Many Americans are beset by personal debt. But the British are in even worse shape.
In the last decade, Britons have used their credit cards to spend heavily and beyond their means. Their cumulative debt is 1.4 trillion pounds or $2.8 trillion which exceeds the country's gross domestic product.
By comparison, Americans' personal debt is $13.8 trillion, including mortgage debt, which is a little less than the country's $14 trillion gross domestic product.
In recent years, the British government has borrowed heavily to invest in infrastructure, health and education, the New York Times reports. That has created new jobs and bolstered consumer confidence. More spending resulted and more growth.
A housing boom and economic vitality encouraged more and more spending, leading to what the Times described as "a perception of wealth almost unknown in countries like Germany and Italy."
"The general mantra is spend now, think later," said Jason Butler, an adviser at Bloomsbury Financial Planning. "It's easier to get a loan or a credit card these days than to get a savings product."
The average British consumer has 2.8 credit or debit cards. That is more than any other European nation. The British have a 1.62 household debt-to-income ratio, compared to 1.42 in the United States .
In the 1990s, new lending products, competition among banks to lend money, low-interest loans and the like fueled a desire among consumers to borrow freely. Rising real estate prices and low interest rates caused many people to buy homes.
Liz Bingham of Ernst & Young in London said: "The housing boom automatically made people feel richer than they actually were and people went on to use the equity locked up in their property almost as a bank account they can dip into every time they want to buy a new car."
But the consequences are now being felt. Consumers have been lulled into a "false sense of security that is now coming to haunt us," said debt adviser James Falla at London-based Thomas Charles.
Growth is slowing. Home prices are falling. More than 1 million homeowners have adjustable-rate mortgates that are due to rise to much higher rates in the next year.
Astute advisers are telling Britons to change their spending habits. Less than half of the population saves. More than 39 percent said they prefer a high standard of living now to saving for retirement.
Such attitudes are a recipe for trouble in the near future.
