Spending Power Index - Experian
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
White paper Spending Power Index
White paper
Spending Power Index
Businesses often become laser-focussed on the specific
market segments that they perceive are most relevant
Foreword
to them. And while this may seem a sensible tactic, it
By Amir Goshtai, MD, Experian means the full picture and changing preferences of
Marketplace and Affinity other segments are not always taken into account.
We hope this report will help to address that, and
The world in 2018 is defined by data. Vast quantities of
give an understanding of trends that are prevalent
information flow through our lives like threads across an
across the nation.
elaborate tapestry. On a micro level, these threads bind
the business world together and stop it from In doing this analysis we’ve found some areas of
falling apart. significant shift, such as the movement away from
owning possessions and towards spending on life
But more than this, once we zoom out onto a macro
experiences. Others have remained very much
level, they create a picture of the economy that is
consistent over many years, like the most powerful
colourful, detailed, and uniquely fascinating.
category we’ve identified, the Formidable 40s.
At Experian, we hold and manage large datasets,
We hope that decision makers reading this will gain
making us specialists in the handling and understanding
insight into ways they can adapt for success in what
of data - and in making sure it is used for the benefit of
is a changing and complex landscape.
consumers and businesses.
And more than this, we hope that anyone reading will
To create our Inaugural Spending Index, we have used
find these insights on the UK’s vast data tapestry just
this expertise to analyse a range of information about
as fascinating as we do.
incomes and spending to look at how people across
the UK are spending their money and how that’s likely
to change in the future.
"In doing this analysis we’ve found
Some of these insights have been surprising - and others
fit into social trends that are already well understood.
some areas of significant shift, such
as the movement away from owning
What’s most interesting about the report, though, is possessions and towards spending on
the way these insights allow us to see long term trends life experiences."
across segments of the market that inform us of the
changing preferences of people.
Page 2
White paper
Spending Power Index
What is the Spending Power Index? Macro model and the ONS Living Costs and Food Survey
to deliver the insights in this report. Further details are
For the purpose of this report we’ve defined
provided in the appendix.
“Spending Power” as a combination of key factors:
• Average income growth over time
• L
evels of spending for one demographic group when
We have designed this report to be as
compared to another easily understood as possible, in terms
of naming the different categories.
• Levels of spending as a proportion of incomes
However, one that does require further
All of these insights have been drawn from Experian’s explanation may be ‘Other Income’. This
modelled data using secondary sources, which we’ve is comprised of income from a variety of
built over 20 years of work in the UK market. These sources, including trade union benefits,
combined factors reveal a wealth of hidden information income of children under 16, private
about income and spending.
scholarships, earnings as a mail order
Building the Index agent or baby-sitter, regular allowances
We’ve built the report using information which has from a non-spouse and allowances
been collected from the Experian Financial Strategy from an absent spouse, and payments
Segmentation (FSS) tool. This data for the tool is taken from insurance schemes (such as
from a range of publicly and commercially available unemployment redundancy insurance).
sources, such as the edited Electoral Roll, the UK
Census and permission-based market research data
taken, for example, from the lifestyle questionnaires
It’s a varied category - and this variety has been
many of us complete. FSS is a proprietary consumer
considered carefully when drawing conclusions
insight system that uses this information to split the UK
about its overall impact.
population into 15 broad groups (FSS Groups), and 55
more detailed groups (FSS Types) based on likely shared Then finally, on the self-employment income category, it
characteristics. should be clear that figures given refer to supplementary
income, which may be on top of wages or salaries.
The income and spending information has then been
broken down into more detail by Experian’s expert team
of in-house economists, and combined with our UK
Page 3
White paper
Spending Power Index
What you’ll see in the report
The report looks at income and spending levels
across seven years, broken down by generation, age,
and household type.
Income and spending levels are provided in both
absolute and annual growth rate terms. This includes
historical data from 2013-2018, and predicted data for
2019.
Absolute figures refer to amount in GBP per week,
unless otherwise stated. These are per household
figures, representing a typical household of that type,
and are nominal (ie. not adjusted for inflation).
The most recent data provides the most current view of
today’s consumer spending trends. The historical figures
serve both to benchmark these trends over time, and to
contextualise areas of specific interest.
