Is the middle class getting poorer? It certainly seems that way at times. Many people are finding it more difficult not only to get ahead, but also just to maintain the reasonably comfy lifestyle they may have taken for granted when they were growing up. Millions find themselves living paycheck to paycheck (if they are lucky enough to have a paycheck), and too many people are subsisting on overdrafts and costly personal loans. But the picture isn’t completely hopeless, and regardless of the seemingly bad news about the middle class, you still have the power to improve your own standard of living.
Is middle-income the new poor?
We might as well get the bad news out of the way first. One of the UK’s leading thinktanks, the Institute for Fiscal Studies (IFS), has released a report indicating that middle-income families in the UK resemble the poor of past years.
The income level of the middle range of households in 1994-1995 was 80% higher than the income level of households in the lower 10%. At that time, 60% of the poorest households were headed by unemployed individuals. After the recession, by 2014-2015, the income advantage of the middle range had dropped to 70%, while the number of workless households in the poorest group had fallen to 37%. The reduction in unemployed households is credited for the majority of gains by the poor, but the shift also saw some of the previously middle-class households move closer to the poverty level.
During the same period, home ownership plunged as house prices soared, eliminating the opportunity of home ownership for many previously middle class households. Fully half of all previously middle class families are now resigned to renting, and the reliance upon social service benefits has risen among the group, even as households in the poorer segments have seen their reliance upon such benefits decrease. While the poorer segments have seen their financial conditions rise modestly, the financial conditions of the middle class of a couple of decades ago are deteriorating. And there’s more bad news for people who are struggling.
Many are too dependent on overdrafts
We’ve discussed this subject previously on this blog, but it is worth revisiting because too many people are still overly dependent on overdrafts, and to make matters worse, overdraft fees themselves are at a record high. Whilst mortgage rates have fallen to record lows and credit card deals are better than ever, current account customers are paying sky-high amounts for overdrafts. Going overdrawn on a current account without your permission can incur interest, fees, and other set charges that can cost you up to four times more than taking out a payday loan, assuming that the payday loan is repaid promptly and not rolled over repeatedly. Even as regulations governing acceptable lending practices for payday loans have cut back on the potential cost of the loans, the percentage of lenders who levy a set charge on overdrafts has risen from 22% in 2008 to 56% in 2016, with the average monthly overdraft fee charged by high street bankers rising from £2 in 2008 to a high of £12 in 2016. While overdrafts can be a convenient tool when you are really in a bind, living on overdrafts is obviously a poor way to manage your money.
A possible short-term solution
Since so many folks who are struggling also have bad credit, they may find themselves in a real bind when they have an immediate need for cash to cover emergencies and other unexpected expenses or to make up for a shortfall in monthly expenses. In such cases, bad credit loans from a traditional high street bank or an online lender can be viable options. Contrary to what one might think, it is sometimes possible to get the best deal from one of the newer, non-traditional lenders, since they are more likely to be in the mode of building and expanding their business than a more established high street bank.
Because of this difference in business modes and models, it is imperative that you investigate the offerings of various lenders, with particular attention paid to their comparative requirements, in addition to their interest rates, before making a final decision. Of course, handling the loan responsibly, borrowing only the amount you need and paying it back on time, are of the utmost importance, so you don’t further imperil your financial situation. And even as you don’t want to become overly dependent upon overdrafts, neither do you want to rely on loans as income. Instead, work to improve your financial situation, which includes building a better credit profile.
You can write your own future
In regard to the IFS report cited above, work and pensions secretary Damian Green said, “We’re determined to build a Britain that works for everyone, not just the privileged few, and we’re making progress.” He cited, amongst other indicators of such progress, our country’s falling unemployment rates and the fact that wages are rising faster than inflation. As Green and others have noted, however, we still need to go further with policies and programmes to benefit the poorest in society as well as the middle class. Building the country’s skills base and improving education have to be priorities as the economy grows.
While we’re waiting for the economy to grow or not grow, and the government to act or not act, there are many things we can individually do to brighten our own financial picture. You may have noticed that this has been a constant theme on this site: it’s all about taking power into your own hands and finding a way to make your financial life better regardless of the policy du jour.