The burden of rising household debt and sluggish growth in wages is forecast to trigger alarmingly high levels of financial stress among Australian consumers.
Despite falling over the past year until this point, financial stress is tipped to rise dramatically in coming months.
The Consumer Financial Stress Index, produced by credit ratings bureau Dun & Bradstreet, predicts the level will climb from 18.4 points in June to 25.3 points by the end of September, the second-highest level recorded in the index’s four year history.
The latest jump in the index, which measures consumers’ demand and capacity for credit, is being driven by the increasing number of people with bad credit history and those more likely to fail to make repayments.
The index is calculated each month from Dun & Bradstreet’s credit databases on millions of Australian consumers.
The grim forecast is backed by recent figures from the Australian Bureau of Statistics, which revealed household debt is at a 25-year high.
Total household debt at the end of 2013 stood at $1.84 trillion, the equivalent of every person in Australia owing $79,000.
Pay day is never too soon
In August, consumer group Choice’s national cost of living survey also painted a similar picture, finding in one in five Australians use their credit card to make it through to pay day and that 46 per cent of people are cutting back on essential items like groceries.
Steve Brown, director of consumer risk solutions at Dun & Bradstreet, said the rising index was concerning, but not overly surprising given inflation is outstripping wage growth.
“What’s particularly worrying is that this rising stress is coming at a time when we have very low interest rates and a relatively steady jobs market,” Mr Brown said.
State by state
From a state perspective, financial stress is most severe in Queensland where the numbers increased from 12.8 to 23.6 points over the past year during the second quarter.
Figures from the Australian Financial Security Authority show personal debt in the sunshine state jumped 33 per cent compared to last year, and that insolvency activity was the second highest in the country.
Financial stress eased in both New South Wales and Victoria during the second quarter, fuelled by strong population growth, construction activity, and new jobs.
Figures for New South Wales fell from 27.7 points to 22.1 points.
Despite some states seeing improvement, overall financial pressures are expected to rise significantly across most areas.
Victoria is forecast to jump to 24.7 points and New South Wales to 26.
According to Stephen Koukoulas, economic adviser to Dun & Bradstreet, the surge in consumer financial stress poses worrying problems to future economic growth.
“Despite record low interest rates, consumers are under increasing financial pressure from an unwelcome mix of falling real wages and rising unemployment,” Mr Koukoulas said.
Mr Koukoulas believes the projected levels of financial stress will most likely lead to subdued consumer spending over the Christmas period.
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