Are consumers struggling to stay on top of their finances?
The timing of this latest BDI comes at an interesting moment for the country. Since October 2022, when the UK hit an all-time high of 11% inflation, interest rates mirrored those of the global financial crisis of 2008. And whilst the recent reduction by the Bank of England of the underlying base rate to 5% is welcome, we must ask whether or not these circumstances have impacted consumer spending and saving behaviours over time.
These key questions are what our latest BDI aimed to answer. We surveyed the public with questions designed to explore the impact of increased costs of living, and whether months of economic uncertainty have led to a significant change in consumers’ actions and opinions in relation to their finances.
We examined how much consumers are spending, as well as how the economic climate has impacted their saving behaviours, where they choose to save and when they are able to do so. Additionally, we also asked whether they believe their banks are supporting them adequately when it comes to saving, and what extra support they would like their bank to provide.
The state of borrowing and saving
This latest tranche of data also provides insights on the British public’s use of the ‘credit’ system, as well as exploring consumer understanding of crucial aspects of credit, including bank fees, APRs, interest rates and repayments, to determine whether they are using credit responsibly.
Since the cost of living crisis began in 2021, people across the UK have had an uphill battle against increased inflation and rising living costs. This has impacted the mindset of consumers and changed the relationship people have with their finances. In this vein, we set out to establish the current landscape of saving and spending within British households and what, if any, the impact of the increased cost of living is having.
Firstly, we wanted to understand whether the British public felt that saving continued to be a priority, set against the backdrop of a challenging cost of living landscape. Interestingly, despite increases in costs, 84% of respondents said that saving money is still important to them.
This sentiment rises to the highest level amongst 25-44 year-olds, where 89% said that saving is important to them. Despite nearly 90% of respondents wanting to save money, just over two thirds (69%) are currently able to do so. This rises to 77% for 25-34 year-olds, who are saving the most, with an average of £246.79, per month. At the other end of the spectrum, 18-24 year olds are saving the least, with an average of £188.19 per month, but 76% are still managing to save.
Whilst ONS data shows people in their forties earn the highest amount on average (£39,491), our data shows those aged 45-54 are least likely to be able to save. Only 55% of this group are saving each month, at an average of £212. There are a number of factors that are likely to be contributing to this, including the fact that those in this age bracket are more likely to own a home, and are more likely to have children or other dependents to support financially.
Whilst different demographics are saving different amounts, every age group still views saving as a key priority. Our next questions explored what they are saving for, and where they chose to save.
An opportunity for banks
The discovery of the UK’s saving ambitions, combined with the average British consumer having £2,692 worth of credit card debt, provides banks with an opportunity to support their customers even further.
This latest data indicates that, despite the regular use of both overdrafts and credit cards, customers are prioritising credit card debt repayments ahead of overdrafts. Saving priorities are also becoming more short-term to ensure financial security, with large purchases or savings goals being deprioritised. When large purchases are required, customers are turning to credit facilities.
The pressure of the current economic environment provides banks and financial institutions with the continued opportunity to support their customers through increased educational support, helping them to make more informed choices and make the most of their money and their savings.
Additionally, banks have the opportunity to offer innovative new products to their customers. In particular, a more open-minded wave of new and younger customers have demonstrated their openness to engage with new and modern banking products such as buy-now-pay-later (BNPL) products, sophisticated budgeting apps and spending limit tools.
Those financial institutions that can continue to evolve and rapidly deploy innovative tools and services that help their customer manage their spending and their savings, will ultimately reap the benefits of increased loyalty.
Download your copy of our latest GFT Banking Disruption Index here
