Money Matters January 2015

Contents

2. Introduction

3. Key Points

4. Compared to Last Year

5. Main Concerns for 2015

6. Salary Expectations

7. Debt Expectations

8. Credit Used

9. The Housing Market

10. Household Spending

12. Lifestyle

14. A £500 Windfall

15. Financial Outlook

16. Overall Optimism for 2015

17. Overall Conclusions

18. Contact

Our annual ‘Money Matters’ Snapshots survey collects consumers’ attitudes and concerns relating to the overall economic outlook for the coming year and how these impact on perceptions of people’s own personal financial situation.

This is the fifth year in which we have conducted the survey, following the initial benchmark research in January 2011. At that time it seemed like the worst of the economic crisis was over with almost continuous (albeit extremely modest) growth in GDP throughout 2010. In reality the next few years proved to be an economic rollercoaster with various predictions of when the long awaited economic recovery would happen proving overly optimistic. However as 2014 progressed, it seemed that at last the economy was indeed on an upward trajectory with the UK’s GDP growing at a faster rate than any of its G7 peers and the lowest level of unemployment for 6 years being recorded. However, in the third quarter of 2014 the recovery looked like it may be losing steam - growth in GDP slowed, news from the Eurozone, our biggest export market, was worrying, the government deficit remained stubbornly high and welfare payments were still rising in real terms. Therefore from an optimistic start, 2014 ended on a more cautious note, with speculation that 2015 may bring further spending cuts and/or tax rises.

So given this mixed picture, what do UK consumers feel that 2015 is likely to mean for them in terms of their personal financial situation? In order to answer this question we interviewed a nationally representative sample of 405 UK respondents. The survey took place online between 27th December 2014 and 6th January 2015.

We have mainly reported on changes from 2014 to 2015 but data for the past five years is available by contacting McCallum Layton (see the end of this report for contact details).

Introduction

2

Our 2014 Snapshots showed that consumers were finally feeling more positive about their own personal financial situation after several gloomy years. Encouragingly, it is apparent from our most recent survey that this upward trend in optimism has continued with a significant increase from 2014 in the average optimism score (5.63 where 10=Extremely Optimistic compared to 5.14 a year ago).

Moreover, although a substantial minority are still worried about the year ahead, the proportion has fallen to its lowest level since the survey began. The same is true of the percentage who believe that the coming year will be a bad one for them financially. In addition, there has been a significant rise in the percentage who agree with the statement ‘I’m better off than I was 12 months ago’ – from 21% in 2014 to 27% this year. Reflecting the fact that many people are feeling more secure financially, the average amount of a £500 windfall that would be saved was at its highest level in 2015 since our survey began and the average amount that would be used to pay off debts was at its lowest level.

As in previous surveys, younger people are amongst the most optimistic about their financial prospects, which is no doubt linked to the fact that they have greater expectations of receiving an above inflation salary increase. Perhaps reflecting this higher level of confidence younger consumers are most willing to take on additional debt, particularly in the form of short-term/pay day loans, as well as spend more on non-essential items such as days out, eating out and day to day treats and luxuries, including chocolate and confectionery.

However, it is interesting to see that the under 35s are also more anxious than older people about certain aspects of the year ahead; they show the highest levels of concern over rising food prices, inflation, job losses and whether they will be able to keep up with their mortgage or rent payments. This age group is also most likely to find it difficult to move up the property ladder, with a third of homeowners under 35 saying that current economic conditions and house prices mean they are less likely to move this year (up from 24% in 2014) compared to only 19% who say they are more likely to move. In addition, half of all under 35s are concerned about rising house prices, compared to just a quarter of 35-54 year olds.

Our survey reveals as a result, this is also the age group most likely to feel that their current financial situation is negatively affecting their health and/or happiness, with around half of all under 35s agreeing with this statement.

Key Points

3

So why are some people more concerned about their financial situation?

The main reason is consistent with previous years, with respondents expecting prices to increase but annual income to remain steady or even fall.

