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AXA : Big Money Index shows financial pessimism

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AXA’s Big Money Index shows that 40 per cent of consumers, or 20 million people have made significant spending cutbacks in their daily lives since the end of last year.

Recording a dramatic fall in financial confidence over 12 months across eight demographic groups, the Index also reveals that one in five regret some of their pre-recession financial decisions and are not confident investing in British shares. One in four consumers have used their savings in the last quarter in order to make ends meet.

AXA’s new quarterly report presents an in-depth view of financial confidence, behaviour and attitudes with a unique, detailed focus on eight distinct demographic groups.  It provides a comprehensive portrait of the impact that falling consumer confidence is having on spending habits and confirms that those with least money are feeling the most “squeezed”.

Reinforcing other recent figures, the AXA research carried out by YouGov shows that those feeling financially confident dropped from 23 per cent to 16 per cent in the period between  Q1 2010 and Q1 2011. In particular, Under-funded Seniors’ optimism in their financial future plunged from 19 per cent to seven per cent and confidence among The Stretched fell from 24 per cent in Q1 2010 to just 11 per cent in the same period this year.

As a result of this, a striking 40 per cent of consumers chose to go out less between January and March this year, a five percentage point increase on the previous quarter. Half (48 per cent) of those in the most pessimistic group, Young Professionals, cut back on going out.   The proportion among The Stretched was even higher at 56 per cent.

With soaring petrol prices, more than a quarter (27 per cent) of consumers reduced car usage in the first three months of the year (up 10 percentage points on Q4 last year) and a similar number say they cut back on food shopping.  Thirty five per cent tightened the reins on alcohol and takeaway spending while an increasing number cut back on holidays. The last quarter saw an eight percentage point rise in those cutting expenditure on food, oil, gas and electricity.

One in four were forced to dip into savings to fund everyday expenditure and eight per cent of consumers with debts of £5-10K are prioritising repaying their average monthly credit card bill of £151-200 straight after rent and bills.  Seventeen per cent have ‘spent more on’ clearing some or all of the money on a credit card or loan since Q4 (an increase of three percentage points since Q4) and this rose to 30 per cent for worried Young Professionals.

A disheartening one-fifth of the UK population agree that they regret some of the financial decisions they made before the recession. Those regretting their decisions the most are Nest Builders and The Stretched (both 23 per cent), and Modest Middle Years (22 per cent), compared to the overall score of 19 per cent.

AXA UK’s chief investment officer, Eric Lhomond said: “These figures reveal a concerted effort by British consumers to claw back some financial security in the face of a significant drop in optimism that we found across all demographic groups.  The result is that we are busy paying off debts, reining in unnecessary spending and clinging onto financial products to protect or grow our assets.”

For those with any money to spare, the number of consumers putting money into savings or investments has risen by four percentage points in the last quarter.The numbers taking out SIPPs or personal pensions suggest that longer term savings are important to consumers if they can afford them. Small rises are also evident in the proportion taking a punt with premium bonds – perhaps reflecting a desire for low risk investment.

When it comes to wealth management and investment, only one in five say they would be confident in investing in British shares at the moment, while 35 per cent would choose to invest in property (rising to 44 per cent in the Exclusive Lifestyles group).

Looking across the wider economic picture, more than half expect more NHS treatments to need private funding in future and a surprisingly high 40 per cent of all consumers would be prepared to pay for some of these.

The report also shows a clear lack of enthusiasm for the UK tax system. Not only do almost half (49 per cent) of people in the UK think inheritance tax should be abolished, when asked if they think the top-end 50 per cent UK income tax rate should be kept for the long term, around half of respondents (47 per cent) agree.

Worryingly, those on low incomes  – almost one in four of The Stretched and 30 per cent of Under-funded Seniors – are not using any source of financial information to help them manage their money.

Source : AXA