Australia's high personal debt

[Value Collector]

Just to add some humour. Quotes from George Best, Northern Ireland and Manchester United footballer and notorious playboy in his time:

'I spent a lot of good money on drink, women and cars. The rest I just squandered'

'In 1969 I gave up women and alcohol - it was the worst 20 minutes of my life'

Here is my Pithy response.

Money or time you enjoyed wasting, was never really a waste, but if you are living on borrowed money, you are living on borrowed time.

 

[Value Collector]

What I’m saying if people don’t consume you will go into recession is how I see it
Remember the Labor handouts
My point was if everyone follows your previous lifestyle it won’t work....no jobs no money it’s the fact that not everyone does it so it works.
I can buy a house cheaper now than 5 years ago so how would my investment be looking if I did.
It’s just not being a tightarse that works

not everyone is aged between 19 and 26, if everyone was frugal for 7 years out of their life the economy would be fine.

its like saying "if we all got jobs flipping burgers the economy would crash" well off course it would, but there is nothing wrong with the majority of people flipping burgers part time while they are young, its a temporary phase,

 

[gaius]

Interest rates are at historical lows. It would be silly not to pick up more debt.

 

[Value Collector]

Interest rates are at historical lows. It would be silly not to pick up more debt.

depends on what you are using it for I guess.

 

[Wysiwyg]

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.

There would be an economic collapse if people did not borrow and consume useless stuff and were frugal. Businesses would collapse. However ... after a period of time the economy would balance up after adapting to the new consumer behaviour and this would be very healthy for the overall economy.

 

[SirRumpole]

There would be an economic collapse if people did not borrow and consume useless stuff and were frugal. Businesses would collapse. However ... after a period of time the economy would balance up after adapting to the new consumer behaviour and this would be very healthy for the overall economy.

If you look at the 50's or 60's, there wasn't a lot of "useless" stuff you could buy, it was basically consumer items like fridges, washing machines, cars, tv and radio that added something to people's lives and the economy still went along fine.

So I think you are right, if people stopped over consuming and buying stuff they didn't need, some businesses would go broke. I'm not sure it would be all good for the economy though, there is a limit to the stuff people actually need as opposed to what they want.

 

[Value Collector]

There would be an economic collapse if people did not borrow and consume useless stuff and were frugal. Businesses would collapse. .

the whole country isn't going to change over night, hell it might not change at all.

My whole point has been that people have the power to change their situation if they truely want to, and living below your means and saving and investing the difference is a good way.

 

[Value Collector]

I'm not sure it would be all good for the economy though, there is a limit to the stuff people actually need as opposed to what they want.

There is nothing wrong with the economy producing "wants" and well as "needs", as I said its all about timing, and being sure you can afford them,

 

[Wysiwyg]

I'm not sure it would be all good for the economy though, there is a limit to the stuff people actually need as opposed to what they want.

Health wise for better quality food consumption (less sickness) and relationship wise for debt problems (stronger partnerships built on love rather than borrowed money). It would be resetting the bar regarding the cost of living.

 

[luutzu]

Latest report on global income inequality. Holy crap.

It's going to be really bad for the lower half; great for the top 1% who is estimated to own 65% of global assets by 2030. The lower half will own about 1%.

These kind of inequality never ends well.

 

[Smurf1976]

If you look at the 50's or 60's, there wasn't a lot of "useless" stuff you could buy

I've often said to people who are old enough to get it, just think back when you were a child and consider how many electrical or other powered (petrol etc) mechanical items of all sorts you had at home.

It's an incredibly short list compared to what is considered normal today and most of the items were themselves very low performance compared to even the cheapest products sold today. They did, however, tend to last somewhat longer.

 

[Wysiwyg]

Latest report on global income inequality. Holy crap.

It's going to be really bad for the lower half; great for the top 1% who is estimated to own 65% of global assets by 2030. The lower half will own about 1%.

These kind of inequality never ends well.

It has always been about who has the most money is king. Low income workers will always struggle to keep up with living costs. The best escape is to have a partner working or upskill to a field that pays well.

 

[Ald123]

Ok so as the original poster.

Why has this high personal debt already not caused people to stop buying house, to stop buying stuff.

I mean a salary of $7000 take home pay is quite high but buying a house with a $650k loan results in a $3500 repayment at 5%; $3900 repayment at 6%; $4350 at 7%; and $4800 at 8%. Paying $1.72 million for a house instead of $650k seems ludicrous. I can’t see a person on $7000 living easily off $3500 left over with a big family, never mind $2650 when interest rates hit 8%.

It seems as if the banks are desperate in this country to prove that property goes up every 10 years or less, which is probably how much time it would take up to save for a house to buy with cash as a renter without investing your money in a cheap savings fund like AFIC or similar, and less if you did. The banks it seems to me deliberately make it possible for risky lenders to get credit. I am not surprised we have a royal commission I do however doubt very strongly that the Royal commission will do anything about it.

I mean look at APRA and ASIC, scrambling now to perform compliance when they have been doing nothing for years, because of what’s coming out in the Royal Commision. Now they want to quickly get their compliance numbers up so that they look like they have not been doing what they factually have, and that is wasting taxpayers money for decades, sitting in their office surfing the net, resulting in the point where we had to have a super expensive again tax payer funded Royal commission to clean up what ASIC and APRA where set up to do and failed. We need a royal commission into APRA and ASIC and the politicians who have ties with the banks and who, instructed AASIC and APRA to do nothing for decades.

