Australia's high personal debt

[sptrawler]

Even if you hit retirement with some debt on your home, you will probably still be better of than a renter.

A Lease is still a debt, and once you get over the midway point through your home loan, the interest cost on the loan is much smaller than the lease costs.

I guy I know is 62 still working, still renting at $400/wk and really angry.
We were having a beer, so I knew it was none of my business, but I thought what the hell we get on o.k.
I asked if he had any savings, he said about $20k. I said what about super, he said if he works to 67, he'll have about $320k-$350k
I said, at the moment you can pick up a duplex close to Perth, for $160,000. Why not buy one, cheaper than rent and pay it off when you retire.
Well he looked at me as if I had two heads, and said I must be some sort of idiot, he would rather rent and have the cash.
Maybe he is unusual, but from all the people I have worked with(blue collar), I'm amazed how many don't buy a house, or are still paying it off 30yrs later.

 

[tech/a]

Wow that is amazing.
Its pretty clear why he only has around $20K.
Hasn't he heard the saying
2 heads are better than 1!

 

[Value Collector]

For me the saddest part of this video is that my Inlaws are examples of "revolvers" that are described in this video, as a couple they earn a little over $100K a year, but they over spend on life style.

In the 15 years I have known them, they have not reduced their home loan, because they keep drawing out "equity" to fund holidays and toys, their credit card debt has grown and most of the time they simply pay the minimum, they byy things on silly hire purchase deals etc, and car loans never get paid off because newer cars are always bought, even today they are planning what they will buy when their couch is paid off in 6 weeks.

However they are now at the age where their bodies can't handle their work, and they are really struggling, which is leading to medical bills going on credit cards while their income is getting shaky.

For years I tried to get them to see the benefits of living more frugally and building up an investment base, But was firmly told one day to stop "Preaching" so since then I have resided to watching the train wreak unfold, It's sad but there is nothing I can do now.

 

[Lantern]

I can honestly say I owe nothing. Everything is paid.
Was taught very early on if you look after the pennies then the pounds look after themselves.

 

[sptrawler]

For me the saddest part of this video is that my Inlaws are examples of "revolvers" that are described in this video, as a couple they earn a little over $100K a year, but they over spend on life style.

In the 15 years I have known them, they have not reduced their home loan, because they keep drawing out "equity" to fund holidays and toys, their credit card debt has grown and most of the time they simply pay the minimum, they byy things on silly hire purchase deals etc, and car loans never get paid off because newer cars are always bought, even today they are planning what they will buy when their couch is paid off in 6 weeks.

However they are now at the age where their bodies can't handle their work, and they are really struggling, which is leading to medical bills going on credit cards while their income is getting shaky.

For years I tried to get them to see the benefits of living more frugally and building up an investment base, But was firmly told one day to stop "Preaching" so since then I have resided to watching the train wreak unfold, It's sad but there is nothing I can do now.

My parents where just like that, Dad always earned above average wages, was always a workshop supervisor. They spent everything they earned and then some.
Maybe that's what drove me, to get to the position I'm in?
I know I always thought, there is no way, I want to end up on the bones of my ar$e.
Many of my mates comment on how frugally we lived, to get ahead, our first house was a 50 year old weatherboard and tile, that someone wanted removed from a block..
It had the roof removed, was chopped in half, chucked on the back of a couple of trucks and re stumped on a block 200klm from Perth.lol
There was many a BBQ and beer day, when the mates came to give me a hand to fix it, I was 25 had 3 kids and could take on the World.
Ah, great days, life was simple then so were our wants. Times have changed.

 

[sptrawler]

Paying off a mortgage is getting harder, but some can do it.