Grouping age demographics
Gen Z Millennials
18-25 26-40
Late Boomers Gen X
56-65 41-55
Early Boomers Pre-Boomers
66-75 75+
Our raw data gave stats for 12 different age categories,
ranging from the 18-25s to the 76 and overs. We’ve
bundled these up into categories that are loosely based
on traditional naming conventions. Where we’re talking
about specific data points, we also state the smaller
age bracket.
Page 4
White paper
Spending Power Index
Young
Young
Singles Vocational
Professionals
Workers
Benefit
High Earning Mid-affluence
Dependent
Families Families
Families
State benefit Mixed
Debt free
reliant portfolio
pensioners
pensioners pensioners
The different household types mentioned Household Type Income min Income max Age min Age max
in the report are, on a broad level, quite
Singles 14,033 84,866 38 54
self-explanatory. For example, most of us
can understand fairly well what a ‘young Young professionals 35,777 36,013 33 34
vocational worker’ or a ‘high-earning Young vocational workers 17,607 17,607 31 31
family’ is.
Benefit dependent families 7,082 25,591 35 60
But in reality, breaking these down into
Mid-affluence families 20,324 54,931 29 59
distinct groups is not quite so easy.
High earning families 54,954 175,132 39 57
And this means there are some specific
State benefit reliant
guidelines and data points we’ve used 6,760 20,430 72 79
pensioners
to categorise them, so as to be perfectly
Debt free pensioners 25,302 27,156 62 73
clear about how the delineations work.
Mixed portfolio pensioners 33,314 50,498 71 72
These are outlined on the table opposite.
*See appendix for further info on FSS methodology
Page 5
White paper
Spending Power Index
The Growth of Experience
As retail spending growth slows, “experience
spending” is on the rise
Young
Young
Vocational
Brits are increasingly choosing to spend their money on
Professionals
the ephemeral rather thanWorkers
the material. Or, more simply,
0%
1.7% 5%
they want to do rather than own.
This trend is evidenced in a few different ways, but most
1% 4%
clearly in the differences between three categories:
retail spending, lifestyle spending, and holiday spending.
2% 3%
Benefit
Retail spending - or the amount of money Brits are
Mid-affluence
Dependent
spending on buying goods – is estimated to grow by Retail
Families
an average 1.7% in 2019 Families
year-on-year. In comparison,
lifestyle spending is projected to grow by 3.1% over the
same year, and spending on holidays is expected
to increase by 4%.
By 2019, our model suggests retail spending will have
seen three consecutive years of slowing growth - at an
Mixed
0%
3.1% 5%
Debtaverage
free of 2.9%, while holiday spending will have grown
portfolio
pensioners
3.7% per year over the same period.
pensioners
1% 4%
Social Context
These changes make sense when viewed in the context 2% 3%
of the broader sociological narrative.
Lifestyle
The movement away from buying things and towards
buying experiences has been growing since at least 2014
- when the notion was popularised by Cornell Professor
Thomas Gilovich.
In a 2014 paper, he said: “People often think spending
money on an experience is not as wise an investment
as spending it on a material possession.
0%
4% 5%
“But in reality we remember experiences long afterward,
1% 4%
while we soon become used to our possessions.
“At the same time, we also enjoy the anticipation of
2% 3%
having an experience more than the anticipation of
owning a possession.”1 Holidays
“In reality we remember experiences
long afterward, while we soon become
used to our possessions."
Page 6
White paper
Spending Power Index
Cross-generational Change
It would be easy to think that this change is being driven
only by the young. Millennials and Generation Z are often
thought of as being less materialistic than the rest of
the population, and much analysis is often biased by
the prevailing school of thought that says young people
value experiences more.
However, the data doesn’t bear out this analysis.
While it is true that Millennials are very much a part
of this trend - it’s actually happening across the
generations.
Holiday spending is set to grow fastest among people
aged between 41-45, at 4.9% in 2019. That’s compared
to 4.6% for those between 26-30.
The growth in holiday spending for the 71-75 and 76+
age brackets is predicted to be moderate compared
to the rest of the population in 2019 (at 2.2% and 2.0%
respectively). But this still represents a year-on-year
percentage increase for both categories - and they are So what is the business world to make of this paradigm
both spending the highest proportion of their incomes shift towards the experiential?
on holidays of the entire data set. In a world where you can buy the same goods online,
stores are already considering what else they can
Holiday spending Growth - 2019 offer customers beyond a better, more exciting buying
environment. Many are setting up new store layouts,
6%
payment schemes, and innovative in-store customer
experiences.
