At Wilson Financial we are often exposed to  a market segment that is wealth driven, focused on good debt, and not bad debt.  Call it those with ‘financial health’. However, MOST of us have had a nasty credit card bill, typically in our early twenties, which then haunted us for some time until we got rid of it. Do you remember your first run in with debt? Or are you still in the wars? You clearly are not alone...

Australian’s have become addicted to the equivalent of ‘financial fast food’  and now we are beginning to experience the associated ‘financial health’ risks. We need to start doing things differently or we risk being owned outright by the executives of large corporations who will stop at nothing to drive shareholder value higher.

Australia, like most other first world economies,  has a love affair with credit. We have a type of addiction to credit cards and the debt associated with them. A little over ten years ago the average amount owing per account holder was $965. In 2006 this amount had already grown to $1,428. According to RBA data the actual amount had blown out to a whopping $2,808 by as early as 2007.

The  conclusion we can reach is that Australian’s, on average, owe more than three times as much on their credit cards as they did ten years ago. 

It’s not just credit cards that are the problem though. The days of old fashioned lay-buys – where you would put a deposit on a purchase and then pay if off before taking possession of the item – have virtually come to an end. Instead, attend any homemaker centre on a weekend and you will see people queuing up to buy goods on 24 months ‘interest  free’ terms.

People no longer want to wait until they can pay for goods before they take them home. Today’s consumer wants everything now –  right now! Whatever happened to the psychology of earning something before you buy it? This is the core of where people are being trapped. It’s psychology and it’s having the character to shift your attitudes, and desires to a perspective of financial freedom, and away from material possession.  

Finance companies have ‘clicked’  to the opportunity, they operate on the assumption that the majority of people
will only pay the bare minimum (which can be as low as nil) along the way and then be unable to afford the ‘lump sum’  owing at the end. This is when the interest at an incredible 27% plus can
come into effect.

 If I had told you as little as ten years ago that  the people would be happy to pay $5,000 for a television, how would you have responded? It seems that our buying behaviour has changed dramatically, and with it the way we think about debt. Once upon a time the idea of carrying debt on a credit card was seen as foolish, it’s now normal to maintain a balance of over $1,000.

This assumption is backed up by actual figures.
The average credit card limit back in May 1996 was $2,951. By 2010 the average
limit had reached over $12,000.

Instead of debt being seen as temporary – something you get into and out of as quickly as possible – most now see owing  money as a natural part of life. Over the past decade or so we have been conned  into believing that consumer debt is normal and okay. Rather than think about  the stress associated with paying what is owed, consumers happily whip out the plastic and receive the positive association of earning rewards for spending.
It’s total consumer madness!

The marketing gurus are all ‘high-fiving’ each other while a new generation of slaves is being created – those who are
convinced that it’s a great idea to spend thousands of dollars to earn enough loyalty points to redeem a ‘free’  trinket worth a few hundred dollars (at most). Sadly, as they redeem their reward they forget that the balance owing is attracting interest at over 16% per annum, compounded.

In 2006 it was reported that the average Australian household had about $155 dollars in debt for every $100 it earned
after tax. Today that number has more than doubled but incomes have only grown by less than 25%.

This disastrous financial outcome didn’t just happen overnight, it’s a consequence of an extended period of financial abuse.  Today the average household will have to work a little over two years just to repay existing debt – and this figure is getting worse each year.

What are your personal experiences with debt? Do you know someone who has got themselves into trouble over their extreme spending habits? Let us know your experiences and if you have any questions about debt feel free to contact us to discuss the issues.