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The Aviva Family Finances Report December 2013

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Page 1: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The Aviva Family Finances ReportDecember 2013

Page 2: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

Introduction and overview The diversity of modern society means there is no single model of the ‘traditional family’ in the UK. With 84% of the population now living as part of a modern family group, their social and economic experiences are shaped by various factors impacting their approach towards family, work and financial planning.

The Aviva Family Finances Report looks at the contrasting fortunes of different family types (see page three for groups tracked). As well as examining data since 2011, this edition looks at relationship histories and asks how experience – and children – from past relationships can affect financial matters.

How do blended or step families manage their money compared with families of children with shared parentage or families without children? How do men and women differ in their experiences and views of committed relationships that have come to an end? And what are the financial impacts of separation, divorce and remarriage?

The answers to these questions and more paint a picture of a modern family striving for financial - as well as emotional - balance in a society where relationship histories are as varied and diverse as families themselves.

Overview

l Income – December 2013 sees the typical monthly income of UK families hit a three-year high – but inequalities persist (pg 4).

l Expenditure – families continue to cut their monthly spending as some expenses disappear from monthly budget sheets (pg 6).

l Family wealth – the proportion of families with no savings reaches a record low, while bonds and shares tempt those with money to invest (pg 8).

l Housing wealth – mortgage debt falls as second properties outperform family homes in a climate of rising house prices (pg 12).

l Family borrowing – families rationalise their use of unsecured credit and distance themselves from payday loans (pg 14).

l Look to the future – fears grow as financial stability remains fragile and vulnerable to economic strains (pg 16).

l Spotlight – more than one in ten families have postponed or ruled out separation or divorce for financial reasons.

l Spotlight – one in three families receiving child maintenance from a former partner depend on this income to make ends meet.

l Spotlight – blended or step families are the most successful in using past relationship experience to minimise arguments about money.

l Across the UK – London boasts the most dedicated savers, yet Wales and Yorkshire show the most improved performance when it comes to putting money away each month (pg 24).

The Aviva Family Finances Report 2

Page 3: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

1. Living in a committed relationship* with no plans

to have children

2. Living in a committed relationship with plans

to have children

3. Living in a committed relationship with one child

4. Living in a committed relationship with two

or more children

5. Divorced/separated/widowed with one or more children

6. Single parent raising one or more children alone

* For the purposes of this report, a committed relationship is defined as one where two people are either married or co-habiting.

The modern UK familyThe ‘nuclear family’ of two parents and one or more children was considered the norm among the UK population thirty years ago. Since then socio-economic changes mean families are becoming increasingly diverse. Through the Family Finances Report, Aviva explores the contrasting fortunes among the most common types of modern family based on customer profiles and government data.

The Aviva Family Finances Report 3

Page 4: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The last six months have seen the typical monthly income of UK families continue its upwards trajectory to arrive at £2,166, the largest total seen by the Family Finances Report in the three years since it launched.

Having dropped by 3% from £2,066 to £2,003 in the first half of 2012, family income has risen consistently in the subsequent 18 months. The typical UK family now brings in 12% more each month (£229, equivalent to £2,748 annually) than in January 2011 when the typical family took home £1,937.

Trends in net monthly income since January 2011

While couples with plans to have children remain the biggest earners in December 2013, those with one child have gained the most over the last three years in the form of a £357 (18%) boost to their monthly income. Those couples with no plans to have children are close behind and now enjoy 14% more monthly income in December 2013 than in January 2011.

This makes for a stark contrast to the fortunes of divorced, separated or widowed parents who have seen their monthly incomes fall by the same relative amount (-14%). They make up 7% of all UK families, but are alone among the six tracked family types in seeing their monthly incomes fall during the three-year lifetime of the Family Finances Report.

How monthly incomes have changed for different families in the last three years

Income

The Aviva Family Finances Report 4

£2,043

+2% +3%

£2,166

Summer Winter

Average income

Six month growth

2012 2013

£2,003

-3%

£2,108

+3%

Jan 2011 Dec 2013 Percentage change

£2,010 £2,187 £1,964 £2,055 £1,387 £906£2,284 £2,422 £2,321 £2,301 £1,189 £963

14% 11% 18% 12% -14% 6%

Couples with no plans to have children

Couples with plans to have children

Couples with one child

Couples with two or more children

Divorced/separated/widowed with one or

more children

Single, raising one or more child

Page 5: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

These varying family fortunes mean the spread of income has widened across the six family types. Back in January 2011, the highest and lowest earning family types were separated by £1,281 per month (equivalent to 66% of the typical UK family income). The gap now stands at £1,459 in December 2013 (67% of the typical UK family income).

How much do UK families take home compared to the ‘typical’ family?

The percentage of families surviving on less than £1,250 net monthly income has remained stable at 20% in the last six months (down from 31% back in January 2011). The percentage receiving more than £2,500 net income each month is also unchanged in December 2013 at 34% – as it was at the start of this report series.

Income sourcesRecent labour market statistics have shown a growth of employment rates among UK adults of working age, with Office for National Statistics data for the third quarter of 2013 showing 378,000 more people were in work than twelve months before.

