Australia's high personal debt

[Value Collector]

VC, I have been having a think about what is fundamentally different between the people I know, which are quite a lot of people. I am thinking along the lines of character trait differences, between those who have become financially secure and those that haven't.
The one glaring difference is the ability to say no, I guess it is self discipline, those who have made it seem to have more.
Like you say 'live frugally', but really it is the ability to say no, be it to smoking, changing your car, buying the latest phone, going out for food, buying yuppy beer, getting the latest gadget.
It boils down to the persons ability to say no, to him/herself.
Just my ponderings

Totally self discipline is a big part of it, and thats true with any goal you set yourself, whether that be making it to the olympics, climbing Everest, or simply paying off your debt. You have to set the goal, make a plan, and then most importantly have the self discipline every day to carry out the plan over a number of years.

But like any muscle, the more you exercise self discipline the easier it gets.

And if you can get your partner on board and excited about the plan, it will be so much easier, I was lucky my partner got it straight away, and she was 18 at the time and only just starting full time work, so she had never ramped up her consumption, so I don't think she ever felt like she was sacrificing anything, not to mention she didn't drink alcohol or smoke.

 

[Value Collector]

This guy is pretty awesome when it comes to getting people out of debt and building wealth.

 

[basilio]

VC, I have been having a think about what is fundamentally different between the people I know, which are quite a lot of people. I am thinking along the lines of character trait differences, between those who have become financially secure and those that haven't.
The one glaring difference is the ability to say no, I guess it is self discipline, those who have made it seem to have more.
Like you say 'live frugally', but really it is the ability to say no, be it to smoking, changing your car, buying the latest phone, going out for food, buying yuppy beer, getting the latest gadget.
It boils down to the persons ability to say no, to him/herself.
Just my ponderings

Simple ... but profound.

And totally and utterly subversive. Imagine a world where people started to take these ideas seriously. Our current economic system would be on its knees within months. Consider the main drivers of "economic growth" and join the dots.

 

[sptrawler]

Simple ... but profound.

And totally and utterly subversive. Imagine a world where people started to take these ideas seriously. Our current economic system would be on its knees within months. Consider the main drivers of "economic growth" and join the dots.

We don't need to worry, none will be reading this forum.

My best mate, has been for the last 50years, he just can't change, he had changed 27 cars by the time I sold my first car.
He finally may be seeing the light, he has just given up smoking, not long to go to retirement and then debt free.
The nicest bloke you would ever meet.

 

[Value Collector]

Consider the main drivers of "economic growth" and join the dots.

I don't think so, because over their life a person who focuses on building wealth and reducing debt, will consume more than a person who chooses to front load consumption and spend a life paying interest.

For example,

lets say there are 2 people, both will work from 18 - 65 and earn $ 4.7 Million at their jobs.

Person A, is a hyper consumer and front loads a bunch of their consumption in the first 20 years, and then eventually has to slow consumption down due to principle and interest payments .

Person B, is a lowish consumer at first, never gets into any real debt just lives within his earnings and saves and invests some.


Over their life person A only gets to spend $ 3.5 million of the total $4.7 Million of earnings because they paid $1.2 Million in interest.

However, Due to not having any interest payments, person B was able to spend their entire $4.7 Million earnings over their life, along with perhaps another $2 million of investment earnings.


So person B although their spending was lower at first, they were able to ramp up consumption over their life and end up consuming 2 x the products and services person A did.

People save and invest because they want to consume more in the future, not less. its a flawed view that suggests the economy relies on waste to survive.

 

[Value Collector]

Any one that doesn't think being frugal can lead you to an early retirement need to have a look at this family.

 

[SirRumpole]

People save and invest because they want to consume more in the future, not less.

But the type of their consumption affects the economy in different ways.

Buying an established large house and taking lots of overseas trips (and cruises) does little for the local economy, whereas continued spending on buying new cars, groceries, food, tv sets, mobile phones etc, and even alcohol and fast food generates employment and keeps the economy turning over.

So if people basically stop spending the economy (and your share revenue) dives. You are benefiting from other people's excesses and credit card debt.

 

[sptrawler]

Any one that doesn't think being frugal can lead you to an early retirement need to have a look at this family.

The thing is VC most people don't want to be frugal, and who is to say that is wrong or the frugal way is right, it is everyone's choice which way they go.

Where the problem lies is, the only ones being held responsible for their choice, is the frugal one.
They are being punished, to reward, the less frugal one.

 

[Humid]

But if everyone lived like you lot what would employment and the economy be doing?
Just a thought.

 

[Value Collector]

But the type of their consumption affects the economy in different ways.

Buying an established large house and taking lots of overseas trips (and cruises) does little for the local economy, whereas continued spending on buying new cars, groceries, food, tv sets, mobile phones etc, and even alcohol and fast food generates employment and keeps the economy turning over.

So if people basically stop spending the economy (and your share revenue) dives. You are benefiting from other people's excesses and credit card debt.

As I said, frugality is a temporary tool to get you ahead at the start of your journey, Today my consumption is back to what would be considered normal, or even perhaps a little higher, and will grow through out the rest of my life.

Purchasing New cars, TV sets, Mobile phones, alcohol does little for the Australian economy, they are mostly made over seas or owned by foreign companies.


I have never said stop consuming, every consumes every day,

All I am saying is be mindful of your consumption, stick within your means, and invest some savings back into the economy.

