Households drowning in debt
WE ALL know our country is in deep debt.
In just 10 years, we have gone from a federal government in surplus, to a country with a debt limit that’s been increased to $600 billion.
However, there’s an even bigger problem that almost every household faces, but for some reason we don’t want to talk about it: the debt we personally owe.
This week, we learnt the average Australian household owes $169,000. To give you an idea of how much that has blown out, back in 2004 it was $94,000.
Obviously, we have to borrow more and more to buy a property these days, but it’s our inability to pay it back that’s the worry.
Earlier this year, the Reserve Bank published some scary numbers.
Back in 1989, when interest rates were through the roof, we still took out lots of debt, but it was only 60 per cent of the money coming in to the house, so slowly we could pay it off.
In 2017, we owe 190 per cent of the money that comes into a household.
To put that in context, in the US back in 2007, just before the GFC, debt to income was 140 per cent. Put simply, we can’t afford and will never pay our household debt off with the money we earn.
The only way we can is if our houses double their value by the time we want to sell them. That’s fine if you are going to stay in the same place for decades, but what happens when interest rates go up?
We are so far in the hole that thousands will be forced to sell, way before their property price gamble can pay off.
In fact, the Australian Bureau of Statistics showed us this week that 30 per cent of households owe more than three times the money they make in a year.
It’s human nature to always want to take a step up in life. Most of us want a better car, bigger house and new stuff to put in it and there are plenty of people willing to lend you the money to get it now.
But their whole business model is making you pay way more for all those things over the long run and sometimes they bet on you not being able to pay it back.
The question is, has it become too easy to get money?
To be honest I don’t know, that’s for smarter people than me. But Australia, we have a problem. These debt numbers show us that we want a champagne lifestyle on a beer budget.
Just because someone will find a way to give you money, think long and hard about how the hell you are going to pay it back.
I write this not because I know any better. I’m right in the hole with you.
We have to wake up. The hole is getting bigger and they are charging us a fortune for the spade to get the heck out of it. Joining Paul on the program this Monday are Graham Richardson, Ross Cameron and Janine Perrett.
AUSTRALIA, WE HAVE A PROBLEM. THESE DEBT NUMBERS SHOW US THAT WE WANT A CHAMPAGNE LIFESTYLE ON A BEER BUDGET