Families benefit from improving outlook for jobs

The Aviva Family Finances Report 5

Jan 2011 Dec 2013

Single parents raising one or more children

Couples with no plans to have children Couples with plans to have children Couples with one child

Couples with two or more children Divorced / separated / widowed parents raising one or more children

1% more

53% less

13% more

28% less

4% more

6% more

7% more

56% less

12% more

45% less

5% more

6% more

Jan 2013 Dec 2013

70% 34%74% 39%

Families receiving income from a primary job

Families receiving income from a spouse’s job

In contrast, fewer families receive income from benefits (down two percentage points since January 2013 to 19%). The most visible shift has been among married or committed couples with one child: just 16% receive income from benefits now compared with 23% at the start of 2013. The only increase has been among divorced, separated or widowed parents with 39% in receipt of benefits, up from 34% back in January 2013.

Page 6: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

Family spending dipped by 4% in the first six months of 2013 and that trend has continued into the second half of the year. UK families’ monthly outgoings add up to £1,604 per family in December 2013, which means – following cutbacks equivalent to 8% of total outgoings in the second half of the year – the typical family is currently spending 12% less than they were in January 2013.

Family spending continues to fall after peaking at the start of the year

Couples who are married or in committed relationships have collectively tightened their belts since the summer of 2013. Those planning to have children have led the way by trimming £206 from their monthly spending, while those with one child have made cuts of £120 per month.

Couples with two or more children are also spending £103 less each month than they were over the summer, leaving just those couples with no plans to have children spending more (albeit a meagre £9 a month) than in July.

Couples limit their outgoings since the summer

As was the case in the first half of 2013, significant cutbacks in the last six months have been made on non-essential items. Typical spending on leisure goods (including sports equipment and CDs) has fallen by £24 among those who spend, while satellite TV subscriptions have been cut by £19 a month – a sign that families with this outgoing may be taking advantage of suppliers’ competitive package offers.

However, the largest cuts have occurred in areas where many families spend more out of necessity than choice. Furniture and appliances account for £27 per month less in December 2013 than they did in the summer, while monthly outgoings on nursery care and out of school care have been trimmed by £54 – helped by shorter school holidays during the winter months.

Expenditure

The Aviva Family Finances Report 6

£1,765 £1,819£1,748

£1,604

Aug 2012 Jul 2013Jan 2013 Dec 2013

Jul 2013 Dec 2013 Actual change Percentage change

£1,478 £1,915 £1,837 £1,834£1,487 £1,709 £1,717 £1,731

+£9 -£206 -£120 -£103+1% -11% -7% -6%

Couples without plans to have children

Couples with plans to have children

Couples with one child

Couples with two or more children

Page 7: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

A number of families have not only reduced their monthly spending but have also cut out certain expenses altogether from their budget sheets in December 2013. Summer holidays appear to take precedence over winter breaks, with fewer spending on holidays now compared with July (45% vs. 51%).

The proportion of families buying leisure goods has dropped by five percentage points to 48%, while clothing/footwear features in the monthly expenses of 87% of families in December, compared with 91% back in July.

Family consumerism is pegged back in the second half of 2013

The proportion of families making monthly debt repayments has also fallen slightly from 45% in July to 44% in December, having been 51% at the start of the year and 57% in August 2012.

Among those who are making debt repayments, the amount they repay has also remained consistent over the last six months: December’s typical monthly debt repayment is £257 compared with July’s figure of £258.

Concealed beneath this is a more varied picture when it comes to different family types, with divorced, separated or widowed parents cutting their monthly debt repayments by £85 in the last six months (-30%) while couples planning to have children have increased theirs by £41 (+21%).

How families have adjusted their monthly debt repayments since summer 2013

The Aviva Family Finances Report 7

“Given recent concerns about living costs and inflation continuing to run above 2%, families can take heart from seeing their incomes reach new heights as the end of the year approaches. Even so, the income differences between family groups suggest that inequalities have grown in the last three years. The improving outlook for the economy provides hope for 2014, but many families will feel the need to keep a close eye on expenses well into the new year, so they can get the most out of their extra income.” Louise Colley, protection distribution director, Aviva

% spending on this in summer % spending on this in winter % change

Holidays Leisure goods Clothing and footwear Satellite TV subscriptionPersonal goods

and services

51% 53% 91% 67% 78%

45% 48% 87% 64% 76%

-6% -5% -4% -3% -2%

£

£

Jul 2013£306

£

£

Jul 2013£213

£

£

Jul 2013£285

£

£

Jul 2013£194

£

£

Jul 2013£275

£

£

Jul 2013£199

£

£

Dec 2013£292

£

£

Dec 2013£227

£

£

Dec 2013£199

£

£

Dec 2013£235

£

£

Dec 2013£283

£

£

Dec 2013£153

Couples with no plans to have

children

Couples with plans to have children

Couples with one child

Couples with two or more children

Divorced/separated/widowed with one or more children

Single, raising one or more child

Page 8: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The Aviva Family Finances Report 8

While UK families have trimmed their spending and seen their incomes grow over the last six months, this has not translated into a drastic improvement in the overall approach to savings. December 2013 sees more families saving nothing each month compared with July (32% vs. 31%). The typical monthly amount saved by UK families has also fallen by £5 since July to £91, but this is still the second largest monthly sum saved by families over the last three years.

