Poorest households ‘borrowed to spend’ prior to crisis

A think-tank report has said that for more than a decade before the global financial crisis households on low-to-middle incomes relied on borrowing to fund much of their spending.

The report says that, over the 10-year period of 1997–2007, spending grew faster than incomes across all households, but for the poorest groups this phenomenon was much more pronounced.

Key points

  • For the bottom 10 per cent, incomes grew by 17 per cent while spending grew by more than twice as much (43 per cent).
  • Even middle-income households found themselves falling behind, with incomes growing by 33 per cent and spending growing by 46 per cent, resulting in a negative savings ratio for a full 10 years before the crash.
  • The highest-income households also saw their incomes grow by less than their spending over the period, but still retained a positive – although declining – savings ratio.

Source: Paolo Lucchino and Salvatore Morelli, Inequality, Debt and Growth, Resolution Foundation

Links: Report | Press release | Guardian report | Daily Telegraph report