Family debt increases and savings decrease

Families in the UK are struggling to build up their savings as the impact of inflation puts pressure on incomes and debt levels, according to research from the latest Aviva Family Finances Report.

The report found that the typical monthly net income for families in the UK is now £2,066, an increase of 7% in the last year. However, not all family groups have seen an increase in their year-on-year monthly incomes and divorced/separated/widowed parents saw their monthly income fall significantly by 22% over this period from £1,387 in 2011 to £1,075.

However, while the average family income has risen over the year, debts have also been on the increase. The typical family debt - excluding mortgages - has increased by 48% from £5,360 in 2011 to £7,944  – 32% of the typical annual net household income. This shows that families are building on their existing debts rather than clearing them.

Families are saving slightly less each month than they were at this time last year. The typical amount saved on a monthly basis has fallen slightly from £22  to £21  – having peaked at £34 in August. Furthermore, 42% of families are now saving nothing on a monthly basis, 2% down on last year.

However, the number of families with no savings set aside has fallen slightly, suggesting that most families are trying to build up some sort of cushion against unforeseen expenses.

Despite the impact of inflation over the past year, the average monthly family expenditure has remained steady over the past 12 months. Housing remains the single largest monthly expense for UK families at 20% of their typical monthly income, followed by food (10%) and debt repayment (9%). The percentage of monthly income spent on food has stayed at a consistent level over the past year, indicating that although inflation on this item has increased, families are planning their food shopping and searching out value brands.

This trend of economising has also seen families cutting back on their non-essential spending. A fifth of families claim they are not spending money on personal goods, while 30% say that they do not spend on entertainment/recreation/holidays, and 42% spend nothing on leisure goods.

Over the next six months UK families are primarily concerned about the rising cost of living, the threat of redundancy, and meeting the cost of unexpected expenses.