Credit, collections & insolvency news
More than a quarter (26%) of UK consumers are spending more than they earn each month, according to early findings from the 2023 European Consumer Payment Report, conducted by credit management services provider Intrum.
Of those overspending, the average amount was £190 a month – adding up to £2,280 a year. Another 53% said they are only just breaking even, leaving them teetering on the edge at a time when many are coming to the end of cheap rates on fixed-term mortgages.
The early findings lay bare the experiences of 20,000 consumers across 20 European countries. They paint a stark picture of wellbeing as households grapple with the impact of rising interest rates and high inflation.
Many consumers’ resilience is hanging by a thread because they lack any ‘cash buffer’ to cover unexpected costs. Worryingly, a quarter (24%) admit they have no savings to fall back on, and a further 17% have less than one month’s income saved.
Intrum UK’s Managing Director Eddie Nott said “This level of overspending by a significant segment of the population is extremely worrying.”
“Over time, relatively small amounts can easily mount into bigger debts. Many people have already gone through their savings during the last few difficult years and have no buffer to cope with the financial challenges they are facing.”
With their personal finances under pressure, a third (33%) of consumers admit they have failed to pay at least one bill on time in the last 12 months. This is the highest proportion in Intrum’s annual study since 2019.
The main reason for failing to pay bills is simply not having the money required to pay (55%). Yet more than a third of consumers (37%) say they feel less guilt about dodging their payment due date than in the past. The finding suggests people believe reneging on payments is a natural, and necessary, consequence of the more challenging economic environment.
With greater pressure on their disposable incomes, consumers are also drawn towards brands and businesses that show they understand the changing landscape.
Half (49%) of UK consumers say they are more likely to spend money with businesses that offer flexible payment terms such as partial payments, multiple payment methods or flexible due dates. More (65%) believe that companies should offer flexible payment methods to consumers during difficult economic periods.
Meanwhile, three quarters (74%) of consumers say they would stop spending money with a business if they thought that it was guilty of ‘greedflation’ by raising its prices when costs go up, but choosing to not reduce them when costs fall.
Nott continued “Businesses need to work sensitively with consumers to combat their debts. Many customers simply cannot afford to pay their bills and taking an aggressive stance won’t make any difference. Instead, they need to look for sustainable payment plans and longer-term solutions.”
“With large numbers of people spending more than they can afford, businesses should prepare for increasing numbers of indebted customers needing support in the coming months and years.”
Consumers’ outlook on the future is also bleak, with just 44% expecting their financial situation to improve over the next 12 months, fuelling a wider sense of unease and discontent.
On average, people believe that high inflation will last until early 2025, while at the more pessimistic end of the scale, 16% believe high inflation will never end.
As a result, a third of consumers (33%) may demand a pay rise from their employer this year, while 20% anticipate taking on extra credit to make ends meet.