British consumers are beginning to adopt new ways of saving money and making the most of their earnings, but many are still struggling to make ends meet.
Those are the key findings of a new report by the Money Advice Service entitled The Financial Capability of the UK, which shows that more than half of people struggle to make it to payday each month, while a third have experienced a severe shock to their finances in the past three years.
In 2006, the proportion of people struggling to keep up with their bills and credit commitments stood at 35%, but this has increased to 52% in 2013.
The figures correlate with a substantial drop in income; 21% of people now earn less than they did three years ago, and 42% of people would now have to think very hard about how to pay off a bill that totals more than £300.
Although the figures indicate that people are struggling, the report found that consumers are thinking of ways to maximise their income, with 84% of respondents keeping track of their money each month and a similar figure putting something aside for a rainy day, where possible.
A further 46% of people make a personal budget each month to ensure their expenditure does not exceed their income, though 17% of consumers admit that they still buy things that they cannot afford.
Caroline Rookes, chief executive of the Money Advice Service, said money management may be easy in theory, but in reality many people are struggling to ensure they live within their means.
“This report reveals just how difficult it is at the moment for so many of us, but also highlights ways we are adapting to manage financially. In these tough economic times, this report identifies those that can, and do, manage their money, and also those that don’t,” she added.
The data brought a number of harsh realities to light, including the fact that 18 million UK adults run out of money before payday, not all of whom are on low incomes; a third of those who earn over £30,000 claim that they are finding it difficult to live within their means at present.
Lack of knowledge
There are also serious knowledge gaps when it comes to understanding financial affairs, with 12% of people believing that the current Bank of England base rate is over 10%, and 16% unable to identify the balance on a bank statement.
These statistics are compounded by the fact that 18% of people would go on a night out if invited, even if they could not afford it, while a quarter of consumers believe in living for today, rather than planning for the future.
Commenting on the report, Michael Ossei, personal finance expert at uSwitch, said it confirms that many consumers are “ill-equipped, underprepared and under pressure” when it comes to managing their finances.
He added: “Unprecedented hikes in essential bills and rising inflation are stretching household budgets to the absolute limit, while many also don’t have the basic skills to make what little they have go further. With this in mind, it’s vital that people look for the best ways to save money and balance the books.”