Debt hangover – waking up to our nation’s binge - Australia
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Australians across
all age groups have been bingeing on debt over the last ten years, according
to research released today by Finsia
– Financial Services Institute of Australasia.
The research, derived from Roy Morgan Research Single Source, examines the distribution
of wealth among Australians in the ten year period between 1998 and 2008. It
provides preliminary insight into the key issues which have influenced the spiralling
levels of household debt in Australia.
The findings form the first stage of Finsia’s 2008 policy initiative –
Reconciling wealth with leverage – new challenges in consumer finance
and will inform the Finsia - Melbourne Centre for Financial Studies Consumer
Finance, Investment and Regulatory Issues Symposium on Tuesday 19 August 2008.
While there are greater
levels of household debt across the Australian population generally, the research
suggests there has been a significant shift in both income earning and wealth
accumulation from younger to older Australians, denting the perception of younger
Australians being the ‘big spenders’ on frivolous and luxury items.
The research also indicates
an increase in the relative size of the debt burden incurred by young home borrowers
during this period. Buoyed by strong superannuation returns, many older Australians
have used their growing wealth to both increase their borrowing and to expand
their range of investment activities, resulting in the ‘crowding out’
of younger borrowers struggling to enter the property market.
In terms of financial stress, the research also reveals that 18% of the holders
of ‘Owner Occupied Mortgages’ were considered to be ‘At Risk’
in September 2007 compared to 10% in 2002. Those people with ‘Owner Occupied
Mortgages’ who are either ‘At Risk’ or ‘Extremely at
Risk’ tend to also carry forward larger debts on their credit cards compared
to other mortgage holders. This correlation is particularly pronounced for those
in the 30-44 and 45-59 age groups.
Commenting on the results, Dr Martin Fahy, Chief Executive Officer of Finsia,
stated: “The polarisation of wealth across the age groups and the significant
increase in consumer debt levels spurred by a growing divide between house prices
and household income levels, has resulted in an increase in the number of Australian
households ‘At Risk’ of mortgage default.”
“Surprisingly, despite the marked distribution in wealth to the baby boomers,
their collective appetite for leveraged finance remains undiminished, with those
in the 45-59 age group holding over a third of the nation’s debt. Consequently,
many younger Australians have been ‘crowded out’ of the property
market all together and many more are now dependent on credit providers. This,
combined with a greater number of leveraged product providers and a lagging
regulatory system for debt finance, has left Australians more exposed and vulnerable
that even before,” Fahy continued.
Key findings of the study also include:
- In June 2008, the Roy
Morgan consumer confidence rating was 90.7, the lowest Roy Morgan consumer
confidence rating for nearly 15 years.
- For those younger Australians with a mortgage, the ratio of mortgage debt
to household income has increased overall between 1998 and 2008. Significantly,
this indebtedness has been highest for the youngest age groups. The ratio
of mortgage debt to household income for 18-29 yr olds, has increased from
1.58 to 2.39.
- The number of Australians who now hold Visa or Mastercard credit card is
substantial (44% and 25% respectively), in line with a decrease in person
loans over the same period.
- The largest share of financial assets in the Australian economy is held
by those aged 45-59, with 41.8%, followed by those aged 60+ (32.5%). The overall
share of wealth for those aged 30-44 has declined from 28.8% to 20.7%, and
for 18-29 yr olds, from 7.9% to 5.1%.
- The proportion of each group with home mortgages has markedly increased
for the 45-59 and 60+ age groups, while the proportion of 18-29s with home
loans has fallen.
- The marked increase in the percentage of Australians with superannuation
(51% to 65%), reflecting the number of new entrants into the job market.
“Rising interest rates, record levels of housing repossessions and a shakeout
in the mortgage-broking industry in the wake of the sub-prime credit crisis
have brought into sharp focus the spiralling levels of household debt in Australia.
With the majority of recent financial literacy initiatives being aimed at educating
consumers on the retirement planning aspects of saving, rather than personal
financial management, both industry and the government must work together to
bridge this gap. ” concluded Fahy.
ENDS
Notes to Editors:
About Finsia
Finsia – the Financial Services Institute of Australasia – has a
combined wealth of experience in the financial services industry dating back
to 1886.
As the only professional association representing the entire spectrum of financial
services throughout Australia and New Zealand, its reach extends to more than
20,000 professionals working across the broad categories of banking, wealth
management and capital markets.
Finsia plays a vital role in protecting the industry’s strength and competitiveness
in today’s evolving global marketplace through its core purpose of helping
members succeed in their careers and supporting the growth and development of
the financial services industry.
This is achieved through the provision of relevant and high quality professional
development programs, a comprehensive suite of career support services and an
extensive range of industry-leading information resources and publications.
Finsia’s leadership, advocacy and policy-setting initiatives also play
a critical role in promoting industry growth both regionally and around the
world.
For further information about Finsia, visit: www.finsia.com <http://www.finsia.com/>
About Roy Morgan Research
Roy Morgan Research is the largest independent Australian research company,
with offices in each state of Australia, as well as in Indonesia, New Zealand,
United States and United Kingdom.
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Finsia Date
15-08-2008
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