Nevertheless the picture is more positive when considering the different family types. Single parents with children – the family type with the lowest incomes – appear to have made increasing efforts to review their savings habits. While this particular family group is still the least likely to save on a monthly basis, the percentage regularly saving nothing has fallen from 59% to 50% since July.

Instead, the overall increase in families saving nothing on a monthly basis has been most affected by couples with no plans to have children. While 25% were not saving regularly over the summer, this has since risen to 29%.

The percentage of families saving nothing each month

The slight increase in the overall percentage of families saving nothing over the last six months is not enough to overshadow the transformation in savings habits over the lifetime of the Family Finances Report. The first edition in January 2011 found 40% of families were saving nothing each month, and climbed as high as 42% in January 2012.

Savings pots are also significantly improved over the last three years, with the typical family having more than three times as much saved in December 2013 (£2,773) as they did in January 2011 (£849). Again however, the last six months have taken their toll and reduced the typical savings pot by 15% from a peak of £3,281.

On a more positive note the number of families with nothing saved has reached a record low: just one in five now falls into this category (20%) compared with more than one in four at the start of the year (28%) and one in three back in January 2011 (33%).

Family wealth

Couples with two or more childrenDivorced/separated/widowed and

raising one or more childrenSingle and raising one or more

children

All familiesCouples without plans

to have childrenCouples with plans

to have children Couples with one child

Jul 2013

Dec 2013

31%

32%

25%

44%

18%

59%

28%32%

34%

29%

47%

16%

50%

27%

Page 9: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The Aviva Family Finances Report 9

The proportion of families with no savings falls to a record low

In the last twelve months alone, all but one of the tracked types have seen an increase in the number of families with some form of savings cushion. The most visible shift has come among couples with no plans to have children and couples with one child: in each case, an extra 11% of families now have savings put away.

The only anomaly in this respect comes in the form of a 1% increase in the number of divorced, separated or widowed parents with no savings (up from 36% in January to 37% in December).

However, it appears this savings cushion remains relatively threadbare in many cases. The percentages of families with less than £500 put away has jumped from 14% to 30% in the last year, while the percentage with less than £2,000 has also risen from 28% to 40%.

The distribution of family savings pots in December 2013

May 2011

28%

Jul 2013

23%

Aug 2012

28%Nov 2011

30%

Apr 2012

24%Aug 2011

31%

Dec 2013

20%

Jan 2013

28%

Jan 2011 33%

Jan 2012

30%

Less than £500 saved

Less than £1,000 saved

Less than £2,000 saved

Less than £5,000 saved

Less than £10,000

saved

Less than £50,000

saved

More than £100,000

saved

All families 30% 34% 40% 47% 55% 73% 6%

Couples with no plans to have children

23% 26% 31% 38% 44% 62% 9%

Couples with plans to have children

21% 27% 32% 45% 58% 75% 4%

Couples with one child

26% 29% 34% 42% 51% 73% 5%

Couples with two or more children

30% 34% 40% 46% 54% 74% 6%

Divorced/separated/widowed with one or more children

49% 56% 62% 71% 78% 86% 2%

Single with one or more children

59% 62% 70% 76% 79% 89% 1%

Page 10: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The Aviva Family Finances Report 10

Growing appetite for premium bonds, stocks and sharesThe continuing march towards auto-enrolment is likely to have influenced the increasing presence of employer pensions among UK families. These are now present among 38% of families in December 2013 – compared with just 32% back in January – while the frequency of private pensions has also crept up from 18% to 19%.

While ISAs have also increased in popularity during the last twelve months – from 35% to 39% – this disguises a 2% fall since July: suggesting that while some families have taken out new ISAs, others have abandoned them due to persistently low savings rates.

In contrast, the popularity of premium bonds has jumped by four percentage points to 21% during the course of 2013, while investing in stocks and shares is now an activity undertaken by 17% of UK families compared with 13% in January.

Families increase their stake in stocks, shares and premium bonds

Premium bonds Stocks and shares

Jan 2013 Dec 2013 Jan 2013 Dec 2013

All families 17% 21% 13% 17%

Couples with no plans to have children 21% 25% 16% 18%

Couples with plans to have children 10% 11% 9% 14%

Couples with one child 15% 22% 11% 18%

Couples with two or more children 20% 23% 14% 18%

Divorced/separated/widowed with one or more children 13% 14% 12% 10%

Single with one or more children 11% 9% 4% 6%

Page 11: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The Aviva Family Finances Report 11

“The savings message has clearly spurred a growing number of families into action and it bodes well for the future that more families than ever have some form of savings put away in December 2013. Even so, with slightly less being saved each month by some families, there is plenty still to do to establish a full-blown savings culture among UK families. Better savings rates on the horizon will help this aim, but in the meantime those with money to invest are understandably more attracted by the higher returns available from bonds and shares.” Louise Colley, protection distribution director, Aviva

Couples with one child have shown the biggest growth in appetite for both premium bonds and stocks and shares during 2013. Among these families, take-up of premium bonds has jumped by seven percentage points to 22% while the frequency of investments in stocks and shares has done likewise to arrive at 18%.