Higher bills / energy costs

13%

37% of respondents are more worried now than

they were one year ago – significantly less than the proportion seen in 2014

and the lowest figure since our survey began five years

ago

Compared To This Time Last YearTo begin with we asked people how worried they are about their financial situation now compared to the same time last year.

Just under two-fifths (37%), say they are more worried now, significantly lower than last year’s figure of 44% and the lowest proportion since our study began. Around half, 52%, are just as worried about their financial situation now as they were this time last year, while around a tenth (11%) claim to be less worried.

Over half (54%) of under 35 year old consumers are more concerned than last year, significantly higher than the corresponding figure for older people.

Base: More worried about the year ahead (150)

4

More worried

About the same

Less worried

37%*

20152014

44%

52%48%

11%8%

*Statistically significant difference vs. 2014

Everything is going up in price

18%13%

11%

7% 7%

6%

Reduced income/pay

cut

Less Money

Risk of redundancy / job security

More debt/too many

debts

Cost of living increasing faster

than income

Unemployed/made redundant (self or

spouse)

Why are you more worried than you were

last year? Spontaneous

6%

We gave respondents a list of potential areas of concern for the economic outlook over the next 12 months and asked them to say how worried they are personally about each one.

As in previous years, the main sources of anxiety are increasing energy and food prices and rising inflation, with the majority of consumers saying they are worried about these issues. However, the proportion expressing concern about each of these has fallen significantly since this time last year and in each case is now at its lowest level since our survey began.

By the end of 2014 unemployment had fallen to its lowest level in six years and this change is reflected in these results as there has been a significant decrease in the proportion saying they are worried about public sector job losses or the loss of their or their partner’s job.

The extent to which consumers are worried about these issues varies by age, with under 35s being significantly more likely than older age groups to be worried about public sector job losses, rising inflation, rising food prices, child benefit cuts, rising house prices, a rise in mortgage interest rates and being unable to pay their monthly mortgage/rent payment.

Main Concerns For 2015 % Very / Quite Worried

The proportions who are concerned about increasing food and

energy prices and rising inflation are significantly lower in 2015 than last

year. 5

2015

2014

Rising energy prices 88%

Rising food prices 67%* 82%

Rising inflation 60%*

75%

Eurozone crisis 46% 48%

Public sector job losses and their impact on the economy

46%* 53%

Continuing low interest rates on savings accounts

50% 53%

Being unable to pay your monthly mortgage/rent payment

33% 37%

Loss of your or your partner’s job

33%* 41%

Falling house prices

Child Benefit cuts 25% 24%

A rise in mortgage interest rates 37%

Rising house prices 28%

*Statistically significant difference vs. 2014

74%*

33%

30%

19% 23%

43% N/A

The impact on the economy of the Russian economic crisis

Salary ExpectationsSalary expectations remain similar to this time last year. Around half (52%) of workers expect to receive a salary increase in the coming twelve months, although only a third (34%) believe this will be above or in line with inflation. Overall, two thirds anticipate that their income will not rise as fast as inflation, in essence a pay cut, leaving disposable income squeezed.

Under 35s are the most positive about their salary expectations, with 14% anticipating an above inflation increase in the coming year. Public sector workers and those with an income below £25,000 are most likely to expect a below inflation increase.

6

*Excluding those not in work

8% Above inflation increase

26% Increase in line with inflation

No increase 45%

Pay cut 3%

18% Below inflation increase

6

Given that for many, wages are unlikely to keep up with inflation, do people expect to have to increase their level of debt?

A very similar picture is seen to last year, with around three out of ten expecting their level of debt to increase. Half believe their debt level will remain the same while only a fifth anticipate a fall.

Almost half (45%) of under 35 year old consumers anticipate an increase in their debt whilst a third of those aged 55 and over expect the amount they owe to fall.

Debt Expectations

Increase greatly

Increase slightly

Stay about the same

Decrease slightly

Decrease greatly

2015

2013

2012

The proportion of consumers who

envisage that their debt will increase over

the coming year has steadily risen, reaching its highest point of 29%

in 2015.

