Plum boss Victor Trokoudes says people are ‘saving definitely less’, but also rely on savings to cope with rising cost of living
Victor Trokoudes has a unique insight into how Britons spend their money and deal with the cost of living.
As chief executive of savings and investment app Plum, he has insight into the spending habits of more than a million Britons.
Plum customers link their bank and credit cards to create one account that can help them understand where their money is going.
Despite its branding and strong presence on TikTok and Instagram, Plum claims it is not a purely Gen Z app. The core customer base is actually between 25 and 50.
An analysis of their 1.3 million customers reveals some of the tough trade-offs Brits will have to make ahead of what is likely to be a harsh winter.
What happened to consumer spending this year?
UK consumer confidence remains at a nearly 50-year low as Britons grapple with rising inflation and interest rates.
But this didn’t come out of nowhere. Since the reopening of the economy after the pandemic, inflation has risen. But to what extent did consumers feel this at the start of the year?
“At the beginning of the year, there was inflation and interest rate hikes… [but] it’s hard to predict what that means for you. I think less action was taken, but when they saw their bills rise, they noticed,” says Trokoudes.
‘I didn’t know why people weren’t talking enough about what was going to happen to mortgages in the UK… The percentage people are spending on their mortgages is significant – if something triples and you spend 30 per cent on it, it means you’re being challenged .
I think we will see more pessimism and people withdrawing from spending on things that are more for fun
“This was obvious, but I don’t think a lot of people or even the government really understood it… This is a country where a lot of people own their homes – you have to look at how much debt people have… it’s a significant cost.
“The same way that inflation happened in January and we didn’t feel it, there wasn’t that much significant relapse. Now that reality has played out, we’re seeing people change their behavior… I think we’re going to see more pessimism and people backing off from spending on things that are more for fun.”
Unsurprisingly, Trokoudes has found that people are “saving absolutely less and relying on savings” to pay for price hikes.
Where are Brits cutting spending?
In September, the impact of inflation really started to be felt in people’s spending habits. People began cutting back on recurring bills, excluding utilities, with spending falling 10 percent over the month.
“People cut out clothes, eating out, just like entertainment. Even transport, which means people move significantly less – prices go up and transport goes down. People stay put.’
All this, of course, is not good news for the wider economy. The UK is now facing its longest recession on record, with the Bank of England recently warning the country is facing a ‘very challenging’ two years.
Trokoudes, an economics graduate from Harvard, says, “It’s a self-fulfilling thing, isn’t it? We get depressed and that affects our behavior… that’s behavioral economics for you.
“It feels like a decade of government spending and the kind of propulsion of the economy has come to an abrupt end where inflation swept away all the money that was poured into it. Which in theory you would expect, because the money supply is increasing.’
Elsewhere, subscriptions to streaming services took a hit as entertainment spending fell three percent from August to September, with people cutting back on their Netflix, Amazon and Spotify subscriptions.
Entertainment spending rose 10 percent in October, but Plum says this likely reflects rising subscription costs and higher console game prices.
Apple has increased the price of Apple Music, Apple One, and Apple TV+, while Netflix is working hard on password sharing, pushing more people to pay for their own subscriptions.
The increase is particularly pronounced in people aged 18-24 (an increase of 23 percent) and 25-34 years, with an increase of 11 percent.
The Energy Price Guarantee, which limits bills to £2,500 for an average-using household until April 2023, has helped matters.
The increase in utility spending has been moderated by the mild weather in October, while transportation costs rose one percent as oil prices rose, feeding through to gasoline prices.
Energy costs: Higher bills weigh heavily on people’s spending, according to Plum
One of the most worrying developments Plum has identified in assessing spending is how much people spend on food.
In a customer survey, Plum found that one in seven were hungry to save some money. Grocery spending fell by six percent in September, before rising two percent between September and October.
Food has become noticeably more expensive. ONS figures show that food price inflation in the UK has risen to an all-time high of 11.6 per cent as commodities such as milk, tea bags and sugar became more expensive.
As a result, people are forced to make hard decisions about heating their homes or going without food.
“There are people who skip meals, which is terrible,” says Trokoudes. “Others switch to stores like Aldi and Lidl and actually spend less on groceries. Sacrifices are made across the board.
“Obviously it’s a necessity to eat, but what you can eat can vary. I think that’s why we see people in all categories cutting across the board to make room for energy and other necessities.’
Even with the introduction of the energy price guarantee, these compromises will only become more common as the weather gets colder.
How long can this go on?
Trokoudes says: ‘It’s really hard to predict. I think you will actually see people waiting for Christmas. It can be coordinated with when energy bills drop with the warmer weather to come.
‘People pay their bills in different ways: some according to consumption, others spread over the year. It depends. But for the people who spend and consume, I would think that March or April is the time when we will really see things again.’
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