The problem is, buying a house requires sacrifice, it requires self discipline and it requires foregoing things that you would like to have.
There are a lot of people who don't want to do that, it doesn't make them wrong, it just means they don't have a house and as comfortable retirement.
From their perspective, they have had a great time spending their money on holidays, cars, consumables and lifestyle, while they are young and healthy.
They may see their friends who have saved and done without, that own their own home at retirement, then drop dead soon after as crazy.
Just because we choose to do life one way, doesn't mean it is for everyone, life is about freedom of choice.
What annoys me, is when I have to pay for their choices, as well as my own even after I retire.

 

[luutzu]

How do you guys define personal debt?

I think some economist define it as also including the mortgage/s.

But either way, the current high level of personal debt [excluding the high housing prices] are not just because Australians are more reckless than before. A lot of factors beside personal responsibility and easy credit are also at play... and if we're similar to the data I saw from the US, the high level of personal debt have more to do with stagnant wages, higher and ever rising costs of living etc., than gambling or free-spending.

I mean, of course there are people who would rather spend than save; and if credit is easy, as they are, they would put things on the card rather than save up for it. But yea, willing to bet that those aren't the main contributing factors to today's high level of personal debt.

 

[sptrawler]

I mean, of course there are people who would rather spend than save; and if credit is easy, as they are, they would put things on the card rather than save up for it. But yea, willing to bet that those aren't the main contributing factors to today's high level of personal debt.

How much would you like to Bet?
If they paid for it, they wouldn't have debt. If they borrowed, on the expectation of a pay rise, lowering the exposure, that's gambling or speculation.
If, when they borrowed they allowed for the worst case scenario, they wouldn't be distressed.
You have a noble outlook and a humble, humane view of people, that if a person is in a financially challenged position it is never of their making.
When most financial data shows, most people spend very little time, thinking about their financial position until it hits them.

 

[Value Collector]

How do you guys define personal debt?

To me, "Personal debt" would be any debt held by a person that accrued due to personal consumption or living expenses, In my mind I would separate that from business of investment debt.

eg. Buying a car for personal use is personal debt, while buying a car to use for Uber I would not class as personal debt, I would say that is Business debt.

But I think the figures would show both cars as being "personal debt"

There is also a grey area, Eg Solar panels, borrowing $5000 K for solar panels on your home, is technically an annuity style investment, buts its all for personal use, So its a bit of both.

-----------------------

Also, I am in the money lending business, If I loan some one $15,000 to buy a car, the figures will show National personal debt went up by $15,000.

But really as a country the position didn't change, because my $15,000 asset on my balance sheet offsets the $15,000 liability on theirs, the net position is the same, all that has happened is I have let some one else spend my savings, in the hope they repay me with a decent interest rate.

 

[luutzu]

How much would you like to Bet?
If they paid for it, they wouldn't have debt. If they borrowed, on the expectation of a pay rise, lowering the exposure, that's gambling or speculation.
If, when they borrowed they allowed for the worst case scenario, they wouldn't be distressed.
You have a noble outlook and a humble, humane view of people, that if a person is in a financially challenged position it is never of their making.
When most financial data shows, most people spend very little time, thinking about their financial position until it hits them.

betting my usual imaginary $5

I'm not disagreeing with you gents that there are people who are reckless and irresponsible. I know quite a few. Was just pointing out that there are also people who got into financial trouble because no matter how frugal or how hard they work, they just couldn't get ahead.

Maybe some of them didn't have the right upbringing or gave up saving after a few setbacks, who knows. But I know people who just suffer some bad luck and without help would have gotten into a downward spiral.

But yea, the stats in the US I quoted earlier... it's not just personal spending and recklessness that's causing the high level of private debt. I'm betting it's a similar pattern in Australia.

Costs of living, housing, low wages for most people... Some turn to Uber after their dayjob to try and earn a few extra bucks; some have to take out credit cards to pay the bills. Then things happen.

 

[sptrawler]

betting my usual imaginary $5

I'm not disagreeing with you gents that there are people who are reckless and irresponsible. I know quite a few. Was just pointing out that there are also people who got into financial trouble because no matter how frugal or how hard they work, they just couldn't get ahead.

