Are you feeling a bit more confident about your financial situation? Hopefully, the answer is yes, and if research from Lloyds Bank is a reliable indicator, more of us than ever are feeling optimistic about our finances.
According to the Lloyds Bank Spending Power Report, consumer confidence hit an all-time high in January, reversing the fall witnessed towards the end of 2014 to give an index reading of 154. This improvement was largely fuelled by continued falls in essential spending, with people now spending almost 1% less on their essentials than at this time last year.
Sounds like good news for consumers? Well, it is! The fact that essential spending is slowing can only be positive, particularly given how stretched many household budgets have become. The fall has been largely driven by gas & electricity costs (which have fallen by 7.6% over the year) and fuel/petrol costs (down by 8.5%), so hopefully, consumers should be feeling the benefits.
This will no doubt be helped by falling inflation, which is serving to boost spending power and push sentiment towards consumers' current financial situation up 12% from December. Many are also becoming savvier and are looking to cut back following the big Christmas blowout: the research found that 56% of respondents have cut back on spending since the start of the year, with 25% using a cheaper supermarket, 21% using more vouchers and discount codes, and 10% selling more items on auction sites.
Claire Garrod, head of personal current accounts at Lloyds Bank, commented: "We are becoming increasingly confident about the power of the pound in our pockets. More people have disposable income than this time last year, we are spending less on essentials like electricity and fuel, and many of us are taking a proactive approach to money management early in 2015. This has all contributed to a rise in spending power for the first month of the year."
However, despite these improvements, some challenges remain. The proportion of people with discretionary income is improving – 80% of respondents say they have some money left after paying for bills and essentials – but there's a tendency to spend this spare cash, with consumers saying that, on average, they would spend 46% of any spare money they have left.
The research also found that sentiment towards the future situation fell in January, suggesting that people are still relatively cautious about the future. Just 20% of people think they'll have more money in six months' time, and 39% of those are planning to spend any money they have left over.
Happily, however, there are some people who are a bit more sensible. Of those who currently have some form of discretionary income, 24% save it and 14% use it to pay off debt, while of those who expect to have more money in six months, 30% said they will pay off debt and 71% said they will save.
This savings mentality seems to be taking hold, too, as although people are inclined to spend their spare money at the moment, future intentions lean towards saving. A higher number of people now say they will save more compared with those who say they will save less, giving a balance of +8 for future saving and -4 for future spending, while a balance of +1 was recorded for paying off debt.
It's hoped that this trend will continue, with putting discretionary income in a suitable savings account (or using it to pay off credit card debt if you have any) always being preferable to spending blindly. The current economic environment means the growing level of confidence witnessed recently could also continue, as Patrick Foley, chief economist at Lloyds Bank, concluded: "While some caution remains around future income prospects, with inflationary pressures likely to remain in check, and some pick up in pay growth now emerging, households should continue to feel better off through 2015."
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