Thursday, April 21, 2011

The nouveau poor: They earn twice the national average yet struggle to make ends meet... do you have sympathy?

By Frances Hardy

Nouveau poor: Andrew and Nicolette Dawson with their kids James and Amelia are struggling despite their £60K income

Not so long ago, Nicolette and Andrew Dawson would have been considered well-off.

Between them, they take home more than twice the national average salary, and were
always used to having a little spare money at the end of the month to treat themselves.

But these days all that has changed. Somehow, life has become a daily struggle to make ends meet.

‘In the winter we became so worried about our central heating bill that we only turned it on for short bursts,’ says Nicolette, a communications officer for an overseas charity. ‘Whenever we had friends over they’d go home early because they were shivering.

‘I’ve become accustomed to swathing myself in layers of clothing to cut down on the extortionate cost of heating our home. We’ve traded in our luxury car, too, and now drive a more modest Focus C-Max.

'We can only afford one car. I drive to work, and petrol costs me more than £30 a week — it’s extortionate.

‘We used to think nothing of driving to the Suffolk coast for a day out at the seaside with the children at the weekend, but now we stay at home and go to the park. Our lifestyle has definitely deteriorated in the past five years.’

The Dawsons’ experience is far from unique. Christina and Simon Reynolds have similar joint salaries. Christina, 43, runs a catering company. Simon, 44, works in IT, and they live with their son Oscar, nine, in Charlton, South-East London. They too have found themselves cutting down on necessities.

‘We don’t put the heating on very much at all, even during that freezing spell in December,’ says Christina. ‘We snuggled under blankets to watch TV and took the icy chill off the beds with hot water bottles. Our utility bills are usually about £100 a month and recently they’ve gone up by almost a quarter.’

Extraordinarily, the Dawsons and the Reynoldses each have household incomes of £60,000. It is not a meagre sum. In fact, when you consider the national average individual salary is £26,000, they should be doing reasonably well.

Yet they are struggling; not merely to afford luxuries — which are now largely unattainable — but also to keep the roof over their heads. And they are not alone.

The truth is they are among a growing army of middle-class nouveaux pauvres — the new poor — who have for years enjoyed comfortable lifestyles afforded by their good salaries, but who now find themselves caught in a financial quagmire.

Nicolette, 35, earns £20,000 in her communications officer role; Andrew, 49, who works in environmental health, has a salary of £40,000. They live in a smart area of Colchester, Essex, in a four-bedroom house with their children, Amelia, eight, and James, seven. But soon they will be downsizing to a small three-bed semi in a less expensive neighbourhood outside the town.

Their mortgage currently costs them £1,000 a month and they worry that if — or when — interest rates rise they simply won’t be able to afford to live in their home.

Thrift is the new byword for swathes of Middle England, agrees Una Farrell of the debt charity, Consumer Credit Counselling Service.

‘More and more middle income families with children are struggling,’ she says.

‘They’re feeling the pinch because of rising inflation, tax changes and the increase in VAT to 20 per cent.

‘Pressure is mounting to increase mortgage interest rates, too, and even a small rise could prove a tipping point for households that are already stretched. This, combined with the fact that many people have had their salaries frozen, is creating a toxic brew.

‘Clients with three or more children are, on average, in debt by £45 at the end of each month.’

For the Dawsons, the rising cost of childcare consumes a large chunk of their income.

‘I need just two hours every day after school, four days a week, for our two children and even that amounts to £500 a month,’ says Nicolette.

‘Our joint net income is around £3,700 a month, and out of that we pay our mortgage, utility bills of around £100, insurance, council tax of £112 a month and childcare. Once we have paid for food and petrol it’s nearly all gone.

‘I no longer buy my groceries in Waitrose. I shop at cut-price supermarkets instead. We live in quite a posh area of Colchester and a new Aldi has just opened alongside the Aga shop and designer kitchen showrooms, which I think is a sign of the times.

‘I take a perverse joy in buying chopped tomatoes for 18p and baked beans for 10p, instead of expensive branded versions. And if I’ve saved enough by economising on food, I might buy a bottle of wine, which is now a rare treat.’

Financial pressure: The Dawsons will be downsizing to a small three-bed semi in a less expensive area

So how has this new generation of middle-class poor come about?

Psychologist Dr Dorothy Rowe, author of Why We Lie, a book which deals with deception and the state of the nation’s finances, points out that ready credit has fuelled our acquisitiveness.

‘Credit cards were only invented in the Seventies. Before that, if we wanted to spend, we first had to save, so the habit of parsimony was inbred. But those who were born in the Sixties cannot remember a time when you couldn’t buy what you wanted on tick.

‘Instant gratification usurped thrift. However, now we are having to re-learn the habit of budgeting and prioritising our spending.’

So what can the nouveaux pauvres, whose comfortable lifestyles are being so dramatically eroded, do to help themselves?

Kim Stephenson, an occupational psychologist who used to work as a financial adviser, is the author of Taming The Pound. He points out that when times are good our instinct is not to prioritise our spending, but to buy indiscriminately.

He says: ‘Hard as it is, I suggest thinking: “What do we really want and value?” Start out with what you really want, then work out how you can get it economically. That way you can ensure that the first things we budget for are the ones that are really important.’

Christina and Simon Reynolds have done just this. Their priority is to send Oscar to a £4,000-a term private secondary school. The quid pro quo is they have pared down other spending to the minimum.

‘There will be no holidays this year and our only meals out will be voucher deals at Pizza Express,’ says Christina. ‘I’ve whittled the petrol bill down to £15 a week and we take public transport whenever possible.

‘I’ve sacrificed my £100-a-month cleaner and instead of buying clothes at Jigsaw and Whistles I go to cut-price stores like Matalan and New Look.’

However, for many of those yet to embark on marriage and raising children, buying even a modest family home seems unattainable.

Heidi Ancell, 28, a media relations manager, is engaged to Mike Day, 30, a senior shipping operator. Together they have a joint income of around £69,000.

Yet Heidi still lives with her parents in Hornchurch, Essex, because she and Mike are saving; both for their wedding and for a home in which to raise the children they hope to have.

‘Mike and I had hoped to get married next year, but I think we’ll have to defer it to 2013 because we’re saving for a house. It’s a real financial struggle. We hope to buy a two- or three-bedroom semi — nothing too fancy — but even that will set us back about £265,000.

‘We’ll need a deposit of at least £50,000. And when you add on stamp duty and legal fees, that escalates to around £60,000.

‘A joint income of £69,000 sounds like masses of money, but it’s amazing how little distance it stretches. I don’t drive, and Mike has just downsized to a Smart car, to save on fuel costs. Already I’m worried about how we’ll afford childcare when we start a family.’

And what does the future hold for those finding it near impossible to cobble together enough for a deposit? Dr Rowe is pragmatic. ‘In many European countries there is no stigma at all attached to renting,’ she says.

‘We should abandon the shame that surrounds it and accept that, actually, in many situations it’s the sensible thing to do.’


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