Australia's Debt Divide Deepens
Veda Advantage study finds 75% of Australians worried about ability to repay bills.
Call for broader credit reform to address Australia's growing debt divide.
New Veda Advantage research, released today, suggests debt repayments continue to be a major cause of worry to Australians, despite a small decrease since the last survey with 75% of Australians in debt worrying about their ability to make financial repayments over the next 12 months.
Inflation appears to be a significant driver for consumer debt worry with the national telephone study conducted for Veda Advantage by Galaxy Research on the weekend of March 2 before last Wednesday's (March 5) interest rate rise - finding that up to 55% or more of people in debt cited rising prices as a key factor in their concern about repaying money owed. Rising interest rates were cited by half of consumers as a key part of their concern about ability to make financial repayments over the next 12 months.
Rising transport and petrol costs (55%), rising food costs (50%), rising health costs (44%) and rising mortgage or rent costs (37%) were other key factors of concern.
Australians appear to be easing up on their consumption of new debt, with only 15% owing more (compared to 19% in the last Galaxy survey in September). However, the percentage citing higher interest rates (25%) as the main reason for owing more debt has grown since the last survey (20% in September 2007). The purchase of a new vehicle (30%), property purchases (27%), and bigger than expected bills (24%) were also reasons for owing more money than the previous year.
Veda Advantage General Manager of Information Services and Solutions Erica Hughes said the survey highlights the growing debt divide in Australia, with some Australians struggling to pay their bills on time. The study found that although 62% of Australians in debt said they were able to make their debt repayments, 16% said their debts were eating into most of their budget, with another 16% finding it difficult to make repayments. A further 1%, or 91 000 Australians were unsure of how they will make their next repayments over the next 12 months.
The study also found that 1.3 million Australian live in households that spend more than half their income on debt repayments, and 1.8 million Australians live in households who spend more than 40% of their income on repayments, Ms Hughes said. This means those individuals or families are extremely vulnerable to any changes in their personal or external financial circumstances.
This research builds on a previous Veda Advantage study conducted in September 2007 which found that 81% of Australians are worried about their ability to make repayments over the next 12 months. While conditions may be improving very slowly, three-quarters of the Australian population are worried about how they will make repayments on time, Ms Hughes said.
We again highlight the need for comprehensive data submission to improve systems that support lending decisions and reiterate our calls for Government to fully endorse such data pooling initiatives. The full comprehensive submission of data supplied by lenders would provide detailed insight into the applicants credit exposure thereby directly prevent consumers from over extending themselves financially. We are calling on the Federal Government to make swift, decisive changes to credit laws - especially Credit Reporting under the Privacy Act - to enable such comprehensive data sharing to help curb the over extension of credit. Calls for responsible lending are only valid if the decisions are informed this requires a full view of the individuals credit position.
Veda Advantage believes the Australian Law Reform Commission reforms fall short of the full reforms needed. We need change for the benefit of consumers, not change for change sake.
Alarmingly, the study also revealed that only 20% of the people who found it difficult to cope with their financial burden have sought professional help such as seeking the assistance of a financial planner or accountant. This is of great concern to us, as we ask people to take control of their credit file, do everything they can to pay their bills on time, and seek advice from a financial advisor to maintain a healthy credit history.
Veda Advantage provided the following general observations as a starting point for Australians who are experiencing difficulty paying their debts on time:
• Ask - don’t be afraid to seek advice. Financial institutions have programs to help you in times of trouble. It is in a bank’s interest to help rescue personal finance or business, and ensure you repay the money owed – before it becomes too late. Financial or insolvency specialists are also a good option to advise you on minimizing both financial and personal loss.
• Re-evaluate – personal debts or running a business at a loss can often just exacerbate the situation. When you first have trouble with repayments, spend time working out a new business plan or a restructuring option. Taking time to reflect may show you how it’s possible to cut costs, reallocate resources and improve efficiency.
• Talk – let people know what is going on. This way mutually acceptable agreements may be made with the people you owe money to. If you find you can’t make a repayment contact the organization and work out an extension plan or other options available.
• Budget – carefully consider your credit commitments. If you think you may have trouble paying a phone bill, for example, investigate pre-paid options, and create a budget to make sure you can set money aside to repay your loan. Knowing what is going into and out of your bank account is important. Simple measures such as setting money aside to pay bills and keeping emergency money ready in case you fall on tough times are good ways to prevent bankruptcy.
• Consolidate – debt consolidation involves taking out one loan to pay off other debts. This can be useful as you are often able to secure a lower interest rate and schedule repayments that are realistic. It can also be useful as it is easy to remember one payment date and amount rather than trying to juggle many different credit cards, loans and other debts.
• Check - your credit file at www.mycreditfile.com.au . This will give you up-to-date information on your credit history held by Veda Advantage, and also inform you who has been accessing your credit information.
It is in the interests of both borrowers and lenders that access is allowed to the right information about credit and risk. The Government needs to act to make sure that borrowers and lenders get the best information when considering new credit.
A comprehensive reporting model would allow banks and approved lenders to access the best available information about whether or not a person can repay the money they owe. It would ensure that those in a solid financial situation and those with good repayment history can be more appropriately matched with the appropriate credit facilities, Ms Hughes said.
For more information please contact:
Sally Robertson: 0400 927 003 / 02 9270 0233
* This is the total number of reported consumer defaults to Veda Advantage, including credit cards, personal loans and mortgages. Veda Advantage covers 94% of the credit active population of Australia.
About Veda Advantage - www.vedaadvantage.com
Veda Advantage (formerly known as Baycorp) has been at the forefront of the information business for many decades. Issues such as privacy, data security and business intelligence have been part of our commercial landscape since the inception of both our company and our industry. Veda Advantage holds the country's largest database of credit files for more than 14 million credit-active Australians. The vast majority of applications for credit in Australia are checked against the files held by Veda Advantage protecting business from financial risk and ensuring consumers are only offered products that fit their risk profile. You can apply for a copy of your credit file at www.mycreditfile.com.au.
About the Galaxy Research Study: The Galaxy Research study was commissioned by Veda Advantage. It was a national telephone survey with a sample of 1050 respondents aged 18 years or older distributed throughout Australia, and weighted to the national population to ensure that age, gender and regional quotas were supplied to the sample to reflect the latest ABS population estimates. The study was conducted on the Galaxy Omnibus on the weekend 29 February to 2 March, 2008.
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.
Veda Advantage is not a financial advisor, but has collated a few general observations which can be used for people as a starting point in seeking financial advice.