Turning the kitchen tables on soaring debt

LATELY, I've realised that Australian householders - so often overlooked in the news of the day - are behaving in a very smart way.

LATELY, I've realised that Australian householders - so often overlooked in the news of the day - are behaving in a very smart way.

It's become the norm to read about how lucky we are as Europe and the US wrestle with problems created by soaring debt and high unemployment, and Australia just sails through. But if the Organisation for Economic Co-operation and Development or the World Bank wants to come here and investigate elements of the Lucky Country, they could have a chat to a few suburban mums and dads after they have looked at our mining projects and talked to the politicians.

It is around the kitchen tables of this country that visiting economists might find many tales of individual austerity and sacrifice to complement the story of our exports to China and our economic management.

What am I talking about? There's a number of factors operating on our economic wellbeing for which average Australians deserve a pat on the back. For a start, we are saving again. While the Australian household savings rate fell below zero in 2003, it started rising slowly from there and then made a big comeback after 2008. The current savings rate in this country is about 9.6 per cent - not as high as our long-term rate of 10.3 per cent but certainly much healthier than the 4.3 per cent in the US and 3.3 per cent in Canada.

When households save - the amount of disposable income they choose to not spend - they give themselves breathing room, choices and something of a safety net for future misfortune.

I don't make these comparisons to gloat. We have been blessed with strong resource exports to Asia while the rest of the world went into meltdown. But our household savings actually strengthened in response to financial crisis - a sign of personal responsibility in the face of a big shock.

During this same response to the global financial crisis, Australian household debt-to-disposable income reduced slightly from 135.3 per cent to 134.5 per cent. It does not seem that healthy to have household debt outstripping your income by so much, but it certainly looks healthier than the US and Britain, where it is more than 160 per cent, or Canada, where it is 152 per cent.

We may be lucky to live in Australia, but it is smart to use income during a recession to pay down some debt and secure other debt, which is what Australians have done. Credit card spending has slowed since 2008 and what growth there has been, has been pushed along by small business owners unable to gain business finance.

At the same time, Australians have been shoring up their mortgages. About half of Australian mortgage holders are ahead on their repayment schedules and the ratio of mortgage holders who are on schedule is well over 80 per cent - a very healthy picture.

In the US, the mortgage delinquency rate rose again for the second quarter of 2012 to 7.6 per cent of mortgages holders with at least 30 days in arrears.

In Australia, the Fitch agency ranks mortgage holders at about 1.5 per cent delinquency. This is a big difference and is partially underpinned by unemployment numbers: 5.2 per cent in Australia and 8.3 per cent in the US.

But it is not just the employment situation. Australian households responded immediately to the GFC by curtailing their spending, which has only recently returned to "trend" growth, or about 3 per cent a year.

Those not pulling back on consumption have been shopping smarter, using internet retail sites to buy goods cheaply by arbitraging the high Aussie dollar against currencies in Europe and the US.

And although Australians can be thankful that unemployment hasn't spiked and wages growth has continued during the post-GFC, we haven't had it all easy. During this time, electricity prices have risen - from a household average of $1200 a year at the GFC to $2000 now. And, of course, interest rates have not been even close to the almost-zero official interest rates in the US, Japan and Britain.

This has meant that while the current cash rate is very low, it hasn't given Australian home buyers the rock-bottom finance enjoyed by other nationalities. But that isn't so bad, because it means the Reserve Bank has room to drop the cash rate further should it be needed.

While Australians have pulled their heads in and been determined to weather the effects of the GFC, it seems they will be saddled with deflated equity values in their superannuation and flat house values for at least the medium term. For now, we can say that as a nation we are saving smarter, spending smarter and borrowing smarter.

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