Middle to lower-income earners - C1C2DEs - will become even less attractive than they perhaps already are as potential leads for adviser businesses, according to research published by Key Note.
The marketing research consultant says changes in earnings patterns and fiscal policy mean the level of disposable income available to save or invest is quickly disappearing for those not rich enough or poor enough to qualify for means-tested benefits.
“With current social policies favouring families and pensioners on very low incomes through the tax-credit and pension-credit systems, and economic policies favouring entrepreneurs and directors of large companies, those in the middle have little chance to amass capital and are not poor enough to qualify for many, or any, means-tested state benefits,” the company’s latest report states.
The lower rate in earnings growth of middle-income earners relative to higher income earners since the 1980s is evident in the record levels of secured and unsecured debt facing the country, Key Note says.
Increasingly, debt has been the only way to maintain rising consumption levels. Middle-income consumers may be looking to cut their debt and save more, but this is becoming increasingly difficult to do.
Out of a sample size of about 1,000 adults nationally, well below half, 43.6%, agreed their savings had increased in the past year. Among the C1 and E grades the rates dropped to 38% and 10% respectively.
About one in six people admitted to not having any savings at all. Those in the lowest three income deciles spent more on debt consolidation loans than savings and investments. And as such loans are generally arranged over a longer period than the original credit, it further limits scope for saving in the future.
“The government seeks two irreconcilable immediate objectives – a rise in personal saving (particularly pension saving) and strong retail spending in order that the economy is viewed as an expanding one,” Key Note's research report says.
“Those on low incomes have little opportunity to build up savings and investments unless they tightly rein in their discretionary spending. However, should this happen, GDP growth would suffer.”
Despite claims by many surveyed to be saving more, Bank of England figures “show that this is not happening in practice and that personal debt continues to rise.”
“It appears that there may be some self-delusion going on or at least a wish to hide rising debt from other people.”
“The ‘flexible labour force’, who have limited opportunities to accrue capital but do not qualify for substantial help from the public purse, are the losers in the current scenario. This group includes young workers who, if they are graduates, often start with debts of several thousand pounds; female workers; skilled manual and craft workers; and office and technical workers. With the overall economic outlook suggesting that, as a nation, people are going to become less affluent, the problem may well be exacerbated.”
Affluence and affordability was the subject of research published last month by Halifax, which looked specifically at the cost of private education. Affordability was defined as school fees for one child being equivalent to 25% or less of annual average gross earnings in any particular occupation.
Halifax suggested out of 19 occupations in 2000, some 10 on 2005 average earnings and cost figures could no longer afford private education. These 10 included IT professionals, pharmacists, architects, quality and customer care managers, scientists, police officers, engineers, journalists, writers, and tax advisors – in the C1C2DE range or even into B territory.
The Key Note and Halifax findings suggest providers such as Standard Life will find it hard going to make headway with the proposed “SAVE” regime – Simplify, Add value, Value savings and Educate – outlined yesterday by Standard Life Assurance chief executive Trevor Matthews at the ABI’s Saver Summit.
In particular his insistence a cultural shift will be required to ensure more people save to buy than borrow to buy runs smack into the point made by Key Note GDP growth would be hit by any such change in savings and spending patterns.
Boosting financial education is seen by many in the industry as laudable, yet, again, it does not explain how those with greater awareness of financial products and services would be any less incentivised to rely on means-tested benefits, especially given Key Note’s findings of spending and savings patterns among the lowest three deciles by income.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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