YOU owe $56k! (Australia's shocking credit card debt)

[sam76]

Reserve Bank figures show mortgage, credit card and personal loan debts now stand at $1.2 trillion, up 71 per cent from just five years ago and equating to $56,000 for every man, woman and child in the country.

Our spending binge, fuelled most recently by the Government's First Home Owner Grant, means personal debt now totals 100.4 per cent of Australia's annual GDP - one of the highest ratios in the developed world.

"It's the first time household debt has cracked 100 per cent of annual GDP and it's a terrible, terrible sign," said University of NSW economics professor Steve Keen.

http://www.news.com.au/money/money-...e-for-first-time/story-e6frfmd9-1225813961183


I get ancy when i have a couple of hundred on the plastic, lol

 

[CanOz]

Re: YOU owe $56k! (Aus shocking credit card debt)

I get ancy when i have a couple of hundred on the plastic, lol

LOL, me too. I've been debt free for over two years now (IBs margin loan doesn't count ) and i can honestly say that I'll never go there again.

Cheers,


CanOz

 

[prawn_86]

Im only young but seem to have a natural aversion to debt. Sure it can be used for leverage, but im sceptical at the best of times, and would only use it when positively geared.

I prefer to use my own money rather than other peoples.

 

[nunthewiser]

You take American Express?

 

[beerwm]

i would guess its mostly secured debt... mortgages

doesnt seem that shocking

 

[Julia]

Yes, I was amazed when I read that today. But maybe let's remember that a lot of people will pay their credit cards off every month, so it's more a convenience than an actual debt. I put most purchases on the Visa card but absolutely always pay it off before it falls due.

But some people simply live beyond their means and never intend to pay off their credit cards.

 

[Smurf1976]

i would guess its mostly secured debt... mortgages

doesnt seem that shocking

Don't forget that the security, the house and more importantly its financial value, is largely a function of the banks' ongoing willingness (and ability) to lend.

Banks stop lending or seriously tighten credit for whatever reason (plenty of possible scenarios here) > the market value of the house falls > those with mortgages as a high % of present property value end up technically bankrupt with more debt than the house can be sold for.

Unlikely? It's been so common overseas in this and past cycles that the term "negative equity" isn't uncommonly used to describe those who end up in this situation.

It's madness at the national level from a country's perspective. Borrow lots of money from overseas, with interest, in order to bid up the price of the same houses that already exist. No net gain in real wealth, we've got the same houses we already had, we just end up with a mountain of debt as a drag on future economic performance (well, assuming we actually are going to repay it...).

 

[So_Cynical]

Some detail to ponder

Mortgages account for almost 90 per cent of annual GDP, up from 17 per cent in 1990 and by five per cent in the last year alone as first-home buyers have flooded the market.

The remaining 11 per cent of GDP is taken up with $45 billion on credit cards and over $90 billion on personal loans, car finance and other personal debts.

Australian families now owe more than their counterparts in the recession-stricken US - previously regarded as the credit capital of the world. American household debt stands at $US44,000 per person, or just under $50,000.

http://www.dailytelegraph.com.au/ne...-new-debt-record/story-e6frewt0-1225813804691

It certainly looks like a real estate (ponzi) driven credit binge...45B on credit cards, what's that per working person?

 

[cutz]

i would guess its mostly secured debt... mortgages

doesnt seem that shocking

Yeah,

Pretty shocking, especially when you consider it's 56K for every man, woman and child. That's 280K per average family .

When do the SFE start trading in property derivatives, I feel the need to hedge.

 

[GoodCall]

That's a amount of debt! Remember Rudd is backing our banks lending.

Are not our banks also depending on overseas credit and given that our exchange rate is at a relatively high rate that could easily reverse, especially if another round of woldwide deleveraging occurs, would that not worsen the situation?

 

[SmellyTerror]

There's a big difference between credit card debt and a mortgage. The thread title suggests it's 56k of credit card debt, which would be insane. It's actually almost all from morgages.

So to re-write this thread's title: "Shock news: Australian property costs a lot!"

So no, not that shocking. Bad, but not shocking.

 

[nulla nulla]

Makes for sensational headlines, eh? Just like saying the average wage is $53k
There would be a lot of people owe nothing and a handfull of people owe millions.

 

[SmellyTerror]

On the theme, borrowing to invest when interest rates are reasonably low seems fairly smart to me, so I'm not sure high debt is all bad as long as you can service it while the money is out there making friends.

But re: credit card debt, there are those credit cards offering (slightly dodgy) transfer-your-debt schemes, where they offer 0% for 6 months or 2% for 12 months if you transfer the debt you have on another card to them. I have little to no credit card debt, and I was thinking that, once a couple of investment loans I've got in progress go through, maybe I'll see how much of a limit I can possibly squeeze out of the credit-card folk, take it in cash and then transfer the debt to the 2%-per-year guys. Pay it all back in 12 months. Hell, if I shop around I could get a good 12 month term deposit, so I'd be sure of having the lootz to pay back at the end. Seems like free money...

To put it in context, the credit card websites are offering about half my pre-tax annual income in credit limit (!), even with my present and projected debts.

There's good debt and bad debt, is what I'm saying.

 

[Beej]

This same article is also being discussed in another thread. Here's my response to the article there: https://www.aussiestockforums.com/forums/showpost.php?p=520746&postcount=275 (beware a couple of typos's where I wrote $6B but meant $6T ).

My bottom line is I think you need to look at the whole balance sheet in order to understand the significance of a national debt ratio. What's are "national LVR"? It's around 20% - pretty conservative really. For example, did you know that Australia's total private household debt could be 100% paid off with our private superannuation funds if we so desired?

Cheers,

Beej

 

[saiter]

ROFL, I like how Professor Keen has now moved from UWS to UNSW. Seems like all the doom & gloom he's been talking about has earned him a promotion. At least he has profited.

 

[Julia]

The article I read was in yesterday's "Sunday Mail" and says every adult, on average, owes more than $74,000.

Further from the article:

The extraordinary rise in debt means we now owe more per person than the US, the one time credit capital of the world where household debt stands at just under $50,000 per person.

Reserve Bank figures show personal debt now equates to 100.4% of Australia's annual GDPand it's a terrible, terrible sign," said Uni of NSW economics professor Steve Keen.

Mortgages account for almost 90% of annual GDP, up from 17% in 1990. The remainder is taken up with $45 billion on credit cards and more than $90 billion on personal debts.

Research firm Fujitsu Consulting's latest monthly survey of 10,000 families shows the typical household is paying about 39% of its income on debt repayments.

 

[Mr J]

My bottom line is I think you need to look at the whole balance sheet in order to understand the significance of a national debt ratio. What's are "national LVR"? It's around 20% - pretty conservative really. For example, did you know that Australia's total private household debt could be 100% paid off with our private superannuation funds if we so desired?

A great point. Can't judge financial position by looking at one account and ignoring the other.

 

[condog]

Mortgages account for almost 90 per cent of annual GDP, up from 17 per cent in 1990

Is probably the primary point of the article..... Relatively mortgages have become inflated compared to other assets......

But he then goes on to say 10000 households spend 39% of income servicing debt......thats tolerable.....if however interest rates go up those that are highly leveraged ie: up around 50% and with lower income will start to feel the pinch ....... But isnt that what cycles do???????? sor tout those that have bought too high and leveraged too much to the advantage of those who know the cycles and better still know when to move sectors....

I have little faith in the grand professor......and having spent many years in Uni's and educational institutions, I have even less faith in some of the academics that are held up to be the supposed experts...... This is a rediculous generalisation, but , Academia by its very nature attracts a very special type of person that is willing to keep educating to a professor level, and in the business / finance faculties it is probably not a brilliant feeding ground for optimistic entrepruners or business brains....Wouldn't they be significantly more inclined to use their skills in the business world to reap rediculous pay cheques , bonuses or create business empires........hmmm just a thought......

 

[Julia]

I have even less faith in some of the academics that are held up to be the supposed experts...... This is a rediculous generalisation, but , Academia by its very nature attracts a very special type of person that is willing to keep educating to a professor level, and in the business / finance faculties it is probably not a brilliant feeding ground for optimistic entrepruners or business brains....Wouldn't they be significantly more inclined to use their skills in the business world to reap rediculous pay cheques , bonuses or create business empires........hmmm just a thought......

I'd go along with your above thought, condog. Reminds me of that term one doesn't hear so often these days - "professional student", i.e. people, regardless of their academic status, who only feel secure in their academic environment.

It would be interesting to put Professor Keen into a position at, say, Maquarie and see how he goes. I'd suspect he may well have considerably less to say when faced with the business world.

 

[Temjin]

What is everyone perspective on the merits of a contrarian view on the state of the economy?

We all know that most mainstream economists, who studied Keynesian economics, never saw this coming.

Alternatives economists, including Steve Keen, did but was obviously ignored before then, and is still now.

In my opinion, it's very difficult to be one, but I wouldn't be at all surprised if he is eventually right. I certainly know the "track" record of these mainstream economists.

It would be interesting to put Professor Keen into a position at, say, Maquarie and see how he goes. I'd suspect he may well have considerably less to say when faced with the business world.

Which is probably true as his views are not accepted in the business or political world. Not only that, it is also impractical for the big financial firms to "act" on his advices. There are simply too much vested interests out there to take a contrary view. It's much easier to follow the herd than going against it.