What we shouldn't learn from the people of Richmond

Perhaps all is not rosy in the leafy suburbs.

Recently Harvey Jones posted the informative article What we can learn from the people of Richmond, detailing how the London borough tops the UK savings league. But perhaps Richmond isn’t the model to follow – the area seems to have more personal debt than almost anywhere else in the country.

Harvey’s article focused on new figures from Halifax that revealed the residents of the well-heeled town boast an average savings balance of £29,765.

Compared to the UK savings average of £6,074 it shows that there’s a lot of money being put away for a rainy day in south west London.

Coincidentally the day I read this article I received some figures detailing debt reported by our clients during 2010, showing debt at a UK regional and postcode level.

And it was obvious that one area of country stood out as the most debt-ridden – the commuter belt around London. 16 of the top 20 postcodes for debt were in spitting distance of the capital, from Stevenage in the north to Sutton in the south.

Perhaps these two examples will not surprise you; however it was also striking that the middle-class areas of Richmond on Thames, under the postcodes of near-neighbours Twickenham and Kingston on Thames, were both near the top of the debt league.

The average unsecured debt among our 2010 clients was £19,338. In the Twickenham postcode the average debt was £22,382, or 16% higher than the national average; next door in the Kingston on Thames postcode, the average debt rose to £24,169, or 25% higher.

Remember that this is the average per person from unsecured debt – credit card, loans, store cards and the like, not mortgages or secured debt. Twickenham had the 13th highest average debt in the country (out of 121 postcode areas), and Kingston on Thames was 4th (tune in next week to find out the UK’s number one debt hotspot).

This isn’t as surprising as it might seem at first glance; debt cuts across all classes and levels of debt can be considerably higher among richer people. As we said about middle class debt last year:"In 2009, CCCS counselled nearly 40,000 clients whose total household income was more than the national median pay of £25,000. Over 2,000 of these earned more than 90% of the UK population, or over double the national median income."

So why does the supposed ‘Richmond contradiction’ between the savings and the debt exist? Here are five possible theories…

1. Living costs are higher in well-heeled areas

The most obvious reason is that essentials cost more or less depending on where you live. If there’s only a Waitrose nearby rather than an Asda then shopping for the essentials will cost more. The same goes for Pizza Express rather than Pizza Hut, a gastropub rather than a Wetherspoons etc.

2. There could be a greater difference between rich and poor

There are the less affluent areas in all towns and cities across the country and this could have large effect on the figures for south west London. The saving rate could refer to one part of town and the debt could refer to another. This will certainly have a bearing, but also there’s…

3. An element of “keeping up with the Joneses”

As we talked about last week there’s a desire to try to buy into the “must-have” lifestyle and this can seriously damage wealth.

If the Joneses are wealthy then it’ll cost much more to try and keep up with them, increasing the likelihood of incurring debt in trying to imitate them. This leads to…

4. People spending to their credit limit

The opportunities to overspend on credit are relative to the amount each person can actually get on credit.

The debt figures reveal that Glasgow has the second lowest average debt in the country but no one would argue that Glasgow’s suburbs have more credit sloshing around than south west London’s august boroughs. The more the credit card limit, the more you can spend and the more debt you can incur.

5. People are not using their savings to pay off their debts

Most people think that it’s better to have some money in the bank for a rainy day. However if you’re in debt those savings can be better used to pay off the loans and credit cards. With the average interest accrued from savings easily being trumped by the average interest accrued from debt the more you save when you should be paying off, the worse the situation you’ll be in.

We know that the figures don’t tell the complete story, and with Richmond crossing two postcode areas it’s less clear cut than the savings data when looking at which part of the borough is suffering most from problem debt.

However it shows that even within well-heeled areas debt can thrive, and that behind the perfectly manicured gardens and lace curtains of Richmond there are a lot of financial issues that have to be addressed.

We’ll talk more next week about debt in the towns and cities of the UK as we’ll be releasing the figures I’ve referred to above, showing debt across the country. As I’ve mentioned, it’s the leafy suburbs of the London commuter belt that don’t come out of this well.

Whether you live in a debt hotspot or a debt notspot we can help with your money problems. Use our debt counselling service or give us a call. And if you’ve got any theory why the ‘Richmond contradiction’ exists let us know!