Australians still living on borrowed dimes

Article Category: Demographics

By By Anthony Keane, From: News Limited newspapers, 19 October 2010

A NEW era of financial conservatism sweeping Australia has failed to stop our ballooning credit card balances, which have climbed 16 per cent in the past three years.

Aussies owe $47.7 billion on their credit cards, according to latest figures from the Reserve Bank. And $35.1 billion of it is accruing interest, compared with $29.4 billion in October 2007.

That's an extra $5.7 billion we're now paying interest on, about $855 million more a year based on an average credit card interest rate of 15 per cent.

In October 2007 confidence was high, with the share market reaching record highs, home loan interest rates rising, and no inkling that the growing debt problems in the US housing market would suck the globe into deep recession.

A Your Money analysis of spending, borrowing and investing trends since then has found that most areas have remained flat or contracted, except the credit card balances.

However, CommSec chief economist Craig James says the credit card data looks worse than it is, because the total figure does not take into account a rising population, rising wages and a rising number of accounts.

More than 370,000 new credit card accounts were opened over the past three years and the average balance has climbed from $2993 to $3253.

"The average credit card balance is up 3.8 per cent on a year earlier the slowest annual growth in six months," James says. "People are more conservative and consumers are a lot more savvy now.

"A trend we are seeing is people are more inclined to make a purchase on their debit card. The other trend we are seeing is the use of cash."

Reserve Bank data shows we have become a nation of cash hoarders in the past three years.

In October 2007 bank deposits totalled $1.08 trillion ($1080 billion), and today it's more than $1.4 trillion.