Professional Documents
Culture Documents
January 2012
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Overview:
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Income Average incomes rise but are hit by the impact of inflation (pg 5). Sources of income Sources of income remain steady over the year (pg 7). Expenditure Spending levels remain steady as families juggle priorities (pg 9). Family wealth Cost of living impacts on savings (pg 12). Housing wealth Family house prices rise but housing wealth lags behind (pg 15). Family borrowing Level of unsecured debts doubles in a year (pg 18). Look to the future Inflation fears top list of family concerns for 2012 (pg 20). Spotlight Failure to discuss the what ifs leaves families open to potential problems (pg 22). Across the UK Regional data shows Londoners have it all highest incomes but also highest debts (pg 28).
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* For the purposes of this report, a committed relationship is defined as either one where two people are married or living together.
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Income
Average incomes rise but are absorbed by the impact of inflation
The typical (i.e. the median family in the middle of the sample) monthly net income of a family in the UK is now 2,066, which is up (4%) on the previous quarter (November 2011 1,983), and up 7% compared to the same time last year (January 2011 1,937). The main factor behind this increase is the rise in incomes experienced by those families in committed relationships without children. Those couples who are planning to have children reported an 11% increase (yearon-year) in monthly income from 2,187 (January 2011) to 2,433 (January 2012), and those living with a partner who do not plan to have children reported a 10% increase (year-on-year) in monthly income from 2,010 (January 2011) to 2,220 (January 2012). These two groups have the highest number of people who derive an income from a primary job i.e. income as a result of full time employment for the main breadwinner. Eighty per cent of those families who plan to have children, and 72% of those who do not plan to have children, report this type of income.
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Previous Family Finances Reports have noted the negative impact that children especially young children can have on a familys income and parents earning capacities, and this appears to be the case still. Most family units with children also reported a slight year-on-year increase in incomes, however divorced/separated/widowed parents reported a year-on-year decrease from 1,387 (January 2011) to 1,075 (January 2012) per month. This decrease has possibly been exacerbated by the changes to benefit payments which came into force in 2011, and also the impact of rising unemployment over the year. The number of UK families who survive on a monthly income of less than 1,250 per month has fallen to 28% (January 2012) from 30% in November 2011. However, even though single parent families saw a slight (4%) year-on-year increase from 906 (January 2011) to 944 (January 2012) with annual (CPI) inflation running at 4.8%, this is actually a decrease in real terms.
Comparison of UK family monthly incomes Q1 2011 vs. Q1 2012 35 30 25
% of families
Q1 2011 Q1 2012
20 15 10 5 0
750 or less 751-1,250 1,251-2,500 Income 2,501-5,000 More than 5,001
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Sources of income
The most common source of income for UK families is still the salary from a primary income earner (69% January 2012), although this has been falling over the past few quarters from a high of 72% in August 2011 to 70% in November 2011. Government labour market statistics for December 2011 support this declining trend as they show the unemployment rate is the highest since 1996 and the number of unemployed people is the highest since 1994. The number of families who obtain an income from spousal earnings remains relatively steady (33% January 2012 compared to 32% November 2011), as does the number of families who receive contributions from part-time or second jobs (18% January 2012 compared to 18% November 2011). The families most likely to report a part-time or second job are those who are married with two or more children. More than one in five of these families (22% January 2012) are reliant on income from a second job to supplement their monthly income. More than a fifth of families (22% January 2012) rely on benefits to provide a proportion of their monthly income. This has remained fairly steady over the last year (20% January 2011). However, we have seen the number of single parents (50% January 2012 vs. 54% January 2011) and the number of divorced/separated/widowed parents (47% January 2012 vs. 54% January 2011) claiming benefits fall. This suggests that the Governments benefit reforms have had an impact on some areas a view supported by the monthly income levels of these groups mentioned earlier. Despite a year of low interest rates, volatile stock markets and falling bond yields, five per cent of UK families still receive an income from savings and investments, although it is not clear whether this is income from interest or from dipping into the capital. Families without children are the most likely to receive an income from savings and investments, with 9% of couples planning children, and 7% in a committed relationship with no plans to have children reporting this.
