Living in a cost-of-living crisis – the hierarchy of bills
UK living standards have suffered their biggest fall since records began and what we have to spend or save is being subject to a very big squeeze. Dr Mark Pegg reviews the evidence and investigates how the pressure on personal disposable income is affecting people across the UK. No one size fits all and he proposes a model, a ‘hierarchy of bills’, as a guide to take on the challenge and get the most out of member benefits.
We’re feeling the pain
The grim news is UK living standards have suffered their biggest fall since records began in the 1950s, according to the Office for Budget Responsibility. To add to our woes, price inflation remains stubbornly ahead of pay, and rising interest rates are adding further to our costs. A freeze on income tax bands means many more of us than ever before are paying higher tax rates. Our personal disposable income, the money left after we have met the essentials in life, is suffering a very big squeeze indeed. In this new reality we have less to spend and more of what’s left must go on essentials. We must look for value in everything we buy.
How bad is it?
The actual pain borne by individuals, families and communities varies enormously. First, we should humbly acknowledge a growing population experiencing extreme hardship: all thought of spending on non-essentials has long gone, it is about survival. Citizens Advice Bureau report big increases in people they can’t help because they have nothing left to cut. A recent survey carried out by Which? magazine found that as many as 9.2 million people, that’s one in six of the UK population of 67.3 million, regularly skip meals, Which? calls this group ‘drained and desperate’. As one said: ‘it feels like I’m existing instead of living’.
For the rest of us, decisions on personal disposable income are increasingly about a set of difficult choices, where progressively more of us are drawn into the net, having to think incredibly carefully about where our money goes. The data shows many are borrowing and using ‘buy now, pay later’ schemes, but this may only be keeping the wolf from the door. Which? sees a further group of 8 million people who are ‘anxious and at risk’ and ‘have been left balancing on a financial knife-edge’.
A hierarchy of bills
Inspired by the hierarchy of needs and motivation: hygiene factors created by celebrated psychologists Maslow and Herzberg; I argue that we face what is in effect a hierarchy of bills . In making your spending decisions you must look first to satisfy your basic means of life. We know from Office of National Statistics data that grocery spending is subject to even higher inflationary pressures. In the hierarchy of bills , the essentials to exist are food, water, heat and light. Plus, with rising interest rates, you also face the increasing cost of a roof over your head, the brutal rise in mortgage and rental costs with the council tax adding to the burden. These days our mobile phone probably counts as essential too and for some running a car is unavoidable. These costs are running well ahead of the overall rate of inflation and the more we are obliged to spend on these, the less we have available for other things.
In this hierarchy of bills , the next layer of spending is on the things that make us feel safe and secure, spending on our family, on our community and making life enjoyable and fun. With less to spend on these we must look harder and harder for value. Lastly, at the apex of this hierarchy of bills is the luxury end of the market, things that make us feel good about ourselves, our hobbies, our holidays, on ways to reach fulfilment: self-esteem and self-actualisation. Few can get through life without at least some of these occasionally, if only for the sake of our mental health and physical welfare.
Making the most of your member benefits
So, what does a hierarchy of bills mean for you when deciding how best to use member benefits? I see three main overlapping groups:
- Just take the hit? You want to sustain the same level, but no one likes to spend any more than they need to. Even time-poor, busy people need to allocate some thinking time on ways to use member benefits as actively as possible – to get better deals on the things you buy. To look harder for discounts on big ticket items, on consumer goods, making smarter decisions on travel and holiday purchases. At a time when we are often feeling just that bit depressed about our future and our hard-earned money does not go as far, then at least you will have squeezed as much pleasure and enjoyment out of it for you and your family.
- Cut back on luxuries? Economies are the order of the day. Making shrewder buying decisions about almost everything to stretch your disposable income as far as it will go. Maximise the impact as well as the value of everything you buy. Search harder for value brands, goods and services, take a short break instead of a longer holiday abroad, aim for things that deliver similar satisfaction at lower cost to help sustain your daily life.
- Cut out key areas of spending? You are down to the bone and have cut out everything non-essential already. But there are still benefits to help you get some fun out of life and help your mental health. Experience also teaches us that just when you think things can’t get worse, they do, so find a way if you can to keep some rainy-day money stashed away, that final reserve for when your refrigerator decides to expire.
Author: Dr Mark Pegg, Director, Chalfont Associates