Debt culture is alive and well in Britain

Have you taken a good look at the financial industry lately?  Debt charities cry wolf and petition the government to protect the masses in part for the free advertising, and in part to protect the financially uneducated from unscrupulous lenders.  The government is debating whether to make financial institutions responsible for lending too much to consumers.  Credit rating registry companies are set to combine information from several institutions and make it readily available to lenders.  The number of people going bankrupt has reached record highs.  Wherever you look the writing on the wall spells Doom.  

It makes you stop and ask yourself who is feeding the current housing market boom and how the national personal debt can increase a million dollars every four minutes.  If you read the pessimistic reports in the financial news, it leaves you believing that a recession is around the corner, and millions will find themselves on the streets. 

The financial institutions are blaming everyone from the government to the debt consolidation companies for the problem.  Anyone with a grudge or a knife to stick in someone’s back is blaming the banks. 

A small group of analysts are sitting back and laughing.  Despite the fact that millions of people are expected to go bankrupt, they are still spending. They are not worried.  Why worry? The stigma of bankruptcy has dulled.  The only consequence is losing your home and being unable to borrow more money for a year.  After that you can start the vicious cycle all over again.

The problem is not debt.  The problem is not bankruptcy. The problem is simply that many UK adults have lost the hope that they will ever build wealth or enjoy a ‘mortgage burning’ ceremony. 

The UK is not the only country that has experienced this loss of hope.  Adults in Japan lost the hope of ever owning a home a couple decades ago.  In fact, the most that many Japanese families can ever hope to own is an automobile.

Britons are aware of the dangers of interest rate hikes and the effects of inflation. They are aware that it is a game of cat and mouse which will eventually land them in court.  However, when faced with the choice to live a good lifestyle, or do without, they are choosing the lifestyle.

Jonathan Said, a senior economist at the Centre for Economics and Business Research, states that the increasing financial awareness in the UK is not discouraging Britons from borrowing money.

Today’s Britons are comfortable with the knowledge that they will retire in debt.  They would rather still owe money when they turn 65 than struggle to pay it off, Mr Said said.

"These things change quite slowly over time…You would expect consumers over time to become much more conscious of the risks they are taking on," he continued.

"However, they do seem to be happy to take on more debt. The reason why consumer spending has been so high despite rising interest rates in recent months is partly because of that - so we are getting more volatile.

There is a chance that the UK may just be playing ‘catch up’ with the rest of the world.  Take a current headline as an example.  Record numbers of women are entering the work place to make a second income instead of remaining at home.  

‘Latch key kids’ may be a new term in many areas of the UK, but it is a 30 year old term in North America.

Women still retire to their homes and child raising in Japan, but remember that these people have stopped trying to own their own homes. 

There is a few old-school economists telling people that they can build wealth if they never go into debt.  This is a fact.  You can probably retire a millionaire if you never borrow a penny.  However, it will take you ten years to own an automobile and up to thirty years to buy your own home.

Today’s ‘I want it now’ culture will never tolerate that type of financial strategy.  People do not think in terms of decades anymore. They think in terms of months.  Tell someone that they can pay off all their debts in a year if they budget carefully, and they will still opt for a five year debt consolidation loan, because it will free up more money to borrow today.

The debt culture does work, as long as too many people do not petition for bankruptcy. However, we have not seen the breaking point yet.  In 1998, a total of  25 500 people either went bankrupt or took out an IVA.  That number grew to 107 000 in 2006.  Based on current figures, it will easily increase to more than 210 000 in 2007.  These are startling figures, but clearly they do not represent the breaking point.

The population in 2001 was 52,042,000 in England and Wales with half the population over 16 years old married.  Scotland’s population over 16 years old was 5 052 011.  When you look at this type of number, 120 000 people going bankrupt a year is not very high.  Also, consider that after a year or two, the people who went bankrupt this year will be borrowing money again.