Debt is like many poisons: harmless in small doses. However, the number of people who have overdosed on debt is soaring.
Just how much debt is "too much"?
That's a difficult question to answer, largely because our ability to service our debts depends on a number of factors, such as income, spending patterns, household bills and so on. Unsecured (non-mortgage) debts totalling £50,000 would wreck most household budgets, although it amounts to less than a week's wage for a top City trader or Premiership footballer.
Then again, according to a report from debt-counselling charity the Consumer Credit Counselling Service (CCCS), the number of people with 'extreme' debts is rising rapidly. In 2005, more than one in forty of CCCS clients (2.7%) owed more than £100,000, compared to fewer than one in seventy (1.4%) in 2004. In other words, the proportion of CCCS clients owing more than a hundred grand doubled in a year. Crikey!
CCCS helped 280,000 clients with debt problems in 2005, and its research reveals that people between the ages of forty and fifty-nine owed the most: an average of almost £34,500. Even the over-sixties (who should be settling down to a comfortable retirement) were struggling: the average debt among this group leapt by a quarter (25%) to almost £33,700.
At the other end of the age range, CCCS is dealing with more young adults: its clients aged between eighteen and twenty-four have an average debt of just over £15,000, compared to under £12,000 in 2003. Hence, this generation has increased its debt burden by a quarter over this period. Across all CCCS clients, the average debt amounts to nearly £30,800, up around £1,500 on the figure for 2004, which is a rise of around 5%.
If you asked me to explain the underlying reasons for Britain's ever-growing debt mountain, I'd reply as follows:
Financial mismanagement: To be frank, most people lack the basic skills that they need to manage their money. This is a dangerous position to be in, because poor money-management is one of the main reasons behind mortgage arrears and repossessions.
Failing to plan ahead: If you want to succeed, you need a plan -- plus a back-up plan for when things don't go according to plan, as always happens! Sadly, most of us just blunder through life, barely thinking about the big events to come, such as retirement, ill-health and so on. If your goal is total financial security, then you need fall-back options (such as insurance), as this article explains.
Greed: One of the least pleasant aspects of British society is our obsession with celebrity culture and material possessions. For many people, especially the younger generation, it's vital to follow the latest fashion fad or own the must-have gadgets. I'm no Buddhist, but it seems to me that this is the road to spiritual -- and financial -- ruin, so I'm more 'own brand' than 'designer label'!
In addition, banks and other lenders have played their part in our borrowing binge. With the average household receiving over eighty mailshots from credit-card issuers each year, is it any wonder that our debt mountain (including mortgages) has soared from under £500 billion to around £1,200 billion in just nine years?
The trick to avoiding debt is simple: forget about "keeping up with the Joneses" and learn to live within your means. If you can't learn to spend less than you earn, then you have a critical problem, regardless of whether you're on benefits or bring in the bacon like the Beckhams.
More: Use lovemoney to compare savings accounts, compare current accounts and compare credit cards!