A report by the Trades Union Council, released today, suggests that household debt is reaching critical levels in the UK.
The findings of the report are very concerning, though perhaps not totally unexpected.
The biggest problem we have is with unsecured debt - debt outside of mortgages - which now represents over 30 per cent of household debt.
The TUC says that the causes are years of austerity and wage stagnation. There’s some politics in there, but it does make sense that if wages stagnate and prices rise, people won’t always adjust their spending accordingly.
However, another factor is in play, which isn’t mentioned by the TUC in what I’ve read. We have and will continue to have a problem with what I call Digital Debt.
In June of last year, we saw debit card transactions overtake cash for the first time. In October, in-store contactless payments overtook Chip-and-PIN. Cash is no longer king in the UK and our use of cards is also changing dramatically. Add to that the fact that the cryptocurrency Bitcoin reached its 10th birthday last week and you can see the size of the challenge cash faces in our economy.
That matters to debt because as we remove the weightiness of cash, we encourage people to spend more without forethought. Cash may be messy and inconvenient sometimes, but you can at least feel it leaving your pocket. You know when it’s time to stop spending.
Understandably, the TUC wants to use its report to promote its own agenda - especially with regard to unions negotiating wage deals with individual workplaces. But that’s not going to solve the problem as I see it.
We urgently need a review of the impact of digital money on spending habits.
On the back of that, we may need an educational programme to help people deal with the effects of cashless spending.
Another recent report suggested that millennial young adults have challenges with budgeting b/c their entire experience of money is with cards and contactless payments.
It’s too easy to spend money using digital tools, and it is addictive. We need to be more aware of our capacity to over-spend online.
Read Mal’s editorial on Bitcoin and its impact.