5%
Some businesses are taking it further still - investing
2.6%
in partnerships to heighten the experiential element of
4% a physical space,Salary
and further reduce the emphasis on
& Wages
traditional retail transactions.
3%
One example of this is the partnership between WeWork
3.6%
and Samsung2, where the tech giant’s customer care
2%
centre doublesSelf-employment
up as a modern work facility, complete
with high-speed internet and video conferencing
capability.
6.3%
1%
In the marketing industry, experiential marketing is
already seeing bigger gains than the rest of the field.
0% Other Income
One report suggests 5.5% growth in the final quarter
18-25
26-30
31-35
36-40
41-45
46-50
51-55
56-60
61-65
66-70
71-75
76+
of 2018, where most other disciplines were in decline.
Page 7
White paper
Spending Power Index
Millennials: Breaking free Our data suggests this phenomenon is growing in the
UK too. A recent global Deloitte survey4 showed it’s
The category that grew up with the disruptive not just that this cohort want to be free of the traditional
power of the digital age is now breaking free paradigm - they may actually define success by their
from the traditional employment and spending own levels of personal freedom. It suggested that 16.8%
model of Millennials evaluate career opportunities by good
work-life balance, and 11% seek out workplace flexibility.
The drive for experience continues to be strong among
the Millennial age groups. But they are also seeing shifts Millennials are now the majority of the workforce. They
in terms of their self-employment income. Increasingly, are obtaining increasing levels of income from their own
Millennials are shunning traditional models of salaried means, like self-employment and entrepreneurialism,
employment and retail spending, in favour of lifestyles and therefore becoming less reliant on monthly salaries
that offer more control over their time. to survive.
Through 6%2018 and 2019, we forecast the Millennial age Predicted Millennial Income Growth - 2019
brackets will see an average 3.6% increase in their self-
employment
5% income.
2.6%
Those aged
4%
between 31-35 are predicted to make Salary & Wages
£127.52 per week in self-employed income in 2019,
compared3% to just £104.72 in 2013.
3.6%
“Other incomes”,
2% the category comprised of a variety Self-employment
of different sources, including things like earnings as a
mail order agent or babysitter, are also on the rise for
6.3%
1%
Millennials, especially at the oldest end of the bracket.
0% Other Income
We conclude those aged 36-40 will see a 7.9% increase
66-70
71-75
76+
18-25
26-30
31-35
36-40
41-45
46-50
51-55
56-60
61-65
66-70
71-75
76+
in “other incomes” in 2019. Only those in their 40s are
expected to see a bigger percentage increase (see page
9, The Formidable 40s).
Traditional wages and salaries remain consistent
but unspectacular. The expected growth of 2.6% for
Millennials is slower than either the self-employed or
other income growth mentioned above. This slow wage
growth is in line with the gains across all wage brackets.
For example, wages for the 46-50 age bracket only grew
by 2.7% in the same period - and the 56-60s registered
an increase of just 2.5%. All age groups are experiencing
slow wage growth - but Millennials seem to be taking the
most active steps to find alternative income sources.
What does the data mean?
American Millennials have been recognised as far more
entrepreneurial than previous generations, with a 2017
study3 showing 30% of millennials had already started
some sort of business, and 49% planned on starting one
sometime in the next three years.
Page 8
White paper
Spending Power Index
The Formidable 40s: How early
Generation X-ers became the engine
of the UK economy £1000
The 41-45 age bracket earns, spends, and 41 - 45
contributes more than any other
36 - 40
46 - 50
£800
31 - 35
Perhaps the clearest signal provided throughout our 56 - 60
51 - 65
data analysis was the arrival of the ‘Formidable 40s’.
61 - 75
26 - 30
66 - 70
£600
18 - 25
The age bracket at the youngest end of Generation X 71 - 75
has emerged as the real driving force behind the British 76+
economy. £400
ItHoliday
is a trend noticeable right across Health
the spectrum of
Transport
Lifestyle Education Housing
income and earnings that we’ve studied. It is more
£200
pronounced in some areas than others, but the overall 2013 2014 2015 2016 2017 2018 2019
fact is clear - those sitting within and around the 41-45 Income growth chart per household per week
age bracket are by far the most important sub-section
of UK consumers.