Maybe some of them didn't have the right upbringing or gave up saving after a few setbacks, who knows. But I know people who just suffer some bad luck and without help would have gotten into a downward spiral.

But yea, the stats in the US I quoted earlier... it's not just personal spending and recklessness that's causing the high level of private debt. I'm betting it's a similar pattern in Australia.

Costs of living, housing, low wages for most people... Some turn to Uber after their dayjob to try and earn a few extra bucks; some have to take out credit cards to pay the bills. Then things happen.

Like I said, you have a wonderful underlying belief if people, it is admirable.

There is a reason, that Australia is known as the land of opportunity, if someone is prepared to get stuck in they can get ahead.
This may mean, working in a place like Walgett, Meekatharra or somewhere in the outback, but if you try there is reward.
Already here in W.A there is a huge shortage of workers again, yet our population has grown, but the road repair company my D.I.L works for can't get lollipop people.
Why you ask, because it is out in the Goldfields, no one wants to leave the City.

Which leads to the obvious, they can't afford a house in Perth, can't get a job in Perth, but won't leave Perth.
Which then means you and I have to be taxed more, to pay more welfare, because they can't afford to live in Perth on the existing welfare.
Meanwhile we bring in 457 visa lollipop people.

 

[Value Collector]

Was just pointing out that there are also people who got into financial trouble because no matter how frugal or how hard they work, they just couldn't get ahead.

I really doubt that, of course mis fortune happens with sickness and bad luck etc.

But barring that, I find it very hard to believe that some one can be genuinely frugal, and genuinely hard working and not be able to get by and build up some savings.

 

[Value Collector]

I even here people whinge about the cost of food and say Coles and Woolies are rip off's.

But a Truly frugal person should be able to provide a family of four with more than enough food for $100 or less per week.

 

[SirRumpole]

But a Truly frugal person should be able to provide a family of four with more than enough food for $100 or less per week.

I doubt that. I'm living alone, eat one meal a day and still pay $100 plus. And of course as well as food there are other sundries like cleaning fluids, personal items, loo paper etc.

 

[luutzu]

I really doubt that, of course mis fortune happens with sickness and bad luck etc.

But barring that, I find it very hard to believe that some one can be genuinely frugal, and genuinely hard working and not be able to get by and build up some savings.

Maybe that's because you haven't walked the other side of the track.

I'm sure we all have savings. Just not savings enough to call it "wealth" though.

I know plenty of people who, as far as I know, aren't living it high, aren't at the pokies all day but aren't living in their own house or owning the latest model Ford.

There's my dad's neighbour. White Ausie, late 50s. He was a self-employed tradie; work here and there for big companies in his younger years. Said he could never managed to save up enough of a deposit to buy a house. Missed out twice on a deposit because each time he goes out to the bank, they said he need more deposit because his job aren't stable... then when he saved up enough, property shoots up so would need a larger deposit.

Soon after that he just doesn't see the need. Gave up.

Maybe we can say he shouldn't have, but yea... you can understand why. He's still renting; still working a couple part-time jobs to make ends meet.

I'm sure he have savings. But not the kind of savings a bank manager would offer him a free capucinno whenever he visit though.


Also know another older lady. Her parents died in the war, she being the oldest she have to sacrifice her education, get work to raise her younger siblings. She was practically a single mother. No husband. I'm sure she would have some saving, but again, not "wealth".

Also know a pretty rich guy. Nice and decent enough I suppose. He like new BMWs, branded clothing, latest electronic gadgets. Not faulting the guy, simply pointing out that some people can be rich, have plenty of wealth... and aren't exactly the most responsible in spending their cash.

I guess what I'm trying to get at is the fact that wealth and indebtedness aren't always due to the wealthy being more responsible and frugal while those who are in debt or have no wealth must have been reckless and lazy.

 

[luutzu]

I even here people whinge about the cost of food and say Coles and Woolies are rip off's.

