Australia?s Debt Divide

Dun & Bradstreet Director of Corporate Affairs Damian Karmelich believes the divide between the haves and have nots has become increasingly evident as the economy has slowed and credit conditions have become tighter.

“The slowing of the Australian economy and the impacts of the global credit crisis have hurt the family budgets of certain demographics more than others,” said Mr Karmelich.

“Many households have sought to rein in their debt however for some sections of the community increased prices are making it harder to control spending.

“Australia’s national accounts show higher mortgage interest rates and rapidly rising prices have forced households to cut real consumption of discretionary items and basic needs such as transport and food. This has shown through in the decrease in national expectations for higher debt levels however the significant jump in expectations for certain demographics clearly reveals the divide between the haves and have nots.

“Further adding to the divide, it appears that white collar households will use the recent cut in official interest rates to pay down their debt, while low income and blue collar households have significant expectations for increased debt levels and missed bill payments.”

Debt levels

One in five (19%) Australians expect their level of household debt to be higher in three months time, down from 34% last quarter but on par with the result of the inaugural survey which examined expectations for the December 2007 quarter. Despite this decline, certain demographics are showing significant levels of concern. Thirty two per cent of low income households, 27% of those aged 50+ and 26% of blue collar households anticipate higher debt levels by Christmas.

Meanwhile 21% of Australians expect to lower their debt levels by the end of the year, with those earning more than $70,000 (32%), in full time work (28%) or white collar households (27%) most likely to lower their debt.

Credit card use

When examining expectations for credit card use, one in five Australians (21%) expect to use their credit card to cover purchases they otherwise couldn’t afford in the next three months. This figure jumps to 29% for those in the 18-34 age bracket, 27% for families with children and 29% for part time workers.

Missed payments

Five per cent of households anticipate they will miss a bill repayment in the coming quarter however this figure rises four percentage points to nine per cent for those households earning less than $30,000. Those aged 18-34 also have relatively high expectations for missed bill payments at seven per cent.

Credit demand

Credit demand expectations provide further evidence that those in the 18-34 age bracket are being forced to turn to credit to make ends meet, with the number of people intending to apply for a new credit facility highest among this group. Twenty four per cent of 18-34 year olds expect to apply for a new credit facility in the coming three months – the national average is 14%.

According to Mr Karmelich Australians need to be diligent with their finances to avoid overindebtedness and the implications of defaults on their ability to access affordable credit.

“As we approach Christmas, a traditional boom time for consumer spending, Australians need to be particularly diligent in managing their credit facilities,” said Mr Karmelich. “This is particularly important for the lower income bracket which is already showing signs of debt stress.”

"Payment defaults are listed on a consumers’ credit file for up to seven years. In the current environment, where banks are only willing to lend to those that don’t have adverse information on their record, missed payments could cause problems should the need to access credit arise.”