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Expenditure
Spending remains steady as families juggle priorities
Despite the impact of inflation over the year, the average monthly family expenditure has remained steady over the last 12 months. However there has been a notable drop in the amount spent on childrens activities from 4% of monthly income in January 2011 to 1% in January 2012. There has been a slight dip in the amount spent on energy bills since the last quarter (6% November 2011 compared to 5% January 2012) which may be due to unseasonably mild weather. There has also been a slight increase in the amount being spent on entertainment, recreation and holidays (3% November 2011 compared to 4% January 2012) which could be as a result of the festive period. As a percentage of expenditure, debt repayment is also slightly higher than a year ago (8% January 2011 compared to 9% January 2012), although lower than a peak seen in the second quarter of 2011 (10%).
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Typical family expenditure Average amount spent as a % of monthly income Type of expenditure Housing (mortgage or rent) Food Debt repayment Nursery care / out of school care Energy bills (e.g. gas and electricity) Motoring Entertainment, recreation and holidays Public transport fares and other travel costs Fees for childrens activities Clothing and footwear Jan 2011 20% 10% 8% 9% 6% 5% 4% 4% 4% 2% May 2011 22% 11% 10% 10% 6% 6% 5% 4% 4% 3% Aug 2011 21% 10% 9% 10% 5% 5% 4% 4% 3% 2% Nov 2011 20% 10% 9% 9% 6% 5% 3% 4% 3% 2% Jan 2012 20% 10% 9% 9% 5% 5% 4% 4% 1% 2%
Housing remains the single largest monthly expense for UK families and even though mortgage deals have improved in the last year, the amount of housing market activity remains subdued. As such, this proportion of spending has not altered. Spending on food is still the second largest single monthly expenditure, and despite the fact that inflation on food has increased (4.88%) this has also remained at a constant level suggesting families are cutting back and choosing more value brands. Debt repayments (9% January 2012) and nursery/out of school care (9% January 2012) both account for a significant monthly outlay for many families. Inflation on energy bills (21.07%), motoring (7.22%), and transport and travel costs (6.18%) has pushed the cost of all these essentials up in the last 12 months, but as a percentage of monthly expenditure it has remained constant, which suggests that people may be economising through brand selection where possible and looking for alternative ways to travel.
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UK families are determined to maintain their standard of living despite the increases to the costs of goods and services. Value for money is the watchword for many families who have maintained spending on non-essential items. Although with prices still rising, families may be looking to make further cutbacks in 2012.
Louise Colley, head of protection sales and marketing, Aviva Spending trends
It is just as telling to see where families are not spending money, and the Family Finances Report also tracks where UK families are cutting back and which expenses are vital. This indicates what the fixed costs are for families and how their spending habits are affected by the state of their finances. Housing is an essential need, but the number of UK families who claim they do not spend money on housing has been rising slowly over the last six months. In August 2011 20% said they didnt spend money on housing. By November 2011 this had risen to 21%, and in January 2012 22% of families said they are not spending any income on housing. This suggests that they either own their own home outright, receive accommodation through employment, or are supported by the State. In addition, some younger families may be economising by living with extended family members. The trend towards cutting back on non-essential items has continued into 2012, with 22% of families (January 2012) claiming they are not spending money on personal goods (up from 17% in August 2011) and 30% saying they do without entertainment/recreation/holidays (compared to 21% in August 2011). Almost half (42%) of families say they have cut out spending on leisure goods completely (as opposed to 36% in August 2011).
