Dunn & Bradstreet’s latest report on credit is out and it is not for the faint hearted.
One third of Australians expect to experience difficulties meeting their credit commitments over the next three months and nearly 40 per cent anticipate having to use their credit card to cover otherwise unaffordable expenses.
At the same time one in four Australians are planning to apply for a new credit product, although the greatest product demand is for non-bank credit such as mobile phone plans.
These are some of the findings from the latest Dun & Bradstreet Consumer Credit Expectations Survey, released today. The survey was conducted by Newspoll and examines peoples’ expectations for credit applications, credit usage, and spending and debt performance in the June quarter 2011.
Key findings from the survey include:
- 27 per cent of Australians expect to apply for a new credit product (see further comments, below)
- 23 per cent of Australians expect a higher level of debt
- 38 per cent of people expect to use their credit card to pay for otherwise unaffordable expenses – a figure that has remained elevated since the GFC
- 29 per cent of Australians expect to make a major purchase, while 23 percent have decided to delay making a major purchase
- 34 per cent of Australians anticipate difficulties in meeting their credit commitments
- 50 per cent of Australians believe a rise in interest rates will have a negative impact on their finances.
Overall the survey indicates that while Australians have a reasonably strong appetite for credit they are concerned about their capacity to effectively manage debt levels in an environment of rising interest rates. Expectations of relying on credit cards for otherwise unaffordable expenses and worries about meeting future credit commitments are the strongest indication of this concern.
According to Christine Christian, Dun & Bradstreet’s chief executive officer, the latest data points to the financial pressure many households are experiencing as a result of debt levels remaining at historic highs despite recent talk of household deleveraging. The most recent Financial Stability Review by the Reserve Bank of Australia reported that household debt-to-income levels remained above 150 per cent.
This survey fits with what I have been noticing in the broader economy. People still seem to feel confident about the overall economy, but when asked about their own personal situation the story is far less positive. I get the sense that people are being told one story by the media and the government and at this stage are still listening even though it doesn’t quite sit right with their own personal circumstances. The longer this situation continues I would suspect that people will come to terms with the fact that they are being told a beautiful lie.
“Household de-leveraging has been a regular theme in economic commentary over recent months. However, debt levels remain at historic highs and many households continue to struggle balancing their income and credit commitments’, said Ms Christian.
“This survey shows that many Australians are using credit in ways that may eventually harm them and expected interest rate rises later in the year may be the trigger that causes distress for many households.”
Credit applications
Taking a closer look at this aspect of credit provision, D&B found that while 27 per cent of Australians expect to apply for new credit the greatest demand at a product level is for mobile phones, a non-bank product. Thirteen percent expect to apply for a new mobile phone plan, while 8 per cent expect to apply for a new credit card. However, 6 per cent expect to apply for a credit limit increase on their credit card. Expectations for mortgage applications for a primary residence sit at just 4 per cent.
That last sentence is the kicker because credit issuance is THE driver of the Australian economy and housing finance is the major component. There is a big difference between micro and macro economics. At a household level paying down debt is a smart move but when every household has the same plan then the lack of new credit issuance stalls the economy which makes the whole endeavour counterproductive. I think we have already seen the beginnings of this in many parts of Australia.
At a macro level we have a government hell bent on surplus even with falling taxation revenues, a mining boom that still can’t manage to sustain a positive trade balance, and a disleveraging private sector. If these 3 things continue then Australia is in deep economic trouble.