2008 Plain English Speaking Award Finalists' Speeches
Medina Hajdarevic – Al Taqwa College, Truganina
Australia’s Desire for Debt
‘Australia’s total household debt now stands at $650 billion, that’s $32 500 for every man, woman and child – and its rising fast.’ Most of us complain about the higher cost of living, interest rates and how hard it is to buy a home, but has anyone stopped to realise … we are fuelling this debt crisis. How (risking cliché) Australians are biting off more than they can chew.
We, as a community, are finding ourselves in a situation where we can’t service our own debts. Though we like to think banks are completely at fault, our over reliance on credit cards to buy luxury items has meant that essentials like homes are becoming harder and harder to pay off. Our aggressive consumerism, coupled with larger home loans, has created a monster of financial uncertainty that will devastate us, as it did the US earlier this year.
The debt levels we have now have never been seen before in the history of credit, with only two periods that come close, the 1880s and the 1920s – both of which were followed by major depressions. It’s not an exaggeration. Our spending is out of control. The amount we splurged at Christmas in 2006, what we spent on gifts, on food and Boxing Day sales was $14.8 billion dollars; the federal government doesn’t give that much to Victorian hospitals.
A lot of us, our friends and families, are saving less and paying more interest because our addiction to ‘buy now pay later purchases’ has sent credit debt souring. According to Michael McNamara of the housing research group Australian Property Monitors, ‘ten years ago the average balance on our credit cards was only one month’s disposable income. Today it’s three times as much’. By incurring large sums on our credit cards, we are making it harder to ensure that slice of the Australian dream, home ownership, can be ours.
Loans to home buyers were valued a $924 billion at the end of 2007 while at the same time over 300 000 households were and still are at risk of losing their homes. Yes, many have managed to buy and pay off houses before but according to the Australian Bureau of Statistics first home mortgages have doubled in the past decade with many home buyers more likely to increase credit debt in order to cope with higher mortgage payments.
With already high credit card balances this hopscotch between mortgage and credit card debt is proving to be a volatile mix. Just because the last 17 years have been recession free doesn’t guarantee that the next 17 or even the next five will be similar. There are no guarantees with the economy and for this reason we must curb overspending so that the only repayments necessary are those on items of fundamental importance like homes.
People are already losing their homes, having their cars repossessed because they’ve taken out too many loans and maxed out too many credit cards. As individuals we are primarily responsible for the looming debt crisis because we find it hard to balance our finances. But don’t worry, banks and lenders aren’t free from blame either.
Lenders, particularly non-bank lenders and credit card companies, have helped create the trap that has lured so many into a false sense of economic security. In March the ABC’s ‘Four Corners’ interviewed a family who were desperately packing their belongings and giving up the keys to their home. When asked why they took out loan after loan and spent so heavily on their credit cards their reply was simple, ‘because they kept giving them to us’. People with no jobs and no savings in some instances have been able to obtain mortgages of up to $200K. In one case a nine-year-old girl was used as an interpreter to receive a loan.
When researching this topic I came across an advertisement that really sums up recent lender behavior. ‘Whatever your needs there’s a National Bank credit card to suit you. We give you the power of a personal loan in your pocket.’ Pretty enticing. No wonder so many fall into the trap. Banks and lenders are providing people with the means of overspending; they’re making billions off the institution of debt.
GE Money, for example, is one of numerous companies that see there’s money to be made out debt, out of our need for consumer goods. They make millions, not buy offering savings accounts but by simply giving out loans. And to be honest, its no surprise, the debt industry stimulates a 17 trillion dollar market place because we find it difficult to control our finances.
Australia’s debt crisis is like climate change: we can’t sit idly by and let the situation deteriorate any further. If we don’t minimise our consumerism and reliance on debt we are putting basics, like paying off our homes, in jeopardy.
Undeniably, the exchange of capital is an important aspect of the economy, but spending so heavily especially with credit cards and loans only challenges how well we can cope with other pressures like housing affordability, living costs and petrol prices.
The debt crisis affects us all, even those like me who aren’t old enough to get a credit card or obtain a loan. The only way we can minimise the damage is if we cut our spending, become more vigilant when taking out loans and reduce our dependence on credit. Let our homes be a source of pride again, not a reminder of financial instability as a result of debt.
