‘Tis the Season of Bad Money

The gleeful glint of joy in the eyes of young children at Christmas is only matched by the silent groans of parents as they face the spiralling seasonal costs with dread. For many, this again meant resorting to credit cards, borrowing against next year’s quality of life, and counting upon windfalls of optimism. In the USA and UK personal debt is growing rapidly. In the UK personal debt is increasing exponentially, doubling around every ten years. The gap between the true cost of living and the average income is yawning for the vast majority. Perhaps the Western economies have never ‘had it so good’, but given that some 95% of Western wealth is owned by less than 5% of the population (a figure harder to estimate with the black market than the number of fish remaining in our ‘black’ seas), this will come as scant seasonal consolation to the masses.

The greatest trick the ‘devil’ ever played wasn’t convincing the world that he didn’t exist - it was convincing the world that slavery had been abolished. As an old friend once quipped in response to a query about the sanctity of his seasonal nickname ‘Santa’, it is in fact an anagram of ‘Satan’. In fact more people are enslaved or otherwise ensnared within the hopeless mire of debt and poverty than at any time in our history. Caught within a vicious cycle of need, debt and promises of opportunity, much of the population works long hours on low income and without secure employment, kept suspended in animation by hopes of a better life. In this day and age, young people are especially vulnerable, starting life as they do burdened by debt, facing their own daunting personal Everest of costs and expenses if they are to succeed in life. As Walt Disney’s seven vertically challenged people might have said, “I owe, I owe, it’s off to work I go…”

Many consider personal debt to be a ticking ‘time bomb’ threatening the possessions and financial security of millions of households, at least according to a report commissioned by that bastion of social equality, the Conservative Party. In the UK personal debt currently exceeds £1.27 trillion (£1,270 billion), rendering some fifteen million British adults (around half of all households) acutely vulnerable to sudden changes in employment status, interest rates, or energy prices. The average Briton owes some £4,000 in unsecured debt, and total credit card debt within the UK exceeds that of the remainder of the European Union put together, making personal debt a very British and American disease. Such debt of course excludes mortgages, representing another £1 trillion of personal debt, and consumer credit lending which amounts to a whopping £212.2bn. Taken together this means that the average consumer (however elusive he or she may be) owes some £27,000 in personal debt (including mortgages), although some are naturally less equal than others.

Christmas can always be counted upon to raise the winter temperature by a few degrees, and this season the Brits are certainly throwing bundles of cash onto the Yuletide debt fire. Total spending is predicted to reach £51.6 billion in the UK this December, with payments ‘au plastique’ alone reaching £31.8 billion, £7bn of which will be made online. A staggering three quarters of Britons admit to festive financial anxiety this Xmas, and that is before they face the post-Christmas hangover of debt repayments. With an average seasonal spend of £1,287 per household on top of all the usual high costs of living, the typical consumer takes up to twelve weeks to pay off their Christmas spending spree (according to Virgin, fine purveyors of consumer credit cards).

Given that the combined value of all transactions made on plastic in the UK in 2005 was £470 billion, and that the average interest rate on credit card lending currently lies at 17%, it is little wonder that consumer credit agencies are fielding record numbers of calls. At least 24% of the UK adult population are presently drowning in the mire of debt or poverty. In 2006 the Citizens Advice Bureau dealt with over 1.4 million debt-related enquiries, as creditors stoop to new lows and leave no consumer protection laws unbroken in their relentless drive to recover outstanding debts. In 2006 there were in excess of 100,000 individual insolvencies within the UK, and most of the estimated 1.4 million British adults with over £10,000 in unsecured personal debt regard themselves as being ‘likely’ or ‘certain’ to declare themselves as being insolvent within the near future (due to the uncompromising cost of living in the rainy isles). Ultimately, the recent wave of liberal and unbridled borrowing in the UK translated into over 34,000 mortgage repossessions in the third quarter of 2005 alone, with millions more unable to meet their monthly mortgage repayments. Some two million Britons are thought to have entered into the inescapable black hole of personal debt.

So does all of this debt make for a very merry Christmas? Not really, as a quarter of British couples report that they regularly argue over their finances, a third lie to their partners about how much they spend on their credit cards, and even more confess to sleepless nights over debt. Well perhaps such problems are nothing that a Christmas drinking binge or a spot of domestic violence won’t solve, although mental health experts have coined the term ‘Money Sickness Syndrome’, or MSS to describe the national malaise. According to experts Money Sickness Syndrome is associated with stress, anxiety, depression, work absenteeism, relationship breakdowns and loss of libido. Part of a tide of newly coined and diagnosed mental ailments (not forgetting SAD, ADHD or AIP), MSS (only indirectly related to the UK department store chain) is believed to affect almost half of the adult population of the UK. Let’s face it, we’re all nuts…after all who in the right mind buys luxury goods with an 18%APR credit card or believes that they own their own home after borrowing on a £400,000 30 year mortgage?

Debts appears notably taxing to the youth. Following the American model of borrowing to pursue higher education, UK graduates left university in 2006 with an average personal debt of £13,252. Given that most graduates won’t earn that much in terms of annual salary for the first five years of their post-graduate life (due to internships, post-graduate education, and ‘work experience’), it is perhaps unsurprising that most will struggle financially through their early life saddled with low incomes and debt repayments, even if a lucky few ultimately ascend the career ladder in later life.

So where does this leave the cream of our youth, who now face the first of life’s many financial hurdles? As average house prices have now risen to over £150,000 within the UK, many (38%) will depend upon family wealth and generosity to help them to buy their first home, even though the average age of a first-time buyer has now risen to 29. As public transport is often either unaffordable or unavailable in much of the UK, the average car now costs over £5,500 a year to run, or £15 a day, an expensive essential for those in debt who need to get around. Now the average cost of raising a child (planned or unplanned) from birth to his or her 21st birthday has risen to £180,000, excluding the cost of the average wedding of almost £20,000, the first twenty years of adult life in the UK will cost some £300,000 in capital costs, excluding the provision of clothes, food, holidays, bills or debt repayments. Given that the average UK income is less than £18,000 per annum, and lower still for those aged between 18 and 30, this means that the cost of the first twenty years of adult life will either have to be negotiated with debt, or else deferred to later life for those born outside of wealth.

Generation Debt is understandably straining under the accumulating weight of college loans and other short-falls, a crushing load which materially separates today’s young adults from every previous generation. The young of today are simply paying off the debts and economic excesses of the generations that preceded them, forebears who, conveniently, didn’t seem to have to pay as much for their houses and educations. In the USA today almost two-thirds of twenty-somethings carry some personal debt, amounting to an average of over $16,000 per individual. Such debts soon force many young people to substantially alter their career plans. Around a quarter are currently leaving college to take up a job, and similar numbers delay buying a home, marrying, or having children for financial reasons. This has created a so-called ‘Boomerang’ generation of young adults, around one in five of Generation Debt, who return to live with their parents in order to cut costs. Some 55% of American twenty-somethings aren't currently saving for their retirement, if indeed they ever eventually do retire, and a further 40% of young Americans don't have a savings account to which they contribute regularly.

Whilst many ‘Boomers’ cheerfully recount their days of working through College, the average price of a public college education has far outstripped the rate of inflation, increasing by an aggregate of 268% over the past thirty years. The cost of private college tuition has also leapt 248% to an average of $22,218 a year, in parallel with a decline in federal aid for students. This year Congress cut a massive $12.7 billion from student-loan programs, the largest cut in Federal history, in part to fund the war effort in the Middle East. In Los Angeles some are canvassing at the UCLA to lower student fees at California universities, fees which have risen by nearly 80% over the past four years alone. The percentage of students who borrow for college rose to 65% in 2000-01 from 34% in 1977, whilst the average male college graduate, who once made the equivalent of over $50,000 a year thirty years ago, now rarely does so, whilst average house prices have more than doubled over the same period in real terms. The Boomers have certainly left their legacy. It would appear that Generation Debt will not be going half as far in twice the time. Doubtless extreme religious and political fringe groups will find rich pickings amongst today’s disaffected and disillusioned youth…