FOOL'S EYE VIEW
The Power of (Loving) Credit

By Jane Mack (TMFJane)
August 3, 2001

A few days ago I wrote an article about Debt and the Economy, which was perhaps a bit short on facts and rather long on opinion.

Nevertheless, in spite of the whimsical nature of the article, it struck a chord with a number of people -- not least because many of us don't really understand the ins and outs of important things like The Economy, and how Consumer Debt has an effect on it.

For those of you who prefer facts to opinions – you may like to prepare yourself for a basket full of numbers. (I have to admit that figures don't mean that much to me but, if you're the sort who likes to eat them for breakfast, then you'll probably enjoy feasting your eyes on these.) Let's take the credit card first of all.

Now, the credit card obviously holds certain advantages over other forms of borrowing because it's so easy to use. With most other kinds of borrowing you have to make a direct application to your lender before you can get at the money – and you usually have to tell them why you want it. Not so with a credit card. You can buy just about anything you like (within your credit limit), with your little piece of plastic.

The strange thing is that, while there has been an explosion in the types of cards on offer (1,300 different brands at the last count), the level of penetration has hardly changed at all in the last ten years. There are still roughly 51% (23.7 million) of us who have a credit card, and yet there are now 41.4 million cards currently in circulation compared to 28.3 million in 1995. In other words, those of us who use credit cards are simply collecting more and more of them in our wallets.

Not surprisingly, the amount we're borrowing on our cards has also jumped dramatically. According to research published by Mintel, we owed about £30 billion on our credit cards in May 2000 compared to £13 billion in 1995. And since about half of us pay off our cards in full every month, it means the remaining half is carrying average debts of £2,500.

The personal loans market is also currently worth around £30 billion – almost double the amount borrowed in 1995. Some 14% of all adults currently have a personal loan. This equates to around 7 million people and amounts to an average loan of around £4,500 per person (although some consumers are obviously paying off personal loans that they took out several years ago).

Another research company, Mori, recently carried out some investigations for the debt management company Baines & Ernst, who claim to have the largest database of people in serious debt in the UK. It has over 50,000 customers, with a total of over £1 billion of managed debt. Yes, you read that right. These people are carrying an average of around £20,000 each in debt.

The Mori research found that, over the past four years, there has been a striking change in the social profile of people in debt and a steep increase in the levels of debt.

In 1997, when Baines & Ernst's records began, the average customer had a debt of under £10,000. This has now risen to £19,238.

In 1997 the majority of customers were in their late 20s. Today the average customer is 35.

Baines and Ernst concluded: 

"There has been an explosion of debt in this country. In the last four years, our average customer's debt has doubled. Debt has spread from low income groups to so-called 'middle England'. We are now facing a credit-fuelled economic time bomb."

We've turned from a nation that used to have a horror of debt into one that loves it. And it appears that older is certainly not wiser.

More: the Fool's Get out of Debt Centre