The Prudential reported recently that many people spend their pay bonuses in advance or borrow money against promised pay raises, but it now turns out the problem is worse than the public thought.  The Pru now report that consumers are so ignorant about tax that they overestimate the amount of pay increase or bonus they will actually receive.

Prudential recently published research which shows that 17 per cent of consumers become so excited by the prospect of a promised pay rise that they spend the money before they get it.   But it turns out that the temptation to spend too much is greater than consumer common sense, because even after receiving the payout, these people find themselves with a debt hangover.

One in ten people admitted they had spent more than their pay rise or bonus before they had even received it.  This money is borrowed against the promised raise on personal loans or credit cards.

New reports claim that many people do not calculate their taxes, and end up receiving less money than anticipated.  Only 23 per cent of the survey group used their pay rises to pay off existing debt.

Pay rises and bonuses “ought to be the trigger to get debt under control”, commented Prudential’s business insurance director Angus Maciver, not an excuse to spend or borrow more.

But “many people appear focused on gaining ‘pleasure now’, spending increases and windfalls rather than saving”, he warns.

Unfortunately, many of these people are on the brink of insolvency.  The money they borrow is rarely for wealth building, but for therapy shopping, or a holiday.

Figures were not taken on those who found the promise of a pay rise or bonus was an empty one, but there is no doubt that it happens.  For many people that pay rise and bonus can fail to materialise, leaving pre-emptive spenders deep in debt with credit card bills they cannot pay and secured loan repayments they cannot meet.

Experian reports that four in ten people say they are ‘very comfortable’ holding one or even several loans (for example a personal loan taken out for a holiday plus a hire purchase car loan and old student loan debts).  Three in ten are unconcerned about their borrowing, particularly where it is below £15,000.

Less than one in five people cited bankruptcy as the most socially embarrassing life experience they could think of.

It would appear that “the ‘credit comfy’ generation has become anaesthetised to the implications of mounting debt,” according to CreditExpert.co.uk’s managing director, Jim Hodgkins.