5% 15% 62% 10% 7%

8% 14% 56% 16% 7%

8% 21% 50% 17% 4%

7

2014 8% 19% 53% 16% 4%

We asked those who anticipate that their debt will increase/decrease what type of credit they believe they will use more or less of.

The table below shows of the total sample of 405, the percentage who think that they will increase or decrease each type of debt over the coming year.

Net scores calculated by taking the difference between those who would increase their level of debt and those who would decrease it

Overall, a slightly higher proportion intend to increase rather than reduce their use of credit cards, overdrafts, pay day loans and store cards in 2015, a similar picture to 2014. The only form of credit where there is a net loss is in the use of long term loans (1+ years). The vast majority of respondents intending to increase their use of short-term / pay day loans were aged under 35.

Type Of Credit Used

Credit Card

Bank overdraft

Long term loan (1+ years)

Short term / pay day loan

Store card

Increase

14%

8%

3%

4%

4%

Decrease

11%

5%

4%

1%

2%

Net

+3%

+3%

-1%

+3%

+2%

Net 2014

+3%

+6%

-

+3%

-

8

The Housing MarketThe UK housing market saw a boom in the spring and summer of 2014, particularly in London and the South of England, but started to slow down towards the end of the year. Changes to the way stamp duty is calculated appear to have had little effect on house sales and uncertainty over the likely outcome of the general election in May 2015 will probably dampen activity for the first half of this year. Overall, the rate of growth in house prices in 2015 is expected to be around half that seen in 2014, although it should be noted that last year there were wide variations across the UK in the strength of the housing market.

Respondents were asked how they feel economic conditions and house prices are likely to affect them in 2015.

21% of homeowners and 30% of non-owners say they are less likely to move/buy this year, which is slightly higher than the comparable percentage last year. Only around 1 in 10 are more likely to move home/buy.

9

Home owners

Non-owners

More likely to move / buy

9%

4%

Less likely to move / buy

21%

30%

Net2015

-12%

-26%

Net2014

-8%

-17%

Around a fifth (19%) of under 35 year old home owners believe they are more likely to move in 2015, which is significantly higher than 35-54 year olds (4%), indicating a desire amongst younger people to rise up the property ladder. However, the proportion of this age group who believe they are less likely to move this year as a result of current economic conditions has increased significantly since 2014, indicating that for many, the state of the housing market is making it difficult for them to realise their property aspirations.

Net scores calculated by taking the difference between those who are more likely to move/buy and those who are less likely to

We asked respondents about items that they expect to spend more or less or the same on in 2015 compared to last year, grouped into two broad categories: Essential items and Luxury/Discretionary Purchases.

Essential ItemsTowards the end of 2014 wholesale energy costs were falling, but most energy companies are failing to pass on these lower costs and many customers do not shop around for the best available deal. So do consumers feel they will be paying less for energy in 2015?

Overall, three out of consumers expect to pay more for their gas and electricity in 2015, a significant fall from 69% last year, (when the 2014 survey was conducted many of the Big Six energy companies had just announced energy price rises, leading many consumers to take out a fixed tariff to protect themselves from future increases). A third of households expect to pay the same but only 7% expect to pay less, the same percentage as last year.

Anticipated expenditure on food and groceries is similar to last year, with on balance a net 32% of respondents believing they will spend more on budget food and groceries and a net 18% expecting to spend more on general household food and groceries. The fact is that at the time of our 2015 survey the cost of many basic food items (such as cereals, dairy products and sugar) was in fact falling, however this message does not seem have had an impact on consumers who still seem to perceive rising prices to be the norm.

Under 35s are significantly more likely to say they will spend more in 2015 on budget food and groceries (54%) than older age groups.

Household Spending

Gas and Electric

Budget food and grocery brands

Household food and groceries

More

59%*

41%

36%

Less

7%

9%

18%

Net 2015

+52%*

+32%

+18%

Net 2014

+62%

+30%

+18%

The proportion who expect their expenditure

on gas and electricity to increase in 2015, is

significantly lower than in 2014 (59 % versus

69%).