Page 12: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The revival of the housing market has been one of the big stories of 2013 with both Nationwide and Halifax House Price Indices showing significant positive annual growth in UK property prices. This appears to have had a beneficial impact for those UK families who own their own homes. The average price of the typical family home has risen to £222,817 in December 2013: a rise of £4,057 from £218,760 (2%) since July.

This is the largest figure recorded by the Family Finances Report in the last three years and means the typical family home is now worth 7% more than in January 2011. For family homeowners it makes a difference of £15,269 in terms of property wealth.

While property values have risen in the second half of 2013, the size of the average mortgage has done the opposite and fallen by 2% or £2,242 since July. Families with mortgages now owe less than at any point since August 2011, suggesting that larger incomes have helped to maintain or even increase repayments.

Across the tracked family types, just two have seen their typical mortgage debt climb during the last six months. Among committed couples with plans to have children, this has resulted in an extra £2,080 of borrowing against their property which has increased their mortgages to an average of £123,276.

Changing levels of mortgage debt since summer 2013

Couples with more than one child have also taken on more mortgage debt, with an extra £720 of borrowing since the summer pushing their total borrowing to £95,766. Families in each group may have seized the opportunity to move home, or alternatively taken advantage of favourable rates to remortgage their homes onto a better deal, while releasing more equity at the same time.

Levels of homeownership among UK families have remained stable at 67% over the last six months, with exactly half of all families (50%) continuing to own their home with a mortgage rather than owning it outright. Private rented accommodation continues to provide a home for 16% of families, as in July, while the percentage in social housing has crept up slightly from 15% to 16% in December.

Rising prices have made property an increasingly attractive investment in recent times, and more than one in five families (22%, the same as in July 2013) continue to own some form of second property including buy-to-let properties, holiday homes, time shares or homes owned jointly with older children.

The average value of these properties has also grown over the last six months and has in fact outperformed families’ main homes in this respect by gaining 4% in value to reach £192,946. This continues the trend in the last three years with the value of second properties rising by 21% - doubtless boosted by the presence of ‘buy-to-let hotspots’ around the country that have paid off handsomely for those who are able to invest.

Housing wealth

The Aviva Family Finances Report 12

Percentage changeJuly 2013 Dec 2013

Single parents raising one or more children

Couples with plans to have childrenCouples with no plans to have children Couples with one child

Couples with two or more children Divorced / separated / widowed parents raising one or more children

£106,894£90,352

£95,046

£121,196

£76,705 £86,111

£95,495£89,172

£95,766

£123,276

£73,011 £83,750

-11%-1%

1%

2%

-5% -3%

Page 13: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The average mortgage on a second property is virtually unchanged from the summer (£136,530 in December 2013 vs. £136,502 in July) meaning that the growth in value has translated into more housing equity for those UK families with more than one home. In July the typical family in this category had £48,445 tied up in a second property; this figure has since risen by 16% (£7,971) to £56,416.

The Aviva Family Finances Report 13

Second properties outperform main homes in terms of value

Six month growth

Average value

Main family homes Second homes

Three year growth

£222,817 £192,946

21%

7%

4%2%

“A feel good factor has returned to the housing market this year and those families in possession of their own homes have clearly benefitted with their properties consistently growing in value. Mortgages also look to be under control with a general trend towards reducing the amount owed. With both strands of the Help to Buy scheme now underway, it should become more practical for those families in rented accommodation to find a way onto the property ladder between now and 2016.”Louise Colley, protection distribution director, Aviva

Page 14: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The typical borrowing of UK families has often exceeded £10,000 over the last three years, but there are signs that a turning point may have been reached. The current figure of £6,696 is the lowest seen by the Family Finances Report since January 2011 and has fallen by 28% in the last eighteen months.

It suggests families have been able to use their extra income to make significant inroads to clear their outstanding debts. For many families this effort has also included removing one or more forms of borrowing from their personal balance sheets.

With the sole exception of credit cards, the frequency of unsecured borrowing methods among UK families has fallen in the last twelve months, with the biggest change being a decrease of six percentage points in the use of overdraft facilities.

UK families rationalise their use of unsecured borrowing during 2013

The Financial Conduct Authority (FCA) is due to take on responsibility for regulating consumer credit in 2014, prompting wide discussion on future practices among payday lenders in particular and the notoriously high rates of interest.

Four per cent of families actively use payday lenders. Couples with plans to have children are the most likely to have a payday loan along with single parents (both 8%). While this figure is an improvement among single parents (14% used payday loans in January 2013), couples planning children have increased their use of payday loans from 6% at the start of the year.

Family borrowing

The Aviva Family Finances Report 14

Credit Cards Personal Loans

Hire Purchase Overdraft Loans from Family & Friends

Doorstep Lenders

Store Cards Payday Loans Pawn Broker Any other informal

Borrowing

39%

22%

18%

9% 9%

26%

20%

15%

10%

6%

4%

12%

10%

6%

4% 4%

2%

5%4%

39%

0%

-3%

-1%

-1%

-4% -2% -3%-2%

-2%-1%

Percentage changeJan 2013 Dec 2013

Page 15: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The Aviva Family Finances Report 15

Most families scale back their use of payday loans

Looking at the most common forms of unsecured borrowing among UK families, there has been a significant trend to reduce borrowing commitments on store cards and hire purchase in the last twelve months, while balances on credit cards, overdrafts and informal loans from friends and family have all been significantly reduced.

