- Six weeks between an early Christmas pay day and the first of the New Year has left thousands in debt
- Nearly 1 in 5 (19.88%) will be back in the red within one week
- Upon receiving January’s long-awaited pay, nearly 40% (39.95%) will go shopping or book a holiday before dealing with bills and household finances
- Nearly a third (30.75%) rely on credit cards, overdrafts or loans from family, friends or partners to cover debt
- 20% say they have made sacrifices to their lifestyle
January’s pay day couldn’t come sooner for consumers, with the cost of Christmas, together with December’s early pay, taking its toll on bank balances across the nation.
Yet research out today by comparethemarket.com for the Institute of Inertia, reveals that consumers will only be back in the black for a very short time and will use the majority of their January pay to pay off debt, leaving them no better off in the month of February.
A survey of 2,000 monthly earners in the UK has shown that nearly 1 in 5 (19.88%) will be back in the red by Thursday 4th February, just a week after receiving their January pay. Factors including payday loans, credit cards and family loans have all contributed to this problem, with nearly a third (30.75%) of respondents revealing that they had to rely on a form of credit to get through this financial strain.
Simon McCulloch, Director of Insurance at comparethemarket.com said,
“Whilst it’s clear that many consumers are still struggling with their finances at this time of year, there are simple steps that can help people take back control. Addressing household bills and reviewing monthly outgoings is a good place to start. We’re also helping consumers understand how their personality affects their ability to manage their outgoing, by taking our quiz at www.instituteofinertia.org/quiz.”
Despite the financial pinch, nearly 40% (39.95%) said they will prioritise shopping and such like on pay day before dealing with their bills and household finances. For some January sales, holiday bookings and social gatherings are amongst the first thing many purchased upon the injection of funds into their accounts, meaning they are back in the red after just a few days, continuing the cycle of debt.
Dr. Thomas Webb, a social psychologist at the University of Sheffield and Chair of the Institute of Inertia, said “Just like in the run up to Christmas, where people are often tempted to bury their heads in the sand and not think about money, people may assume that January's pay day will go further than it actually does while not confronting reality.”
Rather than spending time planning ahead, financial inertia has led people to bury their heads in the sand and not wanting to face up to the extent of their debt with over a third (33.35%) admitting that they ignore budgeting throughout the year. Dr. Webb explains that, “This “ostrich problem” occurs, in part, because peoples' main priority is to feel good about themselves - and confronting the reality of poor budgeting can compromise this. However the ostrich problem can be avoided if people keep track of spending. Work out what funds are available for the month (for example after any debts accruing from Christmas have been paid) and then divide that amount by four, so that you know how much you can spend each week. Then, at the end of each week, total what you have spent and see whether you are on track to staying in the black.”
Michelle Highman, Chief Executive of the Money Charity explains "At the Money Charity we see on a daily basis members of the public who treat credit and overdrafts as 'free money'. Many of these people bury their heads in the sand and take far too long to pay off their debts, racking up interest and cutting into their disposable income. Through the Institute of Inertia we are encouraging people to take control of their spending throughout the month to ensure that come pay day you are not going straight back in the red. And if you are experiencing debt problems, don’t put it off, seek help today."
Consumers can find more tips on overcoming inertia by visiting www.instituteofinertia.org.
Consumer research data in this release comes from research carried out by One Poll, on behalf of comparethemarket.com. It questioned 2000 consumers who are employed and paid on a monthly basis. The fieldwork was carried out between 25th January and 27th January.
About the Institute of Inertia
The Institute of Inertia is a partnership between comparethemarket.com and the University of Sheffield, launched in September 2015 to look at the psychology behind financial inertia and, ultimately, to help consumers to save otherwise wasted time and money.
The Institute of Inertia is a network of experts and academics led by The University of Sheffield’s Dr. Thomas Webb, a social psychologist and specialist in understanding how people achieve (and struggle to achieve) their goals. A programme of qualitative research informs the Institute of Inertia and helps to shape and test potential solutions to drive behavioural change.
For more information on the Institute of Inertia, please visit www.Instituteofinertia.org
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