Can you feel the pressure?

July 22, 2018

We are always on the look-out for clues or signs that might point to how people are feeling, and what’s on their mind beyond the direct research we are working on.

We often hear comments like – “I can’t get ahead”, “we look just to make ends meet” or “we are dipping into our savings”. Or more recently, “I just don’t have enough to make saving worthwhile”.

In the 2017 Australia Project, we highlighted the uncertainty people feel around their financial security. Only 16% of people feel like they would be better off than their parents’ generation. And no wonder. 

Recently, a stat came to our attention that really helps to make sense of a lot of discussions we have with people about money. Take a look at the chart below - it shows how Australian households are running at a 200% debt to disposable income ratio.

Source:  ABS, RBA, UBS estimates.

I am yet to pick my jaw up off the deck. It’s an amazing number. It includes all forms of debt. Mortgages, credit cards, personal loans etc. 

On top of all of this, is the fact that over the next 3 years, interest only loans worth a combined total of about $360 billion will roll over to interest plus principal. If people have to pay off just 1% of the principal per year, that’s $3.6b of funds that need to be found from somewhere. Given most loans are 30 years, its actually closer to 3-4% so somewhere in the order $12-14b…

And as interest rates are also expected to rise, simply keeping up with interest payments will be a stretch for many, let alone the principal.

Recent social scanning we have completed highlighted how calls to mental health services like Lifeline and similar have had increasing volumes of calls about people crumbling under the pressure of debt – about not being sure how to handle it. 

You may also have noticed the increasing presence of brands like My Budget, who are being viewed as a brand ‘making good things happen’ in the finance sector by respondents.

It also helps to explain the growth of brands that are helping people save. Aldi. Coles Insurance, iSelect, Costco. And the surge of Fintechs that are trying to turn the idea of saving into investment like Raiz. All of whom have very, very clear propositions around better use of money in one way or another.

Sure, the costs of purchasing property have helped to fuel the charge of the line up the axis. But even still, what is this saying about how we are living in Australia? 

Beyond our means? Probably. Definitely. There is much talk about rampant individualism fuelling consumerism. The want for the next hit. Even though we know that it is all temporary.

The idea of “keeping up with the Jones’” has been moving away as themes like ‘less is more’ and ‘minimalism’ move into the mainstream, but it seems like they are hardly touching the sides. And our insatiable thirst for spending keeps going through the roof. Just look at consumer spending levels and how it has increased in the past 4 years.

*Source: Bank for International Settlements, Goldman Sachs Global Investment Research

We are not on our own by the way. Norway, Switzerland, Sweden, the USA, UK and NZ are all over 100%. 
But we lead the pack, with the Canadians a distant second.*

Perhaps as recent trends in house prices decrease this graph might temper in its enthusiasm to keep rising.

But something has gotta give.