“Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.” This may seem odd but is one of a few lines I remember from Shakespeare’s Hamlet. Today’s read made me think about it.
The story also made me recall when I started at Household Finance in 1977, back in the days when an IBM Selectric was considered rocket science. As a trainee, you’d have to calculate loans manually. Many people would come in once a year, usually around the winter holidays, to renew their loans. It was not uncommon to see that the customer had a 25-year loan history, particularly if they had a solid job as a fireman, bus driver or healthcare worker.
Even at a ripe young age of 21, it was clear that many people failed to save and some viewed their “savings” as the ability to renew their loan and take out the difference for holidays or emergencies. It was a perfect learning experience for a young lender.
Take a look at today’s headline: “UK households spending more than income for first time in three decades.”
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The data confirms that British households have been collectively supporting their spending through a combination of reducing their saving levels and taking on more debt.
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UK households collectively spent more than they earned in 2017 – the first time this has happened in almost thirty years – according to the Office for National Statistics.
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On Thursday the ONS presented figures, taken from last month’s sectoral accounts, showing that the “net lending” of the household sector in 2017 was minus £22.6bn.
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The UK household saving ratio, which measures total saving as a share of total disposable income, dipped to a record low of 3 percent last year and stood at only 4.3 percent in the first quarter of 2018.
This is not a UK rant. The typical American is no wiser, as you can see in these numbers from the St. Louis Federal Reserve Bank.
I like being around the credit business, but one thing I learned decades ago is that should really save for a rainy day, because sooner or later, it will rain.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group