Spending—a sterling idea

Brits are using credit like never before. Whatever happened to frugality?

Spending—a sterling idea

Dan Kitwood/Getty Images

Gayle MacKay knows what it’s like to live beyond her means. The 32-year-old public relations professional has spent most of the last decade scraping by on a salary of under $30,000 a year while living in one of the most expensive cities in the world: London, England. Like millions of other Britons, MacKay has lived either at home with her parents or in shared accommodation, and despite steady employment, found herself barely able to make ends meet. She’s recently relocated to Barcelona, where, she jokes, “it’s the done thing to be impoverished,” but in London the pressure to spend money she didn’t have was relentless. “Every month by the time payday rolled around I would literally be right down to my last penny—and when I say last penny I mean I was up to my big overdraft limit. It was scary.”

MacKay is part of a new generation of Britons who, despite the high cost of living and low wages, have eschewed frugality—once a time-honoured tradition in a nation that finally ended food rationing in 1954.

A new study conducted by the insurance company Bright Grey has found that nearly seven million Britons are knowingly living well beyond their means, and a further five million don’t bother to budget. Even more surprising in a country afflicted by widespread unemployment and radical austerity measures, 82 per cent of respondents claimed they had not changed their lifestyle spending at all during the last 12 months.

The study examined two segments of British society: those who had been affected by job losses and government cutbacks, and those who hadn’t been affected and might even be better off because of low interest rates. Both groups, they found, were dramatically overspending. The first accrued debt in an effort to maintain a lifestyle they could no longer afford, while the second group seemed to be spending money while they still could.

So what prompted such a radical change in the spending habits of a country known for cold-water flats and coin-operated heaters?

Ten years of easy credit, says Roger Edwards, marketing director for Bright Grey. “Frugality is a national stereotype but it’s no longer accurate,” he said in an interview. “The British people did have that mentality, but the reality is that over the last 10 to 15 years we’ve noticed a huge change in consumer spending patterns and even their moral outlook as well. We’ve gone through a long period of being able to get a credit card just by signing a paper, and people got used to having whatever they wanted—that’s an extremely difficult mentality to break.”

MacKay agrees that overspending seems to be the norm among her friends, most of whom are young, educated urbanites employed in the notoriously low-paying media and arts sectors. “Having no cash never stopped me going out or shopping,” she admits. “My generation seems to be having a pretty good time of it, living in the now. I just don’t think we’re particularly good at saving up to buy a house or putting money into a pension plan when we’d much rather go out to dinner instead.”

Part of the explanation for this seize-the-day attitude toward cash can be explained by sheer lack of it. While credit has been more readily available in the last decade, wages have failed to keep up with the rising cost of living—a dangerous combination when it comes to consumer debt. “The average income in the U.K. remains at £20,000 to £25,000 a year, despite rising taxes and cost of living,” says Edwards, “and for many people that’s simply not enough to have a comfortable life.”

This economic disparity between lifestyle expectation and actual earnings has led MacKay and her friends to forgo fantasies of achieving security through fiscal restraint. “Property prices are so ridiculously high that anything we might be able to save now will be nowhere near enough to buy a house in the distant future, so we might as well have fun while we still can,” she says. (Despite a softened market, the average price for a home in greater London is still nearly $700,000—far out of reach for most wage-earning city dwellers.)

For many contemporary Britons, happiness is now defined by free-wheeling use of credit. Convincing them otherwise might be a hard sell. But last week, Prime Minister David Cameron announced that in the wake of his government’s radical austerity measures, he has commissioned the Office of National Statistics to conduct a survey on the nation’s general well-being, in an effort to place Britain on a “happiness index.” The initiative is intended to measure national prosperity and success on a non-GDP-based scale. (Canada and France are said to be looking into similar initiatives.)

Edwards admits the impulsive consumer mindset is hard to break, but warns that people living beyond their means ought to think about the financial risks involved—for instance, what would happen if their source of income dried up? As an insurance salesman, he is committed to encouraging Britons to be more risk averse and return to their frugal roots. “We’re not saying people should sit in their kitchens eating bread and water—but they do need a bit of a reality check.”

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