Aussie Debt Burden Continues
Aussie Debt Burden Continues
Veda Advantage data shows high levels of debt repayments in higher incomes households as consumer appetite for credit drops
6 May, 2008 – Veda Advantage data, released today, shows Australia’s overall demand for credit is slowing in the first quarter of calendar year 2008, with credit card and personal loan enquiries down 0.2% when compared to the same period last year.
Personal loan enquiries were down by 2.3% compared year-on-year with 2007, while credit card enquiries rose by 1.5%.
Further Veda Advantage analysis shows families are spending a significant amount of their income on debt repayments; with 1.3 million Australians spending more than half their gross household incomes on debt, and 1.8 million Australians spending more than 40% of their income on repayments. Thirty-one per cent of Australians live in households that spend 30% of their income on debt repayments.
Analysis of data also reveals exposure to debt increases with income levels.
While 18% per cent of Australians with a gross household gross income of less than $40 000 spent 35% or more of their income on debt, this proportion rises to 21% of Australians with household incomes between $40 000 and $70 000. *
But 27% per cent of Australian households earning a household income of more than $90 000 are currently spending 35% or more of their income repaying debt.
The analysis demonstrates that higher income families are also at risk of over-commitment as the burden of rising interest rates bite.
Mr Rory Matthews, Veda Advantage CEO, said Australian households earning higher incomes are also feeling stretched. “It is not just about lower income earners who are feeling the burden of rising interest rates. In fact, higher income households tend to carry a heavier debt servicing burden.”
“This means those individuals or families are vulnerable to changes in their personal or external financial circumstances. Increasing debt can then lead to over-commitment. Households may get by making the minimum monthly re-payments, but their overall debt continues increasing."
In light of these findings, Veda Advantage has renewed its call for comprehensive credit reporting law reform.
“More information allows lenders to create an accurate assessment of an applicant’s credit exposure and so prevents consumers from over-extending themselves financially,” Mr Matthews said.
The proposed Australian Law Reform Commission reforms fall short of the full reform needed. A comprehensive reporting model would allow banks and lenders to access the best available information about the ability of someone to repay the money they owe.
"It is in the interests of both borrowers and lenders that access is allowed to the right information about credit and risk.” Mr Matthews said.
The Veda Advantage analysis** scrutinised raw data from two identical national telephone surveys, conducted six months apart (September 2007/ March 2008) by Galaxy Research. The surveys asked questions around Australian consumers’ confidence into credit and debt.
The analysis of consumers also found that Australian’s appetite for credit is waning slightly, with a 6% decrease in the number of people with two or three credit facilities in the six months to March this year (September 36%, March 30%).
The analysis found that Australians who live in households with debt spend, on average, 23% of their income on repayments. This burden is spread unevenly; households with children spend considerably more on repayments (30%) than those without (18%).
Credit Card and Personal Loan Enquiries
| |
ACT |
NSW |
NT |
QLD |
SA |
TAS |
VIC |
WA |
Total |
| YOY |
1.2% |
-1.5% |
-4.9% |
2.0% |
3.4% |
-1.7% |
-0.6% |
-2.2% |
-0.2% |
| Income Range |
30% or more of income spend on debt |
35% or more of income spend on debt |
40% or more of income spend on debt |
50% or more of income spend on debt |
| <$40K |
23% |
18% |
17% |
12% |
| $40-70K |
31% |
21% |
19% |
15% |
| $70-90K |
36% |
21% |
18% |
14% |
| >$90K |
35% |
27% |
24% |
16% |
* According to the ABS, the average household earns $67,860 and the median $54,080. (Household Income and Income distribution, Australia, 2005-06)
** The study looked at two separate, identical questions completed by Galaxy Research in September 2007, and March 2008. The sample size was national representation of the Australian population, representing 18.4M people (Census 2006) over the age of 18 years. The sample size is about 1050 for each survey.
*** ABS estimates of the number of households affected by income. There are 7.9 million household in Australia.
<$40K household income represents 3,075 households (38.8% of total)
$40-70K household income represents 1,965 households (24.8% of total)
$70-90K household income represents 1,027 households (13.0% of total)
$90K household income represents 1,859 households (23.5% of total)
- ENDS -
For more information:
Sally Robertson, Launch Group: 02 9270 0289, 0400 927 003.
DISCLAIMER
Purpose of Veda Advantage media releases:
Veda Advantage media releases are intended as a contemporary contribution to data and commentary in relation to consumer credit activity in the Australian economy. The information in this release is not intended to provide guidance or commentary as to Veda Advantage’s financial position nor does it constitute legal, accounting other professional financial advice. The information may change and Veda Advantage does not guarantee their currency or accuracy.
To the extent permitted by law, Veda Advantage specifically excludes all liability or responsibility for any loss or damage arising out of reliance on information in this release and the data in this report, including any consequential or indirect loss, loss of profit, loss of revenue or loss of business opportunity.