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Last Updated: Thursday, 29 July 2004, 09:12 GMT 10:12 UK
How debt culture took root
By Julian Knight
BBC News Online personal finance reporter

A woman looking in a jewellers window

How has the UK moved from being a nation that held up thrift as a virtue and considered debt a vice, to owing a trillion pounds on mortgages, credit cards and other loans?

A generation ago borrowing money carried a heavy social stigma.

To borrow was to admit to living beyond one's means.

Britain's rigid class structure meant the bulk of people had little immediate prospect of securing higher paid employment.

With no house price boom or promotion around the corner to help clear the bills, debt equalled financial and personal decay.

No wonder debt was commonly referred to as living on the never-never.

When I bought my first car in the 1950s I had to have the credit agreement counter signed by my father and husband
Dr Dorothy Rowe, psychologist

Even the form of credit which helped fuel the UK's post-war consumer boom, hire purchase, was very limited in scope and availability.

Hire purchase was almost exclusively used for high value items such as cars or large household goods. There were tight controls on the length of loan and who could borrow money.

Borrowing to fund a DIY home extension or, heaven forbid, a holiday, would have been seen as frivolous and something to be looked down upon by lenders and neighbours.

As for credit cards, as recently as the 1980s, these were regarded as being for the privileged few rather than the many.


All in all, the attitudes of lenders reflected those prevalent in UK society - regimented and laced with social and sexual prejudice.

"When I bought my first car in the 1950s I had to have the credit agreement counter-signed by my father and husband. As a woman, I couldn't be trusted to borrow on my own," recalls Dr Dorothy Rowe, psychologist and author of 'The real meaning of money'.

"The irony was that neither of these two men knew anything about how to handle money," she says.

Consumers' new-found wealth has led to a fundamental change in attitudes to credit
Eamonn Rice, Ernst & Young

But that was then and this is now.

Through mortgages, credit cards and loans Britons have built up combined debt of close to a trillion pounds.

Housing obsession

A trillion is such a large number that there is a healthy debate over whether it actually exists.

It is the number one followed by 12 noughts; a trillion pounds is roughly equivalent to the combined gross domestic product of the world's 155 least wealthy nations.

How did Britons move from a sense of shame to a trillion pound debt?

The key, as with so much in the UK economy, is to be found in Britain's obsession with home ownership.

Mortgage debt for house purchases and remortgaging accounts for close to 80% of the trillion pound borrowings.

But the impact of the house price boom goes much wider than the headline figure for mortgage borrowing.

Richer, faster, quicker

Many people have seen the market value of their homes double in the past five years.

As a result, it could be argued that more Britons have become asset-rich faster than at anytime in history.

At the same time, not coincidentally, UK consumers have benefited from low levels of interest rates, inflation and high levels of employment.

"Consumers' new-found wealth has led to a fundamental change in attitudes to credit," says Eamonn Rice, head of financial services at Ernst & Young.

"They feel increasingly positive that they could borrow more money. Individuals have been acting on the Thatcher message that they had to take responsibility for their financial position, rather than the state," Mr Rice added.

Morality and economics go hand in hand, sometimes in the past a debtor was seen as a wicked person now they are a good consumer
Dr Dorothy Rowe
But in order for the explosion in personal debt to have happened, lenders had to come to the party too.

"From the mid 1990s onwards American lenders flooded into the UK market."

"They stole a march on domestic lenders by using aggressive marketing techniques and more sophisticated credit scoring to enable them to undertake a looser lending policy. Crucially they had very deep pockets." Mr Rice said.

Seeing their market share vanish at an alarming rate, domestic lenders countered by making it much easier and quicker for people to get credit.

"In the 1980s you would buy a car using finance provided by the dealer, the decision on whether you had secured the loan would take a few days. Now with internet and telephone banking the process can take a few minutes and consumers shop around for the right rate," Mr Rice said.


In recent years, the UK's economic performance has outshone France and Germany.

But without the explosion in debt UK economic growth rates would have been much lower, Mr Rice argues.

"The UK economy would be much smaller, the corporate sector less profitable and there would be fewer jobs without the impetus of personal debt," he said.

All in all, it seems the role of the debtor in society has changed from quasi-social misfit to lifeblood of the UK economy.

"Morality and economics go hand in hand, sometimes in the past a debtor was seen as a wicked person now they are a good consumer," Dr Rowe, psychologist and author, told BBC News Online.

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