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However, while the percentage of monthly income spent on fees for childrens activities has fallen in the last 12 months, the number of families spending money on these pursuits has grown compared to a year ago. This might suggest that while families are paring back their spending where possible, some are now having to spend money on low cost activities for their children as there are fewer`free activities being provided. Percentage of families who spend money on this expense on a monthly basis Type of expenditure Housing (mortgage or rent) Debt repayment Entertainment, recreation and holidays Public transport fares and other travel costs Fees for childrens activities Leisure goods Eating out and takeaways Nov 2011 79% 52% 75% 67% 48% 61% 80% Jan 2012 78% 52% 70% 66% 50% 58% 77%
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Family wealth
Cost of living impacts on savings
The rising cost of living in the last 12 months has meant UK families are finding it progressively harder to set aside money each month. This report found the typical amount now being saved on a monthly basis is 21 (January 2012), down from 22 in January 2011 although there was a spike in August when this reached 34. Nevertheless, families are showing their resolve to maintain savings wherever possible and 70% of families say that they have some form of savings. There is no change from the last quarter in terms of how many families have nothing set aside in savings (30% January 2012), but looking over the last 12 months this has improved from 33% in January 2011. The average (mean) amount UK families have in savings and investments (excluding pensions and property) has increased significantly, but this is because the mean average is skewed by the five per cent of families (January 2012) who have savings and investments worth more than 100,000. Taking these people out of the equation brings the average down considerably. The typical UK family (i.e. the family in the middle of the sample) has savings of 928 (January 2012) which is actually up a more modest 9% from 849 in January 2011. This means that the typical UK family has savings totalling less than half (45%) of the average (median) monthly income of 2,066. The majority of families classed as single parents (59%) and parents who are divorced/ separated/widowed (61%) say they do not manage to save anything each month. These figures are significantly higher than the UK average, which shows that 42% of all families save nothing on a monthly basis (January 2012). This figure is now at its highest level for 12 months (40% in January 2011) and suggests that it is getting harder for families to save, and also that there is a core group of families who are unable or unwilling to save. It is notable that while the number of men who do not save regularly has fallen from 36% (January 2011) to 33% (January 2012), for women the opposite is true and now 47% (January 2012) do not save on a monthly basis compared to 42% in January 2011. This trend is mirrored by the typical (median) amounts being saved, with the typical monthly amount saved by a man standing at 47 (January 2012) up from 39 in January 2011 while for women it has halved over the same period from 16 a month to just 8 a month.
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Q1 2011 Q1 2012
50 40 30 20 10 0
Couples without plans to have children Couples with plans to have children Couples with one child Couples with two children Single, raising one or more children Divorced/ Separated/ Widowed with one or more children
Type of family
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This trend is similar for those who hold private pensions, with 33% of UK families (January 2012) holding a pension set up by their employer and 20% holding a personal private pension. In January 2012, 30% of those families planning to have children (average monthly income 2,433) have an employer pension, compared to just 21% of those divorced/separated/ widowed parents raising one or more children alone (average monthly income 1,075). The number of families with protection insurance has also fallen over the last 12 months. While families with life insurance was up from 39% (January 2011) to 40% (January 2012), the number with private health insurance is down from 15% (January 2011) to 12% (January 2012), and those with critical illness policies has fallen from 13% (January 2011) to 12% (January 2012), with income protection down from 11% to 10%.
The latest Family Finances Report demonstrates that UK families are feeling the pinch and as such are trying to build and maintain a savings buffer to protect themselves. However, at the same time the number of families who have some type of protection insurance has declined. While savings are clearly important, families should be aware that protection products provide significantly more financial security, should the unexpected happen.
Louise Colley, head of protection sales and marketing, Aviva
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Housing wealth
Family house prices rise but housing wealth lags behind
Almost two-thirds of families (64% - January 2012) live in homes that they own either with a mortgage (49% - January 2012) or outright (15% - January 2012). A further 19% (January 2012) live in private rental accommodation and 15% (January 2012) live in social housing. Over the last year the number of people who live in rental and council accommodation has fallen from 35% (January 2011) to 34% (January 2012) and the number of people who own their own homes has increased from 61% (January 2011) to 64% (January 2012). Figures from Nationwide Building Society show the average residential property in the UK is now worth 163,822; but the value of the typical family home is worth significantly more at 220,299. This is a reflection of the fact that the typical family tends to live in a larger home than most single people. And while the average residential property has increased in value by 1% over the year, the value of the average family property has increased by 6% on the year from 207,548 (January 2011) to 220,299 (January 2012).