18%10%

10%

39%

20%9%

£8,151£3,337

£9,454

£4,996

£3,283£5,078 Overdraft

Loans from Family & Friends

Personal Loans

Credit Cards

Hire Purchase

Store Cards

How many families use this

How much they borrow in Dec 2013

How their borrowing has changed since Jan 2013

-5%-56%

-14%

-17%

-17%-47%

Jan 2013 Dec 2013 Percentage change

All families 6% 4% -2%

Couples with no plans to have children 8% 2% -6%

Couples with plans to have children 6% 8% +2%

Couples with one child 5% 5% -

Couples with two or more children 4% 3% -1%

Divorced/separated/widowed with one or more children 7% 3% -4%

Single with one or more children 14% 8% -6%

Page 16: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

A spate of price increases announced by major energy suppliers – ranging from 4% to 10% – pushed the cost of living into the limelight during the 2013 political party conference season and in the run-up to the government’s latest Autumn Statement.

Accordingly, significant increases to the price of basic necessities dominate the perceived threats to family living standards: back in January 56% rated this as a significant concern for the next three months, but that number has shot up to 65% in December.

This concern is unsurprising given the high levels of inflation currently impacting the costs of food (+3.78%) and fuel and light (+7.55%). The greatest degree of worry is shown by single parents, closely followed by those who are divorced, separated or widowed – the two family types with the lowest monthly incomes.

Rising concern among UK families over the basic cost of living

A look to the future

The Aviva Family Finances Report 16

The threat of unexpected expenses – such as major property repairs – has also escalated in the last twelve months, with 57% of families now mindful of this compared with 43% at the start of the year.

This makes it the fastest growing financial fear among UK families in the last twelve months, indicating the delicate balance of family finances in the current climate. In this instance, it is couples in committed relationships with plans to have children who register the most concern (62%).

Single parents raising one or more children

Couples with no plans to have

children

All families Couples with plans to have children

Couples with one child

Couples with two or more children

Divorced / separated /

widowed parents raising one or more children

65% 65%

58%

62%

65%

75%

68%

56%54% 55% 54%

59%

51% 52%

Percentage changeJan 2013 Dec 2013

9%11% 3% 8%

6%

24%16%

Page 17: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The Aviva Family Finances Report 17

It seems families are taking steps to increase their level of protection in response to these emerging threats. An additional 4% of families have made a will in the last year (making 29% overall) while an extra 2% of families are saving for a rainy day (34% overall). It is also encouraging that the number of families who have made no financial preparations for the future has fallen since the start of the year (25% in December 2013 vs. 28% in January 2013).

Nonetheless, there is a clear perception that family finances are not yet in the clear. Lower levels of unsecured borrowing have helped to keep fears about meeting debt repayments in check, while the improving job situation means 1% fewer families are worried about continuing unemployment than in the summer. In every other respect, however, financial fears among UK families continue to rise.

Perceived financial threats to UK families in the next three months

Significant increase in the price of the basic necessities for living (e.g. food or utilities)

Unexpected expenses (e.g. major repairs to home)

Losing my/our jobs (i.e. redundancy)

Serious illness (for me or my partner or children)

Loss /changes to current Government benefits

Higher mortgage rates

Breakdown of relationship

Lower savings rates on savings

Inability to keep up with any debt repayments

Continued unemployment

Paying for significant expenses such as university

Loss of income from investments

Families with this concern Percentage change since Jan 2013

65%

57%

49%

27%

21%

17%

14%

13%

11%

9%

8%

6%

9%

14%

4%

9%

1%

5%

5%

7%

0%

-1%

5%

3%

Page 18: Family Finances Report December 2013 - Aviva...The Aviva Family Finances Report December 2013 Introduction and overview The diversity of modern society means there is no single model

The Aviva Family Finances Report 18 The Aviva Family Finances Report 18

Spotlight: How past relationships impact on family finances

Trends in marriage, separation, divorce and remarriage are among the most hotly debated when it comes to the shape of the modern family. Official data shows 60% of marriages survive to the twentieth anniversary. But less happily 42% end in divorce – with around half of these occurring in the first ten years of marriage.

As a result, one in three marriages involves at least one partner who has previously been married (34%) while 15% represent a remarriage for both parties. Step-families or blended families – involving two parents and children from at least one previous relationship – are also a common feature of UK society, combining not only two previously separate family units but also two parents’ experiences and outlooks of managing family finances.

When considering trends such as serial monogamy and a rise in cohabitation – either in preparation for marriage or as an alternative – it all adds up to a great diversity among modern UK families. But what do these living arrangements and the relationship histories behind them mean when it comes to money matters?

Family relationship status in 2013Among adults who live as part of a modern UK family over half (51%) are in their first such serious relationship. This leaves almost a third (31%) with one previous committed relationship while the remaining 17% have had two or more – including 5% whose current relationship is number four (or higher).