10

Net scores calculated by taking the difference between those who would spend more and those who would spend less

*Statistically significant difference vs. 2014

In contrast to spending on ‘essential’ items, between a third and 45% of consumers expect to spend ‘less’ on luxury items this year and the net score for each item is a negative figure, indicating that a higher percentage expect to spend less on the item this year than anticipate increased expenditure.

However, the net negative scores for 2015 are generally significantly lower than those recorded in 2014 – indicating that on balance there is higher propensity to increase spending on many luxury items than was the case last year. The greatest differences between the two surveys emerged in relation to expenditure on ‘day to day treats and luxuries’ and home improvements indicating that these are the areas which are most likely on balance to see increased spending this year.

Under 35s are significantly more likely than older age groups to say they will spend more on all discretionary purchases, with the exception of home improvements and holidays.

Luxury / Discretionary Purchases

Alcoholic drinks in pub / club

Day to day treats and luxuries

Chocolate and confectionery

Eating out

Charity Donations

Alcoholic drinks at home

Day trips in the UK

DIY tools / materials

Holidays

Home Improvements

More

8%

11%

9%

15%

8%

11%

13%

16%

20%

20%

Less

45%

43%*

40%

44%

34%

36%

33%*

36%

38%

34%*

Net 2015

-37%*

-32%*

-31%*

-29%*

-26%

-25%

-20%*

-20%*

-18%*

-14%*

Net 2014

-45%

-45%

-39%

-40%

-32%

-27%

-28%

-29%

-28%

-26%

11 Net scores calculated by taking the difference between those who would spend more and those who would spend less.

*Statistically significant difference vs. 2014

As well as investigating the effect of the economic situation on purchasing behaviour, we questioned consumers about its impact on their attitudes and lifestyle, by asking the extent to which they agree or disagree with various statements.

The picture is very similar to last year, but it is encouraging to note there has been a significant rise in the proportion feeling better off now than they did 12 months ago and who feel more in control of their money.

As in previous years, the highest level of agreement (67%) is seen for the statement ‘watching what I spend has become a way of life – I’ll continue when my finances get easier.’

Some interesting variations are evident within the population. Those under 35 are significantly more likely to agree that they are saving more money (41%) and that they are better off now (39%) compared to 12 months ago. Yet almost two thirds of under 35s (63%) agree that ‘having to be careful with money is depressing so I look for little ways to treat myself’ compared to only a quarter of those aged 55 and over. Moreover around half (51%) of under 35s believe that their financial situation is negatively affecting them, significantly higher than older age groups.

Lifestyle

12

2014 (%)2015 (%)*Statistically significant difference vs. 2014

Watching what I spend has become a way of life - I’ll continue

when my finances get easier

6767

Having to be careful with money is depressing so I look for little ways to treat myself

4043

I feel more in control of my money now than I used to

3845*

I still spend more or less what I want without worrying too much

2226

13

I’m getting really fed up of having to be careful with money

5150

I feel my current financial situation is affecting my

health and / or happiness

3739

I’m personally better off now than I was 12 months ago

2127*

I’m saving more money than I did 12 months ago

26 22

So what would consumers do with an unexpected £500 windfall? Would they be prudent, or take the opportunity to treat themselves or their family? We gave respondents four options: save it; use the money to pay off debts; spend it on treats; or use it for day-to-day expenses.

The proportion that would save their windfall has steadily risen over the last four years and is now at its highest level since this survey began, significantly greater than the other three options and significantly higher than in 2011-2013.

The percentages who would use the windfall either to pay off debts or for day to day expenses have fallen to their lowest levels, with the latter being the least likely use of an unexpected windfall. The average amount that would be spent on treats remains largely in line with previous surveys at £104.

Non-homeowners and under 35s are significantly more likely to use their windfall for day to day living expenses.

A £500 Windfall

Respondents are significantly more likely to save an

unexpected windfall than spend it on either treats or

essentials or to pay off debts.

Average Use of Windfall

14

2013

2012

2011

2014

2015

Save£143

£149

£145

£176£183

Use to pay off debts£154

£163

£148

£140£130

Treat themselves or family£100

£96

£114

£96£104

Day to day expenses£103

£92

£93

£88£83

Financial Outlook

15

So taking everything into account do people think that 2015 will be a good or bad year for them financially?

