Consumer Debt and the Decline in Expendable Income: The Future of Tesco - Essay Example

Staying in business for these companies in the near future is going to be a tough challenge. It would be very challenging as companies would find it difficult to persuade consumers who are in debt, those who know the consequences of debts, and those who have bad credit histories to buy their goods and services. These challenges will not only affect trade, but also consumers, whose properties might be repossessed by banks and financial institutions, thus losing a lifetime of equity or shelter, but more so because many consumers will not be able to burrow or take loans no matter their situation, as they declare bankruptcies (a phenomenon uncommon some few years ago but now en vogue).

These would affect bank financial transactions by cutting into their profits or capital as they write-off so many debts. A situation called 'bad debts.' If this increase in consumer debt is not arrested then it could have serious consequences on the business environment, the economy of the UK, and the rest of the world. It is a contemporary business issue because it needs to be looked at as soon as possible. Giant retailers such as Tesco (core product is food) are aware of this and are responding by way of expansion into new markets (diversification), which can be curtailed by consumers going back to buying just basic needs, such as food and forgoing electronics, as they seem to be moving towards.

Government and pressure groups such as the National Consumer council, Financial Service Authority (FSA) and the Bank of England will have to either increase interest rates to discourage debt, compel businesses to screen clients thoroughly before awarding loans or credit cards and encourage and sensitize consumers to save more and spend wisely in order to arrest this growing trend before it spins out of control.Consumer Debt and the Decline in Expendable Income: The Future of TescoAuthorSchool and YearConsumer Debt and the Decline in Expendable Income:The Future of Tesco The consumer debt in the United Kingdom (UK) is the highest it has been in over eight years with interests rates at 4.5 percent. The personal debt of UK consumers is an average of 7,650 pounds sterling with two thirds of the European credit card debt belonging to the UK.

Bankruptcies are at record levels with the majority of personal debt accrued in unsecured loans (Halligan, 2005). International retailers such as Tesco must also consider the consumer debt ratio in the United States (US) and credit card debt worldwide. The economic climate has changed in the world in the last fifteen years with new middle and upper classes born in countries where wealth is far from the norm. Countries like South Korea where saving money was expected and debt nearly shameful are not experiencing the same sort of credit card debt as the US and the UK (Kurlantzick, 2003).

With the shifting financial climate the new poor are the British and American consumer-the First World. The banking business has encouraged consumer borrowing with incentives, lower interest rates and the promotion of credit cards. The deregulation