 

[SirRumpole]

Why has this high personal debt already not caused people to stop buying house, to stop buying stuff.

I think that the almost unaffordable house prices in Sydney and Melbourne has caused a drop off in interest, resulting in stabilising if not falling prices in those areas, combined with new laws affecting foreign investors.

 

[Tisme]

I think that the almost unaffordable house prices in Sydney and Melbourne has caused a drop off in interest, resulting in stabilising if not falling prices in those areas, combined with new laws affecting foreign investors.

I'm thinking locals backed in rich chinese as being able to create wealth suburbs... no particular common sense rationale, just get on the bandwagon before missing out.

 

[SirRumpole]

I'm thinking locals backed in rich chinese as being able to create wealth suburbs... no particular common sense rationale, just get on the bandwagon before missing out.

Yes, good thinking. Get the Chinese in to build the houses, then get the government to change the rules so the Chinese leave and they can snap up the properties at reduced rates.

 

[luutzu]

Yes, good thinking. Get the Chinese in to build the houses, then get the government to change the rules so the Chinese leave and they can snap up the properties at reduced rates.

shh.... keep it low bro. That's always been the plan.

Doesn't hurt that lots of locals fell for it too though. It'll keep their heads down.

 

[Value Collector]

Yes, good thinking. Get the Chinese in to build the houses, then get the government to change the rules so the Chinese leave and they can snap up the properties at reduced rates.

Hence why I have no issues with foreign investment, they can't take it with them, and we can change the rules and regulations and tax system whenever we want.

Although, given that Australia is generally pretty undercapitalised, it makes sense to treat foreign investors well, at least until we an get our own population to pull their socks up.

As I said before, I this guy gives me hope (it's funny, but also makes me hopeful investing will take of, and be popular with the average Joe)

 

[Smurf1976]

Why has this high personal debt already not caused people to stop buying house, to stop buying stuff.

Things like this always go on far longer than any rational logic says they ought to.

I liken it to picking up firewood in the bush for a camp fire. There's a hell of a lot of wood lying on the ground once you actually want it and start picking it up. However much you'd estimate to be there, there's far more in practice so long as you're not fussy about the quality of the wood and how well it burns. Key point being that you're willing to accept that it's imperfect and you've got to snap or cut it, that it won't burn all that great and so on but there's heaps of it if you aren't fussed about those details.

Same with debt fueled spending. There's a lot of lenders and willing borrowers so long as you're not worried about the quality of either. If you only want a high quality lender and they're only willing to lend to high quality borrowers then sure it's quite limited. Not if you drop the quality though and that tends to happen on both sides when the alternative involves the music stopping.

The banks it seems to me deliberately make it possible for risky lenders to get credit.

It's the quality thing. If there aren't enough high quality borrowers willing to borrow however much the banks want to lend then no matter what they say, in practice they'll drop the quality requirements in order to find enough borrowers.

Bit like saying you want steak but if there's not enough steak then you'll take the hamburgers rather than have nothing. And if the burgers run out then sure you'll eat sausages. And if there's no sausages well there's a bag of chips left over so may as well eat those for dinner.

If the banks are hell bent on pushing out credit then any barrier in terms of the quality of borrowers is really just a selection tool. Much like how an employer will offer the job to someone who's keen to give it a go but lacks any relevant skills if they can't find someone who does have the skills. Same with most things.

 

[Value Collector]

Things like this always go on far longer than any rational logic says they ought to.

I liken it to picking up firewood in the bush for a camp fire. There's a hell of a lot of wood lying on the ground once you actually want it and start picking it up. However much you'd estimate to be there, there's far more in practice so long as you're not fussy about the quality of the wood and how well it burns. Key point being that you're willing to accept that it's imperfect and you've got to snap or cut it, that it won't burn all that great and so on but there's heaps of it if you aren't fussed about those details.

Same with debt fueled spending. There's a lot of lenders and willing borrowers so long as you're not worried about the quality of either. If you only want a high quality lender and they're only willing to lend to high quality borrowers then sure it's quite limited. Not if you drop the quality though and that tends to happen on both sides when the alternative involves the music stopping.



It's the quality thing. If there aren't enough high quality borrowers willing to borrow however much the banks want to lend then no matter what they say, in practice they'll drop the quality requirements in order to find enough borrowers.

Bit like saying you want steak but if there's not enough steak then you'll take the hamburgers rather than have nothing. And if the burgers run out then sure you'll eat sausages. And if there's no sausages well there's a bag of chips left over so may as well eat those for dinner.

If the banks are hell bent on pushing out credit then any barrier in terms of the quality of borrowers is really just a selection tool. Much like how an employer will offer the job to someone who's keen to give it a go but lacks any relevant skills if they can't find someone who does have the skills. Same with most things.

as far back as 1776 Adam Smith said -

"The ordinary tone of expense seems everywhere to be regulated, not so much according to the real ability of spending, as to the supposed facility of getting money to spend"

I would love to hear his thoughts on todays consumer credit industry.