A third of respondents feel this will be a good year for them; this is higher than the proportion last year although not significantly so. However it is significantly above the 2012 and 2013 figures when fewer than 1 in 5 respondents anticipated a good year. Moreover, in 2015 the proportion expecting a bad year has fallen to its lowest level since our survey began, at only 17%.

Under 35s are significantly more positive than older age groups, with 43% believing 2015 will be a good year for them financially.

As would be expected, those in the lowest income bracket, i.e. earning less than £25,000, are significantly less positive compared to those in higher income brackets, with only around 1 in 5 (22%) believing that 2015 is going to be a good year for them as far as money is concerned.

A good yearA bad year

39%

2011 2012 2013 2014 2015

26%

16%19%

26%

32%

40%

32%

21%

17%

Optimism Index

Finally we asked respondents to rate their overall level of optimism for the coming year by giving a score out of 10, taking the state of the economy and their own financial situation into account.

Although the average score is only 5.63, nevertheless this is the most positive result since this study began and significantly higher than the score of 5.14 seen in 2014.

With an average score of 6.18 under 35s are significantly more optimistic than older age groups, and high income earners (£40,000+) are significantly more positive (score of 6.2) than those on lower incomes.

Overall Optimism For 2015Just over half, 52%, of people are optimistic

about the year ahead, significantly higher than in 2014

(41%).

3435

15

36

30

33

22

25

32

8

10

20

Very low(1-3)

Low(4-5)

High(6-7)

Very High(8-10)

Increasing optimism

2013 (%)

2012 (%)

2015 (%)

16

22

37

27

14

2014 (%)

The average optimism score, at 5.63, can hardly be described as indicative of a highly buoyant mood amongst the UK population and only around a third believe 2015 will be a good year for them financially. It could be that having heard predictions of a sustained recovery before, many people are somewhat sceptical and are waiting to see what the year actually brings before allowing themselves to feel overly optimistic. If this is the case it could somewhat dampen the UK’s economic growth as confidence is required in order to stimulate and sustain consumer spending.

So 2015 will be an interesting year – if the economy continues to grow, average wages rise ahead of inflation and the prices of essentials such as energy and many staple food items remain low, we would expect to see a far more positive picture when we carry out our 2016 survey, with hopefully consumers finally having faith that the worst effects of the financial crisis are well and truly over. However, if one or more of the potential threats we have mentioned becomes a reality during the course of the year, this could shatter what appears from our survey to be a fairly fragile belief that the future is indeed rosy.

2015 has begun with some encouraging positive economic statistics – GDP is still growing and is forecast to continue to do so throughout the year, inflation is equal to its lowest ever recorded level, average wages are increasing albeit at a modest rate, and the labour market is predicted to be its best since 2007, with growth in private-sector jobs expected to outweigh cuts to public-sector roles by five to one.

As mentioned in the Introduction, there are some clouds on the horizon most notably in the form of weaker global growth, poor economic indicators in the Eurozone and on-going uncertainty over the future of the single currency, magnified by the recent election of an anti-austerity government in Greece and the continuing high level of government debt.

Despite these concerns the general consensus amongst economic forecasters is that the overall outlook for 2015 is favourable. As a result of higher employment and wage growth, combined with low inflation and falling energy and food prices, many UK consumers will enjoy a higher disposable income than they have had for several years.

However, our survey shows that whilst the positive indicators are indeed registering with consumers, with a significant increase from last year in the average optimism score and a drop in the percentage who are worried about their financial situation compared to last year, people are not feeling as confident as perhaps might have been expected.

Overall Conclusions

17

McCallum LaytonBramley GrangeSkeltons LaneThornerLeedsLS14 3DW

Tel. +44 (0)113 237 5590Fax. +44 (0)113 237 5599www.mccallum-layton.co.uk

Please contact us if you have any queries on this report, or to find out more about our services.

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Matt CounsellHead of Quantitative Researchmattcounsell@mccallum-layton.co.uk