Average value of house per family type
250,000 224,821 238,364 208,892 190,830 150,000 198,387 176,276
100,000
50,000
Type of family
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Families tend to live in properties worth significantly more than the national average. However with finances tight for many it is a concern to see industry bodies predicting more families will find it difficult to maintain repayments in 2012. Planning for contingencies affords families the peace of mind that should the unexpected happen, they will be able to cover their mortgage or rent, and can have the stability of staying in their home.
Louise Colley, head of protection sales and marketing, Aviva
The average amount of equity families have in their homes has not risen at the same pace however, increasing just 2% in the last 12 months from 139,218 (January 2011) to 141,889 (January 2012). And the average family mortgage has increased from 89,018 (January 2011) to 101,538 (January 2012). This tallies with data from the Council of Mortgage Lenders which has predicted that the number of borrowers who could lose their homes because they cannot afford to pay their mortgage will rise from 37,000 in 2011 to 45,000 in 2012. And tenants are not immune from financial pressures either as they have seen rents rise significantly in 2011 to stand at a UK average of 717 a month in December 2011. Separate research from housing charity Shelter claimed in January 2012 that almost one million people have resorted to payday loans (short-term loans with high rates of interest) to cover their mortgage or rent in the last year. Single people raising one or more children alone are the most likely to be living in social housing (46% - January 2012) compared to single couples who plan to have children (6% - January 2012).
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Those families who are married/in a committed relationship with two or more children are the most likely to own their own home with a mortgage (56% - January 2012) and those who dont plan to have children are the most likely to live in a home they own outright (25% - January 2012). The number of families who own a second property has increased from 13% to 16% since January 2011 with those couples not planning children being the most likely to do so (19% - January 2012).
Following the death of a parent at a young age, we at Grief Encounter try and encourage families to keep as much stability as possible for the bereaved child. Being able to stay in their existing family home and at the same school will provide a little comfort when their world has been blown apart.
Shelley Gilbert, CEO of Grief Encounter
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Family borrowing
Level of unsecured debts soars in a year
The Aviva Family Finances Report found the typical UK family currently owes 7,944 in unsecured debt (credit cards, personal loans, hire purchase, overdraft, store cards etc) which they repay on a monthly basis. This is up from 5,360 in January 2011 and now stands at 32% of the typical annual household income (24,792 January 2012).
10,000
5,000
Type of family
Credit card debt is the most significant source of unsecured debt with an average of 2,314 owed by UK families (January 2012), followed by personal loans (1,739 January 2012), and overdrafts (775 January 2012).
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The largest source of unsecured debt for the typical single parent family is credit cards, with an average of 1,455 owed. Divorced/separated/widowed parents have the smallest average overdraft (243 January 2012) compared to committed couples planning a family (3,839 January 2012). Divorced /separated/widowed parents owe the least (on average) in personal loans (573 January 2012) compared to couples with one child (2,452 January 2012). However, worries over inabilities to keep up with debt repayments have fallen over the year, and only 12% of families cite this as a concern compared to 13% in January 2011.
Families are now used to living with a certain level of debt; however it has continued to increase over the last 12 months. As long as people are able to service their debts, they remain manageable, but borrowings can be another layer of pressure on a familys finances.
