“She cannot take much more, captain!”
It was Scotty’s famous Star Trek catchphrase when the USS Starship Enterprise was pushed to the brink.
As a famously frugal Scotsman, I suspect Scotty would currently be screaming something similar when reading of the Australian borrower.
Australian household debt has been steadily growing since the start of the decade, on average Australians now owe over 150% of their yearly disposable household income.
And don’t forget the interest.
Alarmingly, our private debt levels are higher than the yearly GDP of the country.
In simple terms – that’ around $56,000 for each man, woman and child!
Reserve Bank Governor, Glenn Stevens, recently said households had coped well with the debt levels, but it would not be wise for any further increase in household indebtedness.
Translation: She cannot take much more, captain!
Unfortunately, a week after Glenn’s caution, there was some white-anting from his deputy, Ric Battellino, essentially: ‘no problem, our household debt ratio is similar to most other developed countries.’
The USA, the UK (as much as you’ll hate it, Scotty, you’re grouped with the UK), Spain, Canada.
See a pattern?
Apparently it’s fine to be grouped with countries that stumbled into the gun powder room and lit a match to get their bearings.
Interest rates are still historically low and due to problems in the Euro zone credit is again beginning to tighten, meaning credit will become more expensive.
Banks’ funding costs will increase, and despite any bank marketing campaign claiming they’re your good buddy, those rate rises will be passed on to you.
While you may hate banks, banks love you and your debt.
Try reversing that relationship.
Pay down debt, save money and you’ll minimise your vulnerability to any economic shock.
Then you’ll never be screaming “I cannot take much more, Mr Banker!”
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs. We might be Australia’s best financial adviser. Want to learn more about the value of financial advice?