Incomes
The Formidable 40s will be the highest earners in
terms of both Gross and Net income in 2019, making
The overall fact is clear - those sitting an average of £1,139.31 and £900.87 per household per
within and around the 41-45 age week respectively according to our forecast.
bracket are by far the most important
This same age bracket has represented the highest
sub-section of UK consumers.
earning segment for every single year in our data set.
So from 2013 up until 2019, those in their early 40s have
and are expected to earn and take home the
most money.
The “Formidable 40s” net income is expected to grow by
3.9% in 2019, the highest percentage of all age groups.
This is also the only group making more than the
entrepreneurial Millennials in self-employment income.
The 41-45s are making an expected £155.09 per week
from self-employment, compared to an average £127.57
forecast across the Millennial age ranges in 2019.
They also have the highest rate of “other incomes”
growth of any age bracket - this is predicted to be at
8.5% in 2019.
As a result of their higher salaries, the 41-46 age bracket
are contributing more in Tax and National Insurance than
any other segment.
Page 9
White paper
Spending Power Index
Spending Impact
41-45s are set to be the highest absolute spenders of 41-45s, and their companions across Generation
any age group in 2019, as they’re expected to spend an Xers in general, may well be the powerhouse of the
average of £785.64 per week. However, their expected UK economy.
rate of spending growth, at 2.6%, is not the highest - as
Their levels of income, taxation contributions, and
there are four other age brackets anticipated to register
spending across almost all areas of the economy are
marginally higher growth going into 2019 (18-25s, 26-
in excess of every other age group. Likely factors include
30s, 46-50s and 56-60s predicted to grow at 2.7%).
a peaking career and a potentially growing family.
The 41-45s spend more on lifestyle and holidays than
What this data emphasises, though, is that all of this
anyone else - even Millennials. They are set to spend
combines to create an impressive group of people
£130.72 per week on lifestyle in 2019, and have been
that are at the peak of their powers.
the biggest spenders in this category across every
year we studied.
Likewise, on holiday spending, this group was the highest
spending sub-section across every year - and in 2019 we
think they’ll be the fastest growing, too.
They aren’t just driving growth in experiences, though.
This category is also contributing more than any other
group in the more prosaic (but nonetheless crucial)
areas of spending like transport, housing and education.
And, in fact, it is these areas they are arguably making
the biggest contribution - as they lead spending across
every year studied in every one of these three.
There are some signs, though, that this powerhouse
cohort might be slowing down. Growth in their spending
on these critical areas of the economy is still there but
the spending of some other age brackets - particularly
Generation Z - is growing faster.
In transport, the 41-45s are projected to see 1.9%
spending growth in 2019, compared with 2.1% for the 18-
25s; and in housing their spending is expected to grow
by 3%, whereas the 18-25s will see theirs grow by 3.5%.
This group also leads in home improvement spending,
and has the highest and fastest-growing level of interest
on unsecured credit.
What this data emphasises, though, is
that all of this combines to create an
impressive group of people that are at
the peak of their powers.
Page 10White paper
Spending Power Index
The Benefits Spending Trap Impact
Benefit-dependent households are already among the
As benefit-dependent families tighten their belts
lowest earners in our society. Their spending power
on all areas of spending, housing costs keep
continues to be challenged even more by rising housing
growing costs, meaning less money to enjoy for non-essential
Benefit-dependent households spending remained at a spend such as experiences and holidays.
low level throughout the seven years of our analysis. It This will also have the cumulative effect - across large
grew more slowly than any other type of household. numbers of households over many years - of reducing
There was, however, a consistent increase in the liquidity in the economy as less money is spent on other
proportion of incomes spent on housing. areas.
Our projection is that these families will spend the lowest With the employment rate at an all-time high in the
proportion of their income on lifestyle and transport of UK, it is less likely there will be the same movement
all groups in 2019. On lifestyle, this will be 10%, and on of low income benefit dependent household workers
transport just 6%, compared to an average of 14% and from unemployment to employment. Businesses and
10% across other groups. society will therefore need to carefully consider how
they respond to this trend of higher housing costs
Benefit-dependent families will likely see the lowest level as a proportion of income among benefit-dependent
of spending growth in 2019 for lifestyle (1.8% compared households.
to an average 3%), retail (1% compared to an average
1.8%), and holiday spending (3.5% compared to an
Benefit dependent families 2019 spending graph
average 4.1%).
