Despite a 20-year high in household savings, Dun & Bradstreet’s latest Consumer Credit Expectations Survey reveals more Australians are worried about their financial futures. Those that can are tightening their belts by saving and not spending. But significant portions of the community who are unable to do so, are reaching crisis point. Could we see the rate of defaults rise among these groups as people struggle to keep their heads above water?
By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repairs and www.fixmybadcredit.com.au.
Credit reporting agency Dun & Bradstreet’s (D & B) Consumer Credit Expectations Survey September 2012 was released a couple of days ago. D & B conduct a national survey each quarter on expectations for savings, credit usage, spending and debt.
The latest survey shows a lack of personal savings has six in ten Australians concerned about their current financial situation, with one in three indicating they would be unable to cover basic expenses for longer than a few weeks if faced with a sudden job loss.
The report seems to show that those that can save are, and those that can’t are reaching crisis point. Likewise with credit – those that are in a stable financial situation are skimping on credit for luxuries, whilst the numbers of low income earners relying on credit just to get by are significant amongst low income households.
Let’s look at the figures from the survey as they relate to 3 Australian expectations on household savings and stability, credit access and ability to meet credit commitments for this coming September quarter:
Household Savings and Stability
The survey found that a third of low-income earners and a quarter of older Australians would only be able to survive for up to one month without a steady income.
Sixty-nine per cent of those earning less than $50,000 annually and 62 per cent of consumers aged 50-64 are worried about their personal financial health.
In addition, one in four low-income households and one in five older Australians admit to having no savings, despite a substantial portion (close to one third) indicating that current economic conditions are refocusing their attention towards saving.
According to Dun & Bradstreet Director, Adam Siddique, some vulnerable demographics are facing significant financial pressures.
“Our latest research clearly demonstrates that consumers are worried about their financial position.
“This is partly symptomatic of lingering pessimism from the global financial crisis however, for certain demographics it reflects the reality that households are living hand-to-mouth; with very little savings buffer should unforeseen circumstances occur. So while national household savings levels are at a 20-year high, it is clear that not all consumers are in a position to put money aside,” said Mr Siddique.
“For the older demographic, concern over finances in part reflects the ongoing fallout from the global financial crisis and its impact on superannuation.”
Projections for credit access
More than half of all consumers (53%) will be less likely to spend money on entertainment or other non-essentials this year than 12 months ago.
Likewise, 40 per cent of consumers are less inclined to use existing credit to buy non-essential items, a figure which rises to 48 per cent for low-income households.
Expectations for new credit access has also fallen, down five percentage points to just 15 per cent since the March quarter.
“Ten to 15 years ago consumers were more comfortable living with a lower savings to debt ratio. However, continued global economic uncertainty is weighing on Australian households and dissuading discretionary spending, credit usage and significant investments such as buying a property,” said Mr Siddique.
Ability to Meet Credit commitments
40 per cent of low-income households expect to rely on existing credit sources to cover costs – the same demographic also anticipates difficulty meeting current credit commitments.
Whilst this figure is still too high, the number has actually reduced from expectations in the June quarter, which found nearly half (46%) of all low-income households expect difficulty managing their debt.
Low-income earners are similarly expecting rising debt levels; 34 per cent compared with 24 per cent of middle-income earners.
Amongst older Australians, 28 per cent of 50-64 year-olds expect they will need to rely on credit to cover expenses, while 41 per cent anticipate difficulty meeting existing credit obligations.
Reliance on credit among older Australians comes as one third of consumers aged 50-64 anticipate rising household debt in the coming months, up from 26 per cent during the March quarter.
The evidence showing older Australians experience difficulty with credit was echoed by Veda Advantage recently. We blogged about seniors (over 65’s) struggling with credit in our post Default rates soar in over 65’s. Veda’s study on generational trends for credit activity showed this age group have become more reliant on credit which has led to the increased level of defaults as some struggle to meet financial obligations.
If people bury their heads in the sand about their finances, they can invariably end up with debt and with bad credit history.
This bad credit can send them into a debt spiral for years to come. Bad credit sticks for 5 to 7 years, so people are banned from mainstream credit at normal interest rates and are forced into payday loans, fringe credit and the non-conforming market, all of which charge significantly higher interest rates for the increased ‘risk’ of lending to someone with a history of poor repayment.
Rather than allow this to happen, people should put their hands up early, as there are many avenues for help out there today.
ASIC’s Money Smart website is the best place to start to get some FREE tips on how to make the most of money, get out of debt or squirrel away for a rainy day.
They also link to a list of free or low-cost financial counsellors who can actively help with budgeting, managing debt and financial difficulties.
For people who are having trouble with repayments, aside from seeking financial counselling, TALK TO THE CREDITOR.
Creditors are generally willing to assist people experiencing genuine financial hardship, but they need to be specifically informed of the financial hardship prior to bills going overdue or to default stage.
ASIC has also put together a factsheet titled Can’t Pay Your Debts? which outlines the process of requesting financial hardship from your Creditor, and other financial solutions.
People should act as early as possible on financial problems, and look for ways of realigning finances so they avoid defaulting on any payments.
For those people who may not be struggling with their finances, but are in the 6 out of 10 Australians who are concerned about their current financial situation and want to get savvy with their money – Money Smart can also help, or perhaps Australian savings websites such as http://www.savingsguide.com.au or http://www.simplesavings.com.au/ can offer some motivation and encouragement.
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For help with repairing bad credit history that is affecting your financial future, contact MyCRA Credit Rating Repairs for assessment of suitability for credit repair.