Where children are involved, 70% of two parent families have children together (with none from previous partners) while the remainder are blended or step-families with children from at least one past relationship. In just over half of blended or step families (52%, equivalent to 15% of all two parent families) the two partners have not added children of their own; but 48% of blended families (14% of all two parent families) combine children from both present and past family setups.

Diversity among modern two parent families

*Please note it is due to rounding that these figures do not add up to 100%.

The average two parent family in December 2013 includes 1.63 children from the current relationship and 0.66 children from past relationships. Looking specifically at two parent blended or step families, these typically feature 2.24 children from past relationships.

Two parent families with children together Two parent families with children from previous relationships only

Two parent families with children together and from previous relationships

70%*15%*

14%*

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The cost of child support

Establishing a new family unit with children from a former relationship can have significant financial implications, not least with the exchange of child maintenance payments.

Among families with children from past relationships – including separated, divorced and single parents – 23% receive regular financial support each month while another 10% receive occasional payments. This leaves 67% who claim to get no financial support from their former partner. Regular monthly payments range from less than £50 to more than £1,500 per child, with an average of £254 received per child per month.

Typical support received per child by those families getting regular monthly repayments

Among those receiving financial support, one in three (33%) rely on this support to be able to make ends meet. Another 38% would be left needing to make major cutbacks to manage without this regular source of income. This means less than three in ten (29%) are in a situation where income from a former partner is a ‘nice to have’ that helps to pay for their families’ needs without being relied on.

Given the importance of this income to blended or step families, it is a potential concern that fewer than one in four (24%) know whether their former partner has financial protection – such as life insurance, income protection or critical illness cover – in place. Another 28% are under the impression this is true, without knowing what cover their former partner has in place, while one in five (18%) know this is definitely not the case.

Parents receiving child support appear vulnerable to changing circumstances

Those who know their former partner has financial

protection in place

Those who think their former partner has financial

protection – without knowing what

Those who don’t know if their former partner has any financial protection

Those who know their former partner definitely

doesn’t have financial protection

24% 28% 30% 18%

15%

17%

24%

19%

9%

6%

2%

4%

3%

1%

Up to £50

£51 - £100

£101 - £200

£201 - £300

£301 - £400

£401 - £500

£501 – £750

£750 - £1,000

£1,001 - £1,500

More than £1,500

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This leaves a significant number of families receiving child support and facing a situation where illness, redundancy or other unforeseen circumstances could compromise this important income source. Another 30% worry this income may be unprotected as they do not know whether their former partner has taken any steps to secure their finances.

Moving on from a committed relationshipEven without children involved, the end of a committed relationship has financial consequences and often requires one or both partners to remove themselves from joint commitments or update their personal arrangements.

Two in five adults (40%) have had to change or cancel arrangements to pay bills or direct debits following the end of a committed relationship, with one in three needing to change their current account arrangements (33%) – the same percentage that have had to amend mortgage or rental payments.

Most common financial arrangements to revisit when a committed relationship ends

Addressing some financial arrangements clearly takes precedence over others. Updating bank accounts and mortgage or rental agreements appear to be top of the priority list, with just 6% of adults who have been affected still needing to change either arrangement to reflect their new circumstances.

Of more concern is the fact that 19% of adults whose will has been affected by a relationship ending are yet to bring this arrangement up to date. Private medical insurance, stock market investments and pensions also feature among the outstanding items most in need of attention.

Most neglected financial arrangements following the end of a committed relationship*

*Based on the percentage of adults whose arrangements have been affected but are yet to make a necessary change.

Wills 19%

Investments e.g. stocks and shares 15%

Private medical insurance 15%

Pensions 14%

Bill paying / direct debits 40%

Current accounts 33%

Mortgage/rental agreements 33%

Regular savings accounts / ISAs 24%

Car insurance 22%

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More than one in four adults (27%) found it easy to split their finances following the end of a committed relationship, with men more inclined to take this view than women (31% vs. 25%). Perhaps as a result of this difference in perspective, just 13% of adults felt they were able to split their finances fairly – with this view again more common among men than women (14% vs. 12%).

Almost one in ten adults (9%) have found an ex-partner’s finances have had a negative impact on their own credit rating – demonstrating the importance of carefully managing family finances and seeking advice if needed when circumstances change. On this occasion, it is women who are more likely to be aggrieved than men (10% vs. 7%).

How different partners view the financial experience of separation

The benefits of hindsight and experience Financial management can often benefit from experience and it is encouraging that almost one in three adults (32%) are now more open about their current family finances than they have been in previous relationships. Men are significantly more likely to take – or feel they take – a more open approach to discussing income, savings and debt with their current partner: this is the case for 40% of males compared with just 28% of women.

Perversely, the genders are far more aligned in their attitude to keeping financial secrets within in their current family setup. Just 8% of women and 7% of men do this more now than in previous relationships. With fewer women feeling they are more open about money matters than in the past, this implies that men are more likely to keep secrets in early relationships but take a more open approach over time.

Overall 21% of adults have more joint financial arrangements in their current relationship than in previous relationships – outweighing the 18% for whom experience appears to have had the opposite effect and prompted them to retain more independent arrangements.

