Sobering talk of debt binge

Australia has been in the grip of a debt binge over the past 10 years, and it has not necessarily been the younger generations who have been most at fault, according to new research published today by the Financial Services Institute of Australia (Finsia).

The research, derived from Roy Morgan Research Single Source, has examined the distribution of wealth among Australians in the 10 years between 1998 and this year and reveals that while there are greater levels of household debt across the Australian population generally, there has been a significant shift in both income earning and wealth accumulation from younger to older Australians.

The research suggests this finding dents the perception of younger Australians being the big spenders on frivolous luxury items.

The findings also indicate an increase in the relative size of the debt burden incurred by young home borrowers over the 10 year period and suggests that many older Australians, buoyed by strong superannuation returns, have used their growing wealth to both increase their borrowings and expand their range of investment activities, resulting in the “crowding out” of younger borrowers struggling to enter the property market.

Looking at financial stress, the research found that 18 per cent of holders of owner occupied mortgages were considered to be at risk in September 2007 compared to 10 per cent in 2002. What is more, the research confirmed that those people with owner occupied mortgages considered to be at risk or extremely at risk also tended to carry forward larger debts on their credit cards.

Commenting on the research, Finsia chief executive Martin Fahy said the polarisation of wealth across the age groups and the significant increase in consumer debt levels spurred by a growing divide between house prices and household income levels had resulted in an increase in the number of Australian households at risk of mortgage default.