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.

CommSec research released last month found consumers are cutting their spending in areas that in the past were seen as essential gambling, cigarettes and alcohol in preference for small luxuries.

"While Australians have generally become more careful with their spending, there is still a place for the little luxuries," James says.

"The category 'personal effects' which included items like jewellery, watches and clocks lifted by almost 8 per cent over the past year. And perhaps this penchant for little luxuries is the reason why hotel accommodation has lifted more Australians deciding to take long weekends instead of their normal, longer annual leave."

The Your Money analysis also found:

• New personal loans and investment property loans have dropped sharply since October 2007.

• Risk-taking on the share market, through margin lending, has almost halved.

• Superannuation contributions have almost halved since 2006-07.

• Retirees are withdrawing less from their super than they were three years ago.

AMP financial planner Mark Haynes, of Haysman Financial Services, says retirees have been taking a much more cautious approach to investing and spending.

"There is no doubt that during the global financial crisis, retirees generally stopped major spending and travelling, and a high percentage reduced drawings on their allocated pensions to help retain more capital," he says.

"We are, however, now seeing this starting to reverse and retirees are again feeling more at ease."

Haynes says there are many retirees who now qualify for Centrelink benefits because of their reduced assets and new income and assets test rules.

"It is very important for all retirees to review their situation following the GFC to see if they now qualify for any government benefits," he says.

Consumers are benefiting from the strong Australian dollar, making big-ticket items such as whitegoods and TVs cheaper, Haynes says, but he warns people not to get carried away with using credit and interest-free finance.

"These purchases really should be paid off before they cost 18 to 24 per cent more in interest," he says. "Living a borrowed lifestyle is the quickest way to get into debt.

"If you can't afford it today, chances are you won't be able to afford it tomorrow."


Comments on this story

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     cut the cards of Kew Posted at 10:22 AM Today

         I use to have a credit card with a 10k limit. Three years ago I paid it off and now no longer have any credit cards. Oh the freedom!

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     peter of brisbane Posted at 9:31 AM Today

         We are in our early 30's, only have a Visa Debit card, and not feel the need to 'pretend' we have more than what we earn. The only debt we have is a mortgage and don't care what the Jones' do!

A lot of credit cards offer 6 month or 12 month zero interest terms. Many of the large retailers offer Credit cards that have zero interest for 24 months (eg Harvey Norman). You buy your $5000 lounge suite now and pay it off over 24 months at zero interest.  I think that is one of the reasons for the high balance. It is a recent trend probably inspired by the retail downturn of 2008/9.

If the customers can actually service the loans on time, it's pretty painless. Of course if they lose their source of income, then it becomes a problem.

The banks then have to find more suckers to loan it out to so they can pay the interest. That's why they are keen to bump up interest rates. Easy pickings

Verge wrote on Oct 21^st, 2010 at 10:29am:


Over the years, I have received numerous offers for limit increases - even on a credit card that was sitting in a drawer unused...

These days limit increases require income and expenditure disclosures - not so long ago limit increase offers were pre-approved tick-a-box acceptance forms...