Louise Colley, head of protection sales and marketing, Aviva
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Long-term fears
Over the longer-term (the next five years), the most pressing concerns follow a similar pattern, with UK families saying their main concern is a significant increase in the price of basic necessities for living (61% - January 2012), followed by losing job/s (51% - January 2012), and unexpected expenses (39% - January 2012). As with short-term fears, there has not been any change to either the types of financial concerns or to their rankings since January 2011, but again more families are now concerned than this time last year. The family group most concerned about a significant increase in the cost of basic necessities over the next five years is single parent families (64% January 2012 compared to the average of 61%). They are also the families most concerned about keeping up with debt repayments (30% January 2012 compared to the average of 14%).
The rising cost of living and levels of unemployment are clearly a cause for concern for many families yet unfortunately too few families are preparing for what if? scenarios. In addition, the number of families who are worried about contracting a serious illness in the next five years has increased from 23% in January 2011 to 25% in January 2012, yet so many families are lacking protection insurance and the number holding private health insurance or critical illness cover has fallen in the last year.
Louise Colley, head of protection sales and marketing, Aviva
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Taboo topics
The Family Finances Report found 27% of families say they would be uncomfortable discussing their debts with relatives, and 24% dont like to discuss even general finances with them. There are also major taboos around peoples own mortality and with this what would happen if they were no longer able to provide for their family. Sixteen percent said they would avoid discussions about their funeral arrangements and 14% said they wouldnt be prepared to talk about a will. Meanwhile one in 10 parents (9%) are unwilling to discuss who might look after their children if they werent around, a crucial consideration, particularly given the growing number of families who dont conform to the traditional nuclear model. Significantly, the only topic seen as more taboo for family discussions was sex a no-go area for 56% of respondents. As many families feel uncomfortable discussing these topics, it is understandable that there is a lack of understanding over what would happen and who would provide support to their family, should the unexpected happen. As such, 9% of families reported that they did not think they needed life insurance. Similarly nearly a third (30%) said they didnt need income protection and more than a quarter (26%) thought they didnt need critical illness cover.
Monthly outgoings
As a result of this mindset, there are currently more families (50% - January 2012) who report paying for a monthly satellite TV package than those who have life insurance (40% - January 2012) which provides a cash lump sum in the event of the death of the insured. This highlights that UK families seem more willing to prioritise spending on immediate purchases and luxuries, than facing up to the need to protect their families financially.
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Protection priorities
The report also found that families are likely to attach more importance to vets bills and protecting electrical goods and gadgets than their own health and the financial wellbeing of their family. More UK families have taken out insurance policies for their pets (17% January 2012) and mobile phones (14% January 2012), than have taken out insurance to protect themselves and their family in the event they suffer a critical illness (13% January 2012). And more people have taken out an extended warranty on electrical items (13% January 2012) than have income protection insurance (10% January 2012) which would potentially pay them an income for life should they be unable to work due to accident or sickness.
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With the rising cost of goods and services causing UK families to look at their outgoings and re-examine their financial priorities in 2012, the two most important financial steps UK families believe they will take this year are cutting back on their spending (39% January 2012) and paying off their debts (35% January 2012). However, despite this, it seems other financial safety checks are way down the priorities list. More families are focusing on booking their annual holiday (21% January 2012) than buying life insurance (3%) or making a will (13%) in 2012.
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While families know life insurance is something they should think about, its more pleasurable to think about things like planning holidays so its no surprise to see people putting it off. However our research also shows that a third of people feel frustrated with things on their to do list and a fifth feel stressed by them. On the flip side we know that customers report feeling reassured when they have taken out life insurance, knowing their affairs are in order. With this in mind its important to look at ways providers and advisers can help customers to understand the benefits of protection insurance and the peace of mind it can afford.
Louise Colley, head of protection sales and marketing, Aviva
We cannot begin to explain the devastation to a family when a Mum or Dad dies young. At Grief Encounter we see the impact on families when a financial safety net has not been put in place. Taking a short time to secure life insurance now means that your family may have a little comfort in their darkest times.
