but this too cannot be relied on indefinitely. It leaves family finances precariously balanced, with the Office for Budget Responsibility forecasting that household borrowing will continue to increase every year until 2019/20 – a warning that must not be ignored.”