Tuesday, December 26, 2006

I owe I owe it's off to work i go.

A day of celebration in Australia today as Shane “Warnie” Warne took his 700th test wicket, the ashes are ours after a long 12 months, and Australia is now at 150%….

Yes that’s right we have finally, after years of trying, hit ONE HUNDRED AND FIFTY percent. Retailers are