Shelley Gilbert, CEO of child bereavement charity Grief Encounter
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Region
% of people in the region who are living in a committed relationship and want children 8% 14% 6% 7% 7% 7% 11% 9% 8% 7% 8% 8%
% of people living in the region living in a committed relationship with one child 24% 20% 21% 23% 25% 17% 15% 22% 17% 19% 18% 20%
Monthly income 1,923 2,845 2,055 2,027 1,232 1,981 2,074 2,314 1,949 1,892 1,964 2,066
Debt
House prices 235,875 340,023 195,546 191,927 152,412 174,831 182,558 263,242 233,289 190,691 169,875 220,299
1 2 3 4 5 6 7 8 9 10 11
East London East Midlands West Midlands North East North West Scotland South East South West Wales Yorkshire UK
12,295 16,680 6,392 6,325 3,640 6,323 4,459 5,712 9,263 6,333 4,806 7,944
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However, while families in the capital have higher incomes, more valuable homes, and more saved than elsewhere in the country, they have also incurred more debt than anyone else. The typical family in this region owes 16,680, whereas this figure stands at just 3,640 in the North East (UK average - 7,944). Families in London are also least likely to be financially protected. Thirty-six per cent of families in the capital have life insurance yet almost half (48%) have a satellite television package. In contrast, families in the East (49%) and Scotland (49%) are most likely to have taken out life insurance. Meanwhile, less than one in ten (9%) families in the West Midlands has taken out insurance to protect them in the event of a critical illness.
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In this edition of the Family Finances Report, Aviva discovered just how many families in the UK are unwilling to broach certain topics that deal with their financial and general health. It can be uncomfortable for families to discuss how they would cope financially with a distressing event that leaves someone unable to work or worse, but not talking about it could be much more serious. Unfortunately, statistics show one in four women and one in five men will suffer a serious illness before retirement age. This could leave them permanently disabled and unable to work or worse, and if families have not planned for this scenario then they are likely to end up suffering financially on top of the emotional distress. I believe families need to take time out to consciously consider the potential risks they are exposing their families to. As soon as I became a mum the what ifs were always at the back of my mind, and knowing I have a responsibility to my children made me respond and take action. For any families who arent protected, the what if? conversation should be top of their to do lists. By having the discussion, families can have an appreciation of the financial consequences they face and as a result actually take the steps to make a difference. The average costs of protecting a family are usually less than people think and often less than monthly charges that families pay out for other goods and services. Plus, the younger a person is when they take out life insurance, the less they tend to pay on a monthly basis.
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Buying a house and having children are just two major life events that should act as a stimulus to encourage families to talk about how they would protect themselves should the unexpected happen. We know that around a quarter of families feel awkward talking about money matters but this shouldnt stop them having the discussions. And on a positive note, this also means that the remaining three quarters feel comfortable raising the subject so theres no excuse not to have the conversations! Families owe it to themselves to discuss all eventualities, good and bad. While we all hope for the best, we need to plan for the worst. Louise Colley, head of protection sales and marketing, Aviva
Louise Colley, head of protection sales and marketing for Aviva and mum to Amelia and Alexander
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Methodology
The Aviva Family Finances Report was designed and produced by Wriglesworth Research. As part of this 10,098* UK consumers aged between 18 and 55 who live as part of one of six family groups were interviewed by Opinion Matters between December 2010 and December 2011. This data was combined with additional information from the sources listed below and used to form the basis of the Aviva Family Finances Report. Additional data sources include:
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Unemployment Figures Office of National Statistics December 2011 Nationwide December House Price Figures
Technical notes
l
A median is described as the numeric value separating the upper half of a sample, a population, or a probability distribution, from the lower half. Thus for this report, the median is the person who is the utter middle of a sample. An average or mean is a single value that is meant to typify a list of values. This is derived by adding all the values on a list together and then dividing by the number of items on said list. This can be skewed by particularly high or low values.
For further information on the report or for a comment, please contact Sarah Poulter at the Aviva Press Office on 01904 452828 or sarah.poulter@aviva.co.uk
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