In transport their spending is projected to decrease by 4.0%
0.7%. Across other age groups, we conclude that the
2.6%
3.5%
average level of spend will go up by 1.8% in the same 3.0%
y & Wages period. 2.5%
2.0%
Based on current trends, growth in housing spend is
3.6% predicted to be 3.9% for this group in 2019 - the same as
1.5%
mployment young vocational workers, and a higher rate of growth 1.0%
0.5%
than singles, young professionals, mid-affluence families
Transport
and high-earning families.
0.0%
6.3%
Retail Lifestyle Holiday Education Housing Health
-0.5%
her Income Spending as a proportion of income is also set to be -1.0%
higher than any other group.
Page 11White paper
Spending Power Index
Summary
Businesses and societies will succeed or
The shift towards experience spending over
fail on their ability to grasp detailed data
retail has grown across groups to become a
flows and the way they can create wider
mainstream trend that shows no sign of slowing
knock-on effects.
Millennials, having led this movement, are now taking
the experience-first expectation into their working lives
as they move away from traditional career models and The wide picture of the UK economy is, perhaps
into self-employed and flexible working environments. unsurprisingly, multi-faceted and complex. The groups
and shifts we’ve identified go some way towards
We’ve also found the Formidable 40s are to a large improving understanding of the currents of information
extent the engine room of the UK economy. They are flowing through our lives. But there is always more to be
earning, spending, and contributing more than everyone done. In a world defined by data, the work of unpicking
else on every relevant metric in our Spending Power and unravelling it never stops.
Index.
And it is this changing paradigm that the Spending
And we’ve also identified one area of the British economy Power Index describes. Businesses and societies will
- Benefit-dependent families - where spend on housing succeed or fail on their ability to grasp detailed data
costs is the highest of all as a proportion of income - and flows and the way they can create wider knock-on
its rate of growth shows no sign of slowing down. effects. Nowhere is this more important than in the
financial flows of income and spending patterns, the
lifeblood of the UK economy.
Paper subtitle | Page 12White paper
Spending Power Index
Appendix
Further information on the methodology
Experian’s proprietary UK Macro model includes
income forecasts by component of income (e.g.
wages and salaries) and expenditure forecasts by
detailed Classification of Individual Consumption by
Purpose, (COICOP). This is a standardised classification
system published by the UN Statistics Division that
includes categories such as Health, Transport, and
Communication spending, among others.
This model was used to drive forecasts of income by
component and detailed COICOP expenditure in GBP per
household, per week, split by gross income decile. The
income and expenditure data by gross income decile is
taken from the ONS Living Costs and Food Survey
(for both retired and non-retired households).
The income and expenditure forecasts by decile were
then converted to income and expenditure forecasts by
FSS type, using household gross income bands by FSS
type in the FSS segmentation.
Additional information on the FSS methodology can
be found online: https://www.experian.co.uk/marketing-
services/products/financial-strategy-segments.html
1. h
ttps://research.cornell.edu/news-features/
intriguing-human-behavior
2. h
ttps://www.wework.com/blog/posts/wework-
samsung-team-up-on-innovative-spaces-for-work-
and-play
3. h
ttps://www.prnewswire.com/news-releases/half-
of-millennials-plan-to-start-a-business-in-the-next-3-
years-300465835.html
4. https://www2.deloitte.com/content/dam/Deloitte/
global/Documents/About-Deloitte/gx-millenial-
survey-2016 exec-summary.pdf
Page 13Registered office address: © Experian, 2018.
The Sir John Peace Building, Experian Way, The information contained within these materials is the confidential information of Experian and/
or its associated companies or third party suppliers. You may not reproduce or transmit all or part
NG2 Business Park, Nottingham, NG80 1ZZ
of this work, whether by photocopying or storing in any medium by electronic means or otherwise,
without the written consent of Experian.
T: 0844 4815 888 The word "EXPERIAN" and the graphical device are trade marks of Experian and/or its associated
E: gtmcontactus@experian.com companies and may be registered in the EU, USA and other countries. The graphical device is a
design of Experian and/or its associated companies and may be registered.
www.experian.co.uk/gdpr
All rights reservedYou can also read