If we all just hyper consumed, we would be debt slaves to foreign nations, The ownership of all our productive assets would drift over seas, and we would all be slaves shackled by debt working for the Man and shopping at the company store.

If you think suggesting that Australians should spend wisely, and invest their savings is bad for the economy, you are wrong.

 

[sptrawler]

But the type of their consumption affects the economy in different ways.

Buying an established large house and taking lots of overseas trips (and cruises) does little for the local economy, whereas continued spending on buying new cars, groceries, food, tv sets, mobile phones etc, and even alcohol and fast food generates employment and keeps the economy turning over.

So if people basically stop spending the economy (and your share revenue) dives. You are benefiting from other people's excesses and credit card debt.

You are right on the money, and this is where our useless Governments have stuffed up, by tampering with the original pension/welfare system which was like the U.K,N.Z, Canada system.
Where everyone pays into the pension scheme, then at retirement everyone gets a basic pension.
If you want a better retirement you put into your own super, then the income you pull from that is taxed as per income.
The flaw with our system is the pot was raided, and the pension paid from consolidated revenue.
Eventually as the population grows it becomes unaffordable, it has taken 60 years, but we have got there.
Now they want to raid the super pot again, because the pension still isn't funded, they are just kicking the ball down the street. What happens when those with super have spent it, who do they hit next? This is the flaw with Labor ATM they just want to redistribute wealth, not fix the issue and make it sustainable.

The two fold benefit of the U.K system is, it is funded and it encourages participation in the workforce.

 

[Value Collector]

The thing is VC most people don't want to be frugal, and who is to say that is wrong or the frugal way is right, it is everyone's choice which way they go.
.

There is no right or wrong, but it's about aligning your actions with the outcomes you want to get.

If you want to spend more than you earn don't complain about your debt, If you want to eat like a king, don't complain about your food bill.

You are totally right, everyone has a choice, So you shouldn't complain about the outcome of your choices, you made them.

 

[SirRumpole]

Purchasing New cars, TV sets, Mobile phones, alcohol does little for the Australian economy, they are mostly made over seas or owned by foreign companies.

But they are retailed here and that produces jobs.

Sure, a lot of people spend money on junk, like a lot of the stuff produced in China. Value for money is what we need.

I bought some underwear a few days ago and its coming apart already, but it seems that it's all you can get these days.

 

[Value Collector]

But if everyone lived like you lot what would employment and the economy be doing?
Just a thought.

you would have people in their 20's saving and investing, and as you got higher in ages people spending more and more, until you have the older crowd living like kings on their nest eggs.

As I said total consumption will be the same or higher, all you are doing is reversing it from over consumption in the beginning to over consumption at the end. Not everyone is in their 20's.

 

[Value Collector]

But they are retailed here and that produces jobs.
.

More and more is done online.

But as I said, total consumption wouldn't be less, it would be the same or more, all I am suggesting is time shift it.

And I hardly like getting people early in their life to stat saving 10% - 20% of their income will crash the economy.

 

[Humid]

Wine and beer.....overseas
You should buy a new tv and catch up man!

 

[basilio]

VC I can see the internal logic of your comparing a high spending vs a low spending person over a lifetime. On an individual basis I see your point.

But that wasn't what I was referring to.

In my observation a huge amount of our current economic activity could be labelled wasteful, excessive or totally counter productive. And yet this activity is the ongoing drive to increasing GDP year in and year out to keep the economies "growing".

Lets pick a few at random.
1) Fashion. Buying and changing clothes, cosmetics, cars, toys whatever on an endless basis.
2) Technology . The relentless changes in phones, computers, electronic gadgets.
3) Cars. Another relentless drive of consumption with change for changes sake and delibrate construction of excessive maintenance costs to keep up profits and encourage the purchase of new cars
4) Renovations. New kitchens and bathrooms every 10 years (or less) whether you need them or not.
5) Hyper promotion of all legal drugs. Sugar, grog, gambling, chocolate, smoking, a million treats.
6) Arms industry. Trillions of dollars spent on the most expensive ways to destroy the worlds population many times over.

But returning to the actual topic- Australias' very high personal debt.

Perhaps the overriding factor has been the role of financial institutions in creating easy mechanisms for people to borrow( which in fact has financed the ever growing economy)

Credit cards are only 40 years old! Before that you either had cash or "went to the bank for a personal loan." Being able to magically pay for something immediately with a piece of plastic was unheard of.

Housing loans were once quite strictly given on the basis of
1) The repayment was based on the amount you earned - 25% of net pay or 33% of gross
2) You had to have a 10-20% deposit saved over at least 12 months.

And yet until very recently many financial institutions were offering housing loans for 100-105% of the house cost on fanciful stories of income and living costs.

 

[SirRumpole]

But as I said, total consumption wouldn't be less, it would be the same or more, all I am suggesting is time shift it.

Good point.

Might put off the obesity crisis untill middle age too.

 

[Value Collector]

Wine and beer.....overseas
You should buy a new tv and catch up man!

Most of the Beer and spirts drank in Australia is foreign owed

 

[sptrawler]

Rumpy and VC, IMO you are both saying the same thing, just looking down the pipe from different ends.

You can be frugal and spend your money when you're older, or you can spend your money now and keep the economy ticking over.
The only difference is the one who spends his money now, has to be funded from the tax base later, the frugal one never has to be funded.