But a Truly frugal person should be able to provide a family of four with more than enough food for $100 or less per week.

I take it you haven't done the shopping lately? And not buying for 6?

 

[sptrawler]

Maybe that's because you haven't walked the other side of the track.

I'm sure we all have savings. Just not savings enough to call it "wealth" though.

I know plenty of people who, as far as I know, aren't living it high, aren't at the pokies all day but aren't living in their own house or owning the latest model Ford.

There's my dad's neighbour. White Ausie, late 50s. He was a self-employed tradie; work here and there for big companies in his younger years. Said he could never managed to save up enough of a deposit to buy a house. Missed out twice on a deposit because each time he goes out to the bank, they said he need more deposit because his job aren't stable... then when he saved up enough, property shoots up so would need a larger deposit.

Soon after that he just doesn't see the need. Gave up.

That sums up most of my mates life story.
Like I said, you are a lovely bloke.
Maybe there is someone who could let him put a granny flat, or caravan on their block.
I have helped one of my family, by putting a granny flat on my property.

 

[luutzu]

That sums up most of my mates life story.
Like I said, you are a lovely bloke.
Maybe there is someone who could let him put a granny flat, or caravan on their block.
I have helped one of my family, by putting a granny flat on my property.

He's planning on moving North to semi-retire. Said the school he know up there have a job for him; property is cheaper too so he could, hopefully he said, finally have his own place.

But yea, I'm too poor to help him, or anyone. If I do, they'd be suspicious about my intend

 

[Value Collector]

Maybe that's because you haven't walked the other side of the track.

I got to where I am now by living frugal in my 20's

I know plenty of people who, as far as I know, aren't living it high, aren't at the pokies all day but aren't living in their own house or owning the latest model Ford.

Are they Genuinely frugal? or are they frittering away money behind the scenes on countless things that go under your radar.

There's my dad's neighbour. White Ausie, late 50s. He was a self-employed tradie; work here and there for big companies in his younger years. Said he could never managed to save up enough of a deposit to buy a house. Missed out twice on a deposit because each time he goes out to the bank, they said he need more deposit because his job aren't stable... then when he saved up enough, property shoots up so would need a larger deposit.

Soon after that he just doesn't see the need. Gave up.

If he were genuinely hard working and frugal, and just invested in an index fund, he could have over $1M in his late 50's.

However, if just fritters away money, we won't, its simple at that, nothing structural against him, its all behavioural.

Also know another older lady. Her parents died in the war, she being the oldest she have to sacrifice her education, get work to raise her younger siblings. She was practically a single mother. No husband. I'm sure she would have some saving, but again, not "wealth".

I bet she lived better than her grandparents.

 

[luutzu]

To me, "Personal debt" would be any debt held by a person that accrued due to personal consumption or living expenses, In my mind I would separate that from business of investment debt.

eg. Buying a car for personal use is personal debt, while buying a car to use for Uber I would not class as personal debt, I would say that is Business debt.

But I think the figures would show both cars as being "personal debt"

There is also a grey area, Eg Solar panels, borrowing $5000 K for solar panels on your home, is technically an annuity style investment, buts its all for personal use, So its a bit of both.

-----------------------

Also, I am in the money lending business, If I loan some one $15,000 to buy a car, the figures will show National personal debt went up by $15,000.

But really as a country the position didn't change, because my $15,000 asset on my balance sheet offsets the $15,000 liability on theirs, the net position is the same, all that has happened is I have let some one else spend my savings, in the hope they repay me with a decent interest rate.

I heard from a couple of economists, one of them being Steve something, Keene? - that Aussie property bear guy...

He was saying that when a bank lend out money for a mortgage, they simply write up the asset/liability in their books. And that create the wealth. That they didn't collect savers and investor's capital to lend out at all.

Hmm... that is almost unbelievable but yea, heard it from a couple of sources. Is it true?