Money Finance News Australian debt: we’re richer, but trending towards deeper indebtedness
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Australian debt: we’re richer, but trending towards deeper indebtedness

credit card debt
Australia's household debt is getting worse. Photo: Getty
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A new report on global wealth has ranked Australia highly, but also revealed we are descending deeper into debt.

The average Australian adult has $US375,573 of wealth, according to Swiss bank Credit Suisse, which has published its annual wealth report.

Upbeat about Australia, Credit Suisse described our overall position as “still resilient”, our level of wealth inequality as “relatively low”, and forecast that our wealth would grow by 34 per cent over the next five years.

debt-gross-wealth

‘Wealth’ was defined as financial assets (such as bank deposits, shares and superannuation) and non-financial assets (such as real estate).

On the measure of average wealth, Australia ($US375,573) ranked second behind Switzerland ($US561,854) and ahead of the USA ($US344,692), the United Kingdom ($US288,808) and Canada ($US270,179).

On median wealth, a measure that gives a better picture of inequality, Australia ($US162,815) also ranked second behind Switzerland ($US244,002) and much better than the USA ($US44,977).

But the report also provided a snapshot of Australia’s worsening household debt, which The New Daily has reported on previously (here, here, here and here).

In 2016, Australian debt per adult increased to $US98,004, up from $US97,189 the year before, while wealth per adult went backwards, Credit Suisse reported.

And our debt as a percentage of gross wealth increased to 20.7 per cent, up from 20.3 per cent, according to the bank.

There have been recent improvements. Debt per adult was as high as 21 per cent of gross wealth in 2014 and 21.2 per cent in 2009. And the recent high for debt-per-adult was back in 2014, when it was $US101,711.

But the long-term trend seems to be towards greater indebtedness.

Since the year 2000, average debt quadrupled, but average wealth increased only two-and-a-half times.

Watch Credit Suisse explain the report:

Why it matters

dr philip lowe
RBA governor Philip Lowe is watching household debt levels closely. Photo: Getty

As the Reserve Bank has warned, high debt levels make us less resilient to external financial shocks.

Earlier in November, Governor Philip Lowe said Australia’s debt-to-income ratio was the worst it has ever been.

“Currently, household debt is equivalent to 185 per cent of annual household disposable income, a record high and up from around 70 per cent in the early 1990s,” the Governor said.

“We can never know with certainty exactly what level of debt is sustainable. It depends on income growth, lending standards and asset prices. But it surely must be the case that the higher is the debt, the greater is the risk.”

household debt chart
This recent RBA graph seems to support Credit Suisse’s analysis.

By risk, the RBA governor meant that more indebted Australian households are less able to spend the nation out of another financial crisis.

The other concern is that deeply indebted households will suffer when the Reserve Bank does eventually, and inevitably, start lifting the record-low official interest rate target.

Read the full report here:

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