Keep calm and carry on spending: why Britons are so deep in debt

New figures from PricewaterhouseCoopers (PwC) show that Brits borrowed another £20 billion last year, while household debt grew at its fastest rate in a decade. So why do we keep borrowing?

Britons in debt

Britons in debt

Student loans

One major reason, highlighted by The Financial Times, is the rise of student loans. Nearly half of last year's increase in debt is attributable to the UK's young people. Although student loan repayments are only taken after graduates reach a certain level of income, there are consequences borrowers should be aware of.

Firstly, as student costs continue to rise, parents are being hit with costs amounting to an average of £5,000 per year. Secondly, indebted students are becoming accustomed to the idea of debt, so much so that they almost don't care about the burden; a worrying symptom recently expressed by the Guardian's Holly Baxter.

Debt vs earnings

The passing of debt to the UK's young people should also not obscure the changing economic landscape for the majority of the country.

The Office for Budget Responsibility last week forecast that household debt as a proportion of earnings will reach record levels by 2020. The ratio of debt to earnings is particularly significant because the larger this ratio is, the harder it is for people to repay their debts.

We're already seeing problems resulting from this stat: nearly 20% of 35-44-year-olds rely on credit cards to make ends meet, and they're risking a dangerous debt cycle by doing so.

Losing touch with reality

Even though total debt and debt as a proportion of earnings is rising, PwC's report found that just 16% of people surveyed were worried about their debt repayments. That compares to almost 33% of people last August. This suggests a disconnect between what some people think they can afford, and the reality of their financial situation.

This is particularly worrying when we look at interest rates. PwC point out that a 2% rise, a realistic jump from the current record low rate of 0.5%, would add an average of £1,000 per year to household costs. A stark warning against complacent attitudes to debt and spending if ever we heard one.

If you're worried about debt, contact a Dukes advisor for information and advice via our Contact Us page.