Lowest income households borrowed to spend in run up to crisis

Low to middle income households were reliant on borrowing to fund much of their spending for more than a decade before the financial crisis, according to a new report for the independent think tank the Resolution Foundation. The report shows the full extent of the increase in borrowing and deterioration in household savings rates in the run up to the 2008/09 crisis, with the poorest 10% outspending their income by 40% by 2007. The report, authored by the National Institute for Economic and Social Research, found that over the 10 years 1997-2007, spending grew faster than incomes across all households, but for the poorest groups this was much more pronounced.  For the bottom 10%, incomes grew by 17% while spending grew by more than twice as much (43%). Even middle income households found themselves falling behind, with incomes growing by 33% and spending growing by 46%, resulting in a negative savings ratio for a full ten years before the crash. May 18, 2012