Lessons from 2013 Accounts – 2) Real Household Disposable Income

Real Household Disposable Income

Following our previous analysis of the household savings rate, we continue our series of articles analyzing the 2013 quarterly national accounts, published on the Office for National Statistics website on 28th March 2014.

Statistical bulletin

We summarized the key findings of the report in the prior article as follows:

  • UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.7% between Q3 2013 and Q4 2013.
  • GDP is estimated to have increased by 1.7% in 2013, compared with 2012.
  • Between Q4 2012 and Q4 2013 GDP in volume terms increased by 2.7%.
  • The households’ saving ratio was estimated to be 5.1% in 2013, compared with 7.3% in 2012.
  • GDP in current prices was estimated to have increased by 1.6% between Q3 2013 and Q4 2013.

However, today I want to focus on something beyond the headlines. On page 19 of the report, and the 75th column of the data, we find some interesting data on the real household disposable income.

For the year 2013, real household disposable income decreased by 0.5% following a rise of 2.5% in
2012.

 

What is real household disposable income?

Gross household disposable income (GDI) is the estimate of the total amount of money from income that households have available from wages received, revenue of the self-employed, social benefits and net income (such as interest on savings and dividends from shares) less taxes on income and wealth. All the components that make up GDI are estimated in current prices.

However, by adjusting gross disposable income to remove the effects of inflation, we are able to estimate another useful measure of disposable income called real household disposable income.

This is a measure of real purchasing power of household incomes in terms of the physical quantity of goods and services they would be able to purchase.

Effectively, real household disposable income shows us how much money households have to spend on things they want!

Real Household Disposable Income 1

Therefore, in Q4 2013, we can see a slight decrease (0.1%) in real household disposable income, leading to an annual decrease in 2013 of 0.5% (mainly due to a large drop in Q1 2013.

How does this compare looking further back? ONS data began on this subject in 1949:

Real Household Disposable Income 2

The first point I noticed from this data is how much wealthier we are now compared to in 1949. The real household disposable income has grown for the vast majority of years (only 7 out of 65 years showing a decrease). Also, the extent of which we are getting richer is quite impressive. The average annual increase in real household disposable income (remember this is after inflation) is 2.95% per annum.

However, the other striking thing is the trend of the graph and how poor the previous few years have been. The average annual increase, for example, since 2007 is only 0.55%, significantly below the mean.

Additionally, of those 7 negative years, two have been recorded in the past three years.

You will find a more comprehensive analysis of the real wages (which greatly impacts this figure) in a previous moneystepper article:

Real wages in the UK – how inflation is impacting your salary

 

 

What does this mean for me?

Unfortunately, this means that you (on average) are poorer than you were last year. However, its not time to get depressed about these figures and start to constantly moan about the increasing price of X or the fact that you have not had a pay rise in Y years.

Even in what is clearly one of the toughest times for real household disposable incomes in the last 65 years, you can take solace in the following:

  1. You are 0.8% richer (in terms of real household disposable income) than you were only 3 years ago.
  2. Over the last 10 years, you are 10.1% richer.
  3. Over the last 20 years, you are 45.2% richer.

Therefore, if you only entered the work force in late 2012 or early 2013, unlucky. You’ve made a bad start. However, for the majority of us, we should see this as a temporary pause in an ever increasing quality of life. I’m sure if you show your grandparents the graphs above, they will put your “I only got a 1% pay rise last year” woes into perspective!

 

And what can I do about it?

There are two ways to increase your real household disposable income. Firstly, you could earn additional income. Secondly, you could make sure that you fall below the national “inflation”, by cutting back on expenditure. Stuck for ways to achieve this – don’t worry: we have hundreds:

  1. Ways to earn money
  2. Ways to save money

 

In the final article from this series, we shall explore the international comparisons for 2013 to see how the UK is performing against other major nations and regions.

In the meantime, why not sign up for our weekly newsletter. Its absolutely free and packed with articles like this, hints and tips on saving money and improving your income.

 



3 thoughts on “Lessons from 2013 Accounts – 2) Real Household Disposable Income

  1. Interesting analysis. As bad as it is, look at the mid-1970s! Those look like they were some rough years. Fortunately disposable income shot up but my guess is that is due mainly to inflation since interest rates were so high at that time. Still, it this chart helps to put things into perspective. Times might be tough now, but if you keep grinding away, better times should be up ahead.

  2. Jon,

    I’ve looked at several figures that show that after you factor in inflation, we’re actually making less now that we were in the 70’s and 80’s. If you think about it, the shift of dual income households has been necessary just to maintain a standard set of living for many folks.

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