Household debt levels at record highs
Record low interest rates, low unemployment, and a strong economy have led to more Australians taking on more debt while being shielded by the effects of repayments.
The ratio of household debt to disposable income has almost tripled from 64 per cent to 185 per cent since 1988, research revealed.
The AMP.Natsem Income and Wealth report — ‘Buy now, pay later: Household debt in Australia', showed household debt in Australia was four times what it was in 1988, increasing from $60,000 to $245,000 after inflation.
The research also showed households with 30-50 year olds have been affected the most with their debt to income ratio increasing from 149 to 209 per cent during the past 10 years, while mortgages made up a third of all household debt among those aged over 65, up from 20 per cent 10 years ago.
AMP chief customer officer, Paul Sainsbury, said the findings proved Australians needed to better manage their finances, including their cash flow, to be rid of debt and achieve the retirement lifestyle they desired.
"When thinking about household finances it's essential to factor in the impact if interest rates start creeping back up from their current historic lows and contingency plan in the event we lose our job or if an unforseen health event prevents us from working," he said.
"Bad debt is like compound interest in reverse — small financial decisions now can greatly influence long-term debt balances and the amount of interest we pay."
More Australians were taking debt into retirement, with repayments to income among those over 65 having almost doubled from nine to 17 per cent.
Debt to income had increased from 4.4 to six times income among Australians most leveraged households, compared to other households, where it had increased from 0.7 to 0.88 times income.
AUTHOR
Malavika Santhebennur
Recommended for you
ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test.
Quarterly Wealth Data analysis has uncovered positive improvements in financial adviser numbers compared with losses in the prior corresponding period.
Holding portfolios that are too complex or personalised can be a detractor for acquirers of financial advice firms as they require too much effort to maintain post-acquisition.
As the financial advice profession continues to wait on further DBFO legislation, industry commentators have encouraged advisers to act now in driving practice efficiency.
