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“Aussies have fallen out of love with debt” – really?!

It’s very rare that I feel moved to make predictions of a specific nature for the potential to end up with assorted albumen, shell and yolk on the ol’ visage is great – not that this seems to scare off most economists, I should add.
But, just for today, I’ll have a crack.
In this article, econogirl Jessica Irvine suggests that Australia is in for a period of deleveraging and says:
“Interestingly, the crisis gave households both the motive – uncertainty – and the means – lower interest rates and stimulus money – to start saving again. We took that first stimulus cheque and have been squirreling away as much savings as possible ever since.
It’s a double whammy for industries like retail and tourism who are also struggling against a high Australian dollar created by the mining boom.
Retailers’ annual revenues grew by about 8 per cent or more during the early 2000s. Spending is now down to around 4 per cent growth a year – more in line with annual wages growth.
But is it only a matter of time before we return to our big spending ways?
I suspect not. All the signs suggest the Australian consumer mindset has changed fundamentally. We have turned our back on debt. More of us are ahead on our mortgage payments. Our credit card balances are shrinking. New loans are down. We are treasuring our possessions once more.

 We have become more conservative with our finances.

Whoa! Am I reading that right?
Aussies have suddenly become sensible and going forward are likely to eschew credit card debt and personal loans in a new general spirit of thrift? I’d love to be proven wrong, but not in the universe I’m living in, they won’t be! I’ve already punched out far more words today than is conventionally healthy, so briefly, here are three reasons for my predicting that over the next decade credit card debt will escalate – nay, spiral – to levels of misuse we cannot even contemplate today:
1 – Trusting my instincts
As an inhabitant of Sydney CBD overlooking Pitt Street Mall, over the last 3 or 4 months I have witnessed what I can only describe as a consumer-led ‘splurge’.
Retail figures will begin to back me up here, I believe. I rate Jess Irvine’s journalism, but I contend that here has been mistaken an episode (short-lived uncertainty and prudence) for a trend.
2 – Short memories
People today  seem to have incredibly short memories and become fatigued very easily. If my instincts are correct, Aussies have already grown weary of saving (“boring!”) and are getting right on with rampant consumerism again.

3 – Human nature

As human beings, we tend to let matters run to crisis or epidemic levels before even considering that we might need to address our problems.

Examples?

At the risk of sounding like the Billy Joel record: rainforests, house prices, carbon emissions and global warming, over-population, sub-prime debt, the Cold War, Chernobyl…enough already? In fact, Joel’s 1989 hit lists a veritable slew of other examples: Communism, the H-Bomb, Elvis Presley’s drug-taking, the spread of HIV, international debts…OK, that really is enough now.

I believe something similar will happen with credit card debt. We have normalised credit cards. It is now ‘OK’ to run our finances in permanent consumer debt. Today, even teenagers can be furnished with multiple pieces of plastic – our “flexible friends” – and teenagers are mostly bad when let loose with debt (or just responsibility in general).
“We have become more conservative with our finances” – really? Not for my money, I’m afraid.

Nope. Although it’s increasingly rare to hear anyone use this phrase these days: “Sorry, I’m just not buying it.”



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About

Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog


'“Aussies have fallen out of love with debt” – really?!' have 1 comment

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