Debt is a fact of life for the overwhelming majority of modern day Australian households. We need debt, and increasingly more of it, to fund the great Australian dream. Our own home. A place where we can raise our kids.
AMP and the National Centre for Social and Economic Modelling (NATSEM) has launched a report that lifts the lid on household debt in Australia.
Over the last 20 or so years the debt profile of the everyday Australian household has ballooned considerably, largely in pursuit of the great Australian property dream. The report, Buy now, pay later: Household debt in Australia, shows the average Australian household now has four times more debt than it did in the late 1980s.
This debt has helped generate considerable wealth for many Australians as the value of their homes and investments has headed north. But the reality for many Australian households is that while debt has undeniably helped build wealth, the debt has become an increasingly large financial sum relative to incomes.
The AMP.NATSEM report highlights the need for Australians to more actively engage with their everyday finances. With debt now a reality for most of us, we must recognise the stark difference between good and bad debt - good debt builds wealth, bad debt diminishes it. 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.
This can have a profound impact on our wealth in later life and ability to enjoy the retirements we aspire to. We need to better manage our finances, including our everyday cash flow, as part of a clear long-term plan to pay down debt.
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 unforeseen health event prevents us from working.
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