Household debt tops £2 trillion for the first time as new data shows that less than half of UK consumers can correctly answer basic financial questions

• Total household debt in the UK now exceeds £2 trillion for the very first time - the equivalent to £71,000 per household, and is just below national GDP (£2.2 trillion). 

• Just 37% of people correctly guessed  the value range for a mortgage, and 31% for a personal loan, when tested on the amount they would have to pay if interest went up. 

• Consumers are more worried about the availability and access to credit according to an Index tracking sentiment. This year’s result shows a significant decline, falling back to the same level as in 2013.

• Only around a quarter (26%) of consumers seek advice or information from financial institutions such as banks, while 24% of people surveyed do not seek financial advice or information from anyone.

For the first time household debt  has risen to over £2 trillion, which is almost the equivalent to the UK’s GDP. The fresh findings, from PwC's Strategy& UK Consumer Credit Confidence report, also shows that UK consumers struggle to answer basic financial multiple choice questions. This is despite 88% of consumers reporting that they felt confident or very confident in making financial decisions. 

The findings also showed a marked difference in the proportion who responded correctly to the multiple choice financial questions by income band. For example, those earning >£70k p.a were twice as likely as those on less than <£20k p.a to answer correctly (69% vs. 31% respectively for the question on a mortgage). There also appears to have been no sign of improvement in financial literacy. When asked the same personal loan repayment question back in 2017, 33% of people selected the correct answer, 2% more than this year.  

The data showed that household debt is approaching national GDP (£2.2 trillion). Around 80% of household debt is secured against properties, with total outstanding secured debt of £1,619bn, having grown 4.1% in the previous year.

Meanwhile, the total amount of unsecured debt now exceeds £400bn, which equates to a record high of £14,300 per household. In the past year alone, unsecured debt has grown by almost £900 per household, at an annual growth rate of 7.2%.

Simon Westcott, Strategy& UK Financial Services Lead at PwC UK, said:

“With inflation continuing to reduce how far the money in people’s pockets will go, plus household debt now exceeding £2 trillion for the first time, we wanted to understand how consumers are feeling about managing their personal finances. 

“Whilst financial decisions can feel daunting to some people, we found that 88% of consumers feel confident or very confident in making such decisions, suggesting relatively high levels of financial literacy. 

“However, there appears to be a disconnect between these confidence levels and consumers’ actual understanding of everyday financial products with just 37% of people correctly estimating the value range for a mortgage, and 31% for a personal loan.

“The figures are startling as it's clear that a good understanding of financial products, and how they work, can boost resilience,  and somewhat mitigate against compounding pressures inflicted by high inflation.

“As our data shows,it's imperative that firms, regulators and Government  work together to boost financial literacy levels and help empower individuals to save and invest." 

Data from the report also revealed a steep decline in consumers’ confidence in their ability to access credit. According to the PwC Consumer Credit Confidence Index, which was run as part of the report, confidence has fallen back to the same level as in 2013 and only marginally about 2009 levels.

Almost a third (31%) of people expect their pay to be frozen or decline in the next year.

Another indicator of the financial challenges some consumers are facing is that 3.3m people - or 10% of the working population - have opted out of their pension schemes in the last 12 months amid the rising cost of living. This figure rises for those aged 18-24, of whom 17% have opted out, and for renters, who are almost twice as likely as those who own a property to have opted out (15% vs. 8%).

Isabelle Jenkins, Leader of Financial Services at PwC UK, said:

“What the data seems to be showing is that across the board the combination of higher mortgage payments, bills, transport and food shopping will have necessitated a tightening of budgets.

“Worryingly for some this may have meant  a real cut to spending or even measures such as opting out of a pension or long term savings plan.

“For most borrowers, credit performs an important function, smoothing income and expenditure, which, if affordable, can be beneficial. 

“However, it is critical that we keep an eye out for borrowing “red flags". There are ways in which consumers can get support from your lender who should be able to provide help tailored to your circumstances. 

“With only around a quarter (26%) of consumers seeking advice or information from financial institutions such as banks, compared to a larger number who turn to friends and family (39%) or internet search engines (38%) it's clear more need to be done so that more people to feel confident to seek advice.”

While a range of sources are available for today’s consumers to access financial advice and information, it is clear that financial institutions are not the leading choice for most people. According to the research, only around a quarter (26%) of consumers seek advice or information from financial institutions such as banks, compared to a larger number who turn to friends and family (39%) or internet search engines (38%). 

In addition 24% of people surveyed do not seek financial advice or information from anyone, reinforcing notions of a potential advice gap in the UK.  The limited use of financial institutions for advice or information is consistent across all age groups, while there tends to be a bigger reliance on friends and family across younger segments, who would tend to have less experience owning and using financial products and services. As one might expect, there is also a significantly higher uptake in social media use for financial advice and information across younger groups, with 12% of 18-34 year olds using such channels compared to just 1% of those aged 55+. 

ENDS

Notes to editors

Data from the PwC Strategy& Consumer Credit report comes from a customer survey of >2,000 UK adults with YouGov in January 2023. The survey provides a statistically significant representation of the UK population, at greater than a 95% confidence level. This year’s research, conducted against the backdrop of a cost of living crisis and in a post-pandemic world, offers a snapshot of how much debt consumers are taking on and the extent to which they can afford it, their credit confidence and their understanding of financial products and services.