Belt tightening puts consumer spending under pressure

A key economic indicator for business students to understand is consumer spending. The amount that households spend on goods and services is an important driver of demand for most businesses we study, so a major change in consumer spending growth is a significant change in the economic environment.

We hear about the effects of the credit crunch on a daily basis now. So how is it affecting households? As you might imagine, the market research firms are looking closely at this area.

A new survey from insurance business AXA is a good case in point, and the findings don’t make encouraging reading for businesses that rely on a high level of consumer spending.

Axa’s survey has discovered that “middle income families” are cutting spending and taking on second jobs in a bid to ease the financial strain they are under.

About 72% of households with an annual income of £30,000 or more say they will take steps to cut their spending in 2008.

At the same time, 15% said they will either be forced to get a second job or send a member of the family not currently working out to work to ensure that the household can meet its financial obligations.

One in five people will also stop saving or cut their pension contributions, with 30% of people saying they do not have enough money left at the end of the month to save. 15% blame their cashflow problems on high house prices (do they really mean high mortage payments on homes that they paid too much for?) and the same proportion blame them on debts.

About 44% of people plan to eat out less, 21% will cut back on socialising and, in bad news for AXA, 8% are considering not renewing their insurance cover.

Steve Folkard, AXA spokesman, said: “It’s no wonder that households with above-average incomes are struggling to cope.

“A typical family in Middle Britain may have a higher than average income but millions are weighed down by high lifestyle costs and face tough choices as the strain on their finances takes its toll.

“One of the biggest issues however is that many seemingly well-off households lack the motivation to tackle their problems. We’ve had it easy for so long and been happily spending without thinking of the consequences that now people aren’t sure what to do.”