How past experiences affect families’ approach to money

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All Men Women

Felt it was easy to split the finances

Felt the finances were split fairly

Have had their credit rating negatively impacted by an ex-partner

27% 31% 25%

9% 7% 10%

13% 14% 12%

All Men Women

Feel they are more open now than in previous committed relationships

Feel they keep more secrets now than in previous committed relationships

Now have more joint arrangements now than in previous committed relationships

Now have fewer joint arrangements now than in previous committed relationships

32% 40% 28%

21% 19% 21%

7% 7% 8%

18% 15% 20%

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The added impact of combining children to become a blended or step family appears to prompt a greater degree of caution than simply moving from one committed relationship to the next. Blended or step families are more likely to keep more financial secrets than in previous relationships (9% vs. 7% - UK) and are also more likely to retain more independent financial arrangements (24% vs. 18% - UK).

How becoming a blended or step family prompts an extra degree of caution

AllTwo-parent families

with children together

Blended or step families

AllWith children from past relationships

only

With children together and from past relationships

Feel their current family setup leaves them financially better off

26% 30% 24% 25% 23%

Feel their current family setup leaves them financially worse off

14% 10% 12% 12% 12%

Feel their current family setup features fewer arguments about money

18% 18% 23% 23% 23%

Feel their current family setup features more arguments about money

3% 3% 4% 2% 6%

AllFamilies with

children togetherBlended or step

families Families with no children

Feel they are more open now than in previous committed relationships

32% 40% 37% 23%

Feel they keep more secrets now than in previous committed relationships

7% 7% 9% 7%

Now have more joint arrangements now than in previous committed relationships

21% 28% 23% 13%

Now have more independent arrangements now than in previous committed relationships

18% 10% 24% 19%

When comparing their current family setup to past relationships, almost twice as many adults feel their family is now better off financially (26%) than worse off (14%). Those who feel experience has improved their situation include 24% of blended or step families.

The same positive trend is visible when it comes to arguments about money. Across all UK families, it is more common for those with past relationship experience to have fewer disputes in their current family (18%) than to encounter more arguments than they have been used to in the past (3%).

Past experience appears to serve blended or step families especially well when it comes to minimising arguments about money. They are significantly more likely than the average UK family to have successfully reduced disputes over money (23% vs. 18%). On the other hand, almost twice as many families with children from both past and present relationships experience more financial fallouts compared with the UK average (6% vs. 3%).

The impact of past relationship experience on current family finances

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Bound by love or money?Across all UK families, more than one in ten (13%) have stayed with a partner they were otherwise considering separating from or divorcing because they could not afford to live separately. Men are slightly more likely to have done this than women (14% vs. 12%).

In the majority of these cases (58% of those affected) the family has continued to stay together for financial reasons, while the remaining couples (42% of those affected) stayed together for longer than they would have liked, but eventually separated.

Blended or step families are more than twice as likely as the UK average to have prolonged a past relationship for financial reasons before eventually separating (11% vs. 5%). ‘Traditional’ families with children together are the least likely to have done this (3%).

What impact do family finances have on the desire to separate or divorce?

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“Many adults bring varying relationship histories to their current family setup, which can include children from previous families and financial ties to former partners. In one respect this adds new complications to the role of balancing the family finances, but it also means people can draw on their experience and hindsight to help manage the task. Any change in family relationships can prompt all kinds of conflicting emotions, but proactively tackling financial matters can often help to avoid unwanted repercussions further down the line.”Louise Colley, protection distribution director, Aviva

AllFamilies with

children together

Blended or step families

Families with no children

Stayed with a partner for longer for financial reasons but eventually separated

5% 3% 11% 6%

Considered separating but continued to stay together for financial reasons

7% 8% 10% 5%

Never unwillingly stayed with a partner for financial reasons

87% 90% 79% 89%

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SummaryFamilies in London continue to have the highest incomes across the UK (£3,097), receiving 43% more than the average UK family (£2,166). Although the South East tends to take second place when it comes to monthly incomes, increases in a number of regions over the past six months – including the South West (+10%) and North East (+17%) – have helped to level the playing field.

The lowest incomes in the UK can be found in Wales and East Anglia, where average monthly incomes currently stand at £1,454 and £1,989 respectively.

Assets and savingsFamilies in the capital continue to have the largest savings pots (£10,249), followed by the East Midlands (£4,998) and the South West (£4,398). Those living in the North West currently have the smallest pots, with an average value of £915.

The most dedicated savers live in London, with 80% of families here making monthly contributions to their savings pots – an increase of two percentage points since July 2013. However, the biggest improvements over the last six months have been seen in Wales and Yorkshire, with an extra 4% of families in each region making efforts to save each month. It means 66% of families in Yorkshire now save every month while 69% of Welsh families do the same.

BorrowingAlthough Londoners continue to be the most likely to have a credit card (45%), the proportion of those who do has fallen by four percentage points since July 2013. Their larger monthly incomes have clearly eased the pressure on their finances as they have also managed to reduce their average bill by 19% from £6,684 (July 2013) to £5,385.

Although more than a third (36%) of families in Wales make use of a credit card, those who do currently owe the lowest amount compared with the rest of the UK (£2,371). Welsh families currently receive the lowest monthly income of any UK region, which would suggest that those on a more limited budget are better able to manage their expenditure without borrowing excessively on credit cards.

HousingThe average family house price in London (£359,331) has risen by 5% over the past six months, but is still some way short of the height reached at the start of the year (£371,081 – January 2013). House price growth among families in the capital continues to outpace the rest of the country, with the current figure sitting over £130,000 above the UK average (£222,817). In contrast, the average family home in Wales is valued at just £156,378.

Despite escalating house prices in London, fewer families are living in rented accommodation – this number has fallen by three percentage points over the past six months to 15%. Wales currently has the lowest proportion of renting families (8%), while the recent drop in the average cost of a family home in this region has prompted a rise of two percentage points in the number of homeowners (67% in December 2013 vs. 65% in July 2013).

Long-term financial securityAs well as having the smallest monthly income, families in Wales are the least likely to have started paying into a personal pension (9%). Given their larger monthly incomes, those living in London are the most likely to have set up their own personal pension scheme (23%).

More than two fifths (43%) of families in Scotland have purchased life insurance, which is noticeably higher than the current UK average of 36%. Those living in the East Midlands are the most likely to have critical illness cover (18%) and have put money into an ISA (47%).

The view across the UK

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N. EastN. West

Scotland

Wales

S. West

S. East

London

East

E. Midlands

W. Midlands

Yorkshire

Average monthly income

Average total savings

Average monthly savings

Credit card borrowing

Average house value

£192

£1,784

£2,374

£3,635£4,398

£1,399

£2,691

£10,249

£4,998

£915

£2,561

£249

£85

£95

£83

£93£112

£62

£85

£170

£92

£81

£89

£74

£2,172

£2,029

£1,989

£2,277£2,185

£1,454

£2,095

£3,097

£2,058

£2,090

£2,021

£1,849

£1,143

£1,721

£1,875

£1,970£1,531

£855

£1,206

£2,399

£1,308

£1,789

£5,049

£1,694

£162,319

£201,378

£234,173

£278,723£227,791

£156,378

£189,919

£359,331

£169,881

£183,594

£168,260

£175,000

N. Ireland

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Seeing the typical UK family enjoy a record level of income bodes well for the future at a time when the broader outlook for the economy is improving, especially when more families than ever have savings put away. Even so, these savings cushions are limited in how much financial pressure they can absorb, so we should be under no illusions that these positive trends spell good news across the board.

While things are looking up overall, income inequality continues to hold back some families from achieving a balance where they can save regularly, manage their borrowing and enjoy a comfortable standard of living. The rising value of family homes is great news for those who own them, but more of a threat to the significant numbers who are currently renting or in other forms of accommodation.

It is encouraging to see fewer families feeling pressured enough to seek out payday loans, but for many people this latest report suggests their financial stability is very finely balanced. The looming threat of significant hikes in the cost of basic essentials such as food and energy is clearly a concern to a growing number of families, while unexpected expenses are another factor that can unbalance the family books.

Putting the big picture to one side for a moment, our spotlight shows that many families are busy adjusting their approach to money management in response to more personal challenges. The experience of separating or divorcing from a committed relationship, or establishing a new family including children from former partners, brings with it a host of new considerations.

While family groups are far more diverse than was once the case, there is still a clear sense that money and finances play a major role in the workings of the modern family. Whether arising from personal relationships or the wider economy, families are often called on to adapt to changing circumstances – in which case a financial cushion can make a world of difference.

With so many needs to balance, it can often help to pause for breath and consider whether the available options to save, invest or protect an income might provide some extra security and help provide peace of mind. No-one can predict the future, but taking careful steps wherever possible can often put families in a stronger position to manage any change that comes their way.

Louise Colley, protection distribution director, Aviva

So what does this tell us?

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Methodology

The Aviva Family Finances Report was designed and produced by Wriglesworth Research. Over 2,000 people aged 18-55 who live as part of one of six family groups were interviewed to produce the report’s latest findings.

In total, 20,098 UK consumers have been interviewed between January 2011 and December 2013. This data was combined with additional information from the sources listed below and used to form the basis of the Aviva Family Finances Report. All statistics refer to figures released in December 2013 unless stated otherwise.

Additional data sources include:l Office for National Statistics, Labour Market Statistics, November 2013

l Moneysavingexpert.com, UK gas and energy price tariffs, December 2013

l Office of National Statistics (ONS), Inflation Figures, November 2013

l Nationwide House Price Index, November 2013

l Halifax House Price Index, November 2013

l Office for National Statistics, Marriages in England and Wales (Provisional) 2011, June 2013

l Office for National Statistics, Number of marriages, marriage rates and period of occurrence, February 2013.

Technical notesl A median is described as the numeric value separating the upper half of a sample, a population, or a

probability distribution, from the lower half. Thus for this report, the median is the person who is the utter middle of a sample.

l An average or mean is a single value that is meant to typify a list of values. This is derived by adding all the values on a list together and then dividing by the number of items on said list. This can be skewed by particularly high or low values.

For further information on the report or for a comment, please contact Sarah Poulter at the Aviva Press Office on 01904 452828 or [email protected]

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