Teetering on the brink?

Tuesday, 30th January 2018

Teetering on the brink?

Are you chronically broke?

It’s a more common condition than you might believe according to the Royal Society of Arts (RSA) thinktank….

A recent study conducted by the RSA concluded that 70% of Britain’s working population suffers from it….

This 70% can be broken down into two smaller groups – the 40% who said their finances were ‘permanently precarious’ and the 30% who said they were ‘not managing to get by’….

  • One step from disaster….

The RSA study also reveals that 32% of British workers have less than £500 plugged away for a rainy day….

And that 41% have less than £1000 hidden under the mattress….

Almost 30% are concerned about the levels of debt they are currently shouldering….

And 43% of workers report that they don’t have anyone in their household on who they can depend to support them through a period of financial hardship….

Taken together, the figures serve to paint a grim picture of a society in which millions of people are one unexpected event away from financial disaster….

A broken boiler…. a knackered gearbox…. the need for some complex dental work…. It seems these or other potentially expensive scenarios could tip millions into a financial situation they are not funded to handle….

The RSA study suggests that wide swathes of the British working population are teetering on the brink….

  • But headlines and soundbites can be misleading….

But headlines and the conclusions of studies and reports and surveys have the potential to be misleading….

We must bear in mind that the conclusions in the RSA’s Thriving, Striving and Just About Surviving report are extrapolated from a survey of just 2000 workers….

So, it’s the kind of study that raises as many questions and doubts as it supplies definitive answers….

It’s one of those studies that might well-serve the needs of a special interest group looking for soundbites or a newspaper-headline writer seeking to catch the reader’s eye – but one that falls some way short of a conclusive document we can totally rely on….

Regardless of who the 2000 survey respondents were or how they were sourced and selected, it is dangerous to assume that trends within such a small sample translate accurately to the wider picture….

There is a limit to what 2000 workers – whatever happens to be going on with them individually at any one point in time – can tell you about a working population of 30 million+….

  • Relief? Really?

Headlines can be misleading in all sorts of way. Take this one from the 16th January edition of the Times newspaper….

‘Inflation relief for stretched families….’

Inflation dropped back a little in December. It was the first such drop since June 2017. The consumer prices index dipped from 3.1% in November (a near 6-year-high) to 3% in December.

So, in other words, inflation fell back a grand total of 0.1%….

Considering inflation rose to 3.1% from 0.5% in June 2016 directly after the Brexit vote, does a correction of just 0.1% really represent something that might be termed ‘relief’.

Is it something that would justify hanging out the bunting and inviting the neighbors round for drinks and a disco?

Probably not – especially given recent movements in the price of oil….

  • Oil says price rises ahead….

Oil – the lifeblood of the world economy – is on a charge again….

After hitting a low in early 2016, oil prices have been climbing steadily and have put on a particularly impressive spurt since October….

OPEC has agreed to extend production cuts throughout 2018. That means supply will be limited.

There will be no shortage of demand though. Whatever economic activity you care to think of has a dependency on oil. There are not too many businesses that don’t need it or use it in one form or another. Consumers are addicted to the stuff too.

In that kind of environment (one of constant demand and dwindling supply) prices are only going to go one way – up.

Petrol prices are already heading higher. And it will be the end-user of products produced by businesses – the already hard-pressed consumer – who ultimately picks up the tab as the steadily rising price of oil filters down through the economic food chain.

Newspaper headlines claiming that December’s 0.1% drop in the consumer prices index represents the beginning of relief from current inflation levels might just prove to be a tad premature….

Chances are that prices have the scope to rise higher still in the months ahead. Times will get tougher still. The strain is set to continue….

  • Can’t pay? We’ll take it away….

One way for consumers to avoid the rising price of oil is to give up the car….

That’s not an option many of us would willingly take. But it appears some consumers might not have a say in it.

The figures suggest the choice might soon be made for them. One in ten motorists are struggling to pay their car finance loans according to the RAC.

When you don’t pay, the car finance loan companies take it away. That’s the way the system works. And increasing numbers of car ‘owners’ are finding this out to their cost….

More will follow. That much is inevitable in an environment where complex credit agreements are being peddled across-the-board by commission-motivated car salesmen who have zero background in finance and zero knowledge of (or interest in) what constitutes good lending or good practice….

According to the Finance and Leasing Association, 70,000 cars are bought in Britain each month. In the year to November 2017, almost one million cars were purchased via finance deal.

Customers buying those cars amassed debts of £18 billion+. We’re not talking small potatoes here….

  • Potential fracture point….

If you’re looking for a fracture-point in the British economy – one that might bring the whole edifice crashing down in 2008-fashion – some commentators suggest the car loan market is the place to keep an eye on….

As recently as last week, Rachel Reeves, chairman of the Commons business, energy and industrial strategy committee, issued the following warning:

‘The easy car finance offered by some lenders could be a ticking timebomb for the wider economy.’

Words of warning issued by politicians are almost guaranteed to fall on deaf ears.

They certainly aren’t going to ween the millions of ‘It’s-my-time-to-shine’ consumers off the notion that they are somehow entitled to an expensive symbol of their success in the form of a brand-spanking-new car – whether they have earned it or can afford it or not….

That’s the world we live in….

One in which every Tom, Dick and Harry has not only ‘made it’ but is prepared to stretch himself to financial breaking point to prove it so….

One in which the the magic – or the curse – of credit makes available right now that which has not yet been earned and paid for….

It’s a funny old world. When they day of reckoning finally arrives, we might all end up paying a heavy price for it….

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths