How much debt do Australians really have?

How much debt does the average Australian have?

How much debt does the average Australian have?

Credit and debt are very real parts of our everyday lives. Whether it's mortgage payments, store cards or a line of credit between businesses, everybody needs to use tomorrow's money today at some point.

Some people use this system to their advantage and make the most of money-making opportunities, minimising interest payments along the way. Unfortunately, others bite off more than they can chew, leading to debt collection or even insolvency. So, how good are Australians with their debt exactly?

There has been an improvement

Prior to the global financial crisis, Australians were spending much faster than they were earning and the level of household savings was in a continual state of decline, according to research from Curtin University. The study - titled Beyond our means? - points out that after the great recession rocked the world, Aussies started to budget more carefully, increasing their savings ratio to 11.2 per cent by the end of 2011 - the highest it had been since the 1980s.

The current figure is 8.3 cents in the dollar, according to the Reserve Bank of Australia. The university report shows that households are increasing their asset base, at a rate of around 8.8 per cent over the last two decades, with most of these savings coming from compulsory superannuation, which now totals $2.05 trillion.

Fortunately for the average Aussie household, the report shows that  while household debt has risen at an average of 10.3 per cent for the past 20 years, it has been as low as 6.2 per cent over the last five years.

Australians more comfortable with credit management

The Curtin University report highlights that Australians are more comfortable than ever with managing their use of credit cards and other types of debt. The average household has debt equal to 1.5 times yearly income, while in the past this figure has been as low as half. As the debt to income ratio increases, the Australian Bankers' Association (ABA) highlights that Aussies are increasing their wealth through assets at an even faster rate.

Australian household debt as a proportion of assets is the lowest it's been in seven years, according to the ABA.

"While households are now increasing their borrowings faster than income, this increase in borrowings is being more than matched by an increase in the value of household assets," said ABA Executive Director - Industry Policy, Tony Pearson.

"Every dollar of household debt is matched by almost $6 of assets."

This should be encouraging for businesses who deal direct with customers, and who could be looking at consumer debt recovery. With the country largely managing its assets and savings well, your cash flow should be looking good. If you're not sure or you've hit a snag with a customer who has not planned things properly, talk to Commercial Credit Services.



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