From Shopkeepers to Shoppers

Why UK consumers' acceptance of debt is here to stay

Trevor Harvey
Henley Centre HeadlightVision

After months of headlines reflecting the growing uncertainty in financial markets, and rising concerns over debt in Britain, there is a need to investigate attitudes towards debt held by consumers. Of particular interest is the rise in acceptance of debt - when did it all become so normal? Rather than Napoleon's reported 'nation of shopkeepers', has Britain become a nation of shoppers, or is this reflective of only a minority?

Media reports have contributed to a growing debt hysteria, and chief among the influences on the growth of debt has been the boom, until recently, in UK property. Unsecured consumer debt doubled between 2000 and 2005, according to Bank of England reported figures. Yet since then, unsecured consumer spending has grown at a more modest rate of about 5% a year, while mortgage debt increased at about twice this figure.

Savings - the other side of the financial see-saw - has become less desirable than spending, with savings rates remaining largely static over the past decade, at a fraction of the amount of spending. Household savings ratio percentages, according to the Office for National Statistics, have fallen since their peak in 1992 of just under 12% to 2006's rate of around 5%. Saving, is seems, is just not as much fun as spending.

Figure 1: Income, spending and saving 

Source: ONS, 2007

In proprietary research undertaken by Henley Centre HeadlightVision for 'Planning for Consumer Change in the UK', around 47% of people believed "there is no shame in borrowing money". The market for helping people with their debt concerns has boomed - from debt consolidation to debt banishment through IVA and bankruptcy. The overall impression is that debt has gone mainstream. It is acceptable and indeed expected to have personal debt.

Societal drivers of attitude

There are six profound drivers of this attitude of acceptability towards debt - three driving it forward, and three mitigating against it. 

1. Sense of entitlement: Today's 'celebrity culture', where fame and riches are presented as aspirational and even attainable, fuels a desire to live a glamorous lifestyle. As more and more media coverage is devoted to celebrities, and reality TV shows continue to give people a taste of fame, the sense of entitlement to life's luxuries looks like a habit Britons will find hard to break.

2. More for less: At the same time, lower prices across all sectors of consumption have shifted expectations. Consumers expect more for less, and many purchases previously considered luxuries are now thought of as basics. Price wars between retailers show no signs of abating and 'value' culture is fast becoming ingrained in our spending psyche as bargain hunting becomes a consumer sport. 

3. Accelerated culture: Consumer attitudes have been shifting towards 'live for today', rather than 'save for a rainy day'. The accelerated culture we live in means that new fashions, products and concepts rise and fall quickly, and this looks set to remain as product and service providers compete for the consumer pound. As long as consumers covet the latest products, spending patterns will match.

4. Reappraising consumption: However there are signs that a reappraisal of our culture of consumption is beginning to occur. The 'Planning for Consumer Change' report has noted a decrease in the numbers of people agreeing that they are 'happy to have short-term debt to allow me to buy the things I want', from 43% in 2002 to 32% in 2007.

5. Popularisation of frugality: As indications of frugality as a new consumer choice grow, there has been a rise in the number of television programmes that help people to deal with their money worries - anything from cutting back on spending to beating the bailiff. Frugality is becoming popular education entertainment.

6. New values: Consumers are also showing a growing interest in the provenance of things they buy - the way it was made and the effect on the wider world. This has led to a renewed interest in the homemade and home-grown, which carries more meaning than shop-bought products, and may affect levels of retail consumption.

Investigating financial services attitudes

Henley Centre HeadlightVision established a Financial Services Segmentation of the UK, using its 'Planning for Consumer Change' proprietary research. The observations driving the segmentation were around two measures of engagement with finance and acceptance of risk. 

Looking at attitudes towards finances through these lenses created four broad attitudinal segments (see figure 2):

1. Confident Investors: classic financial hobbyists who tend to be more affluent and are financially astute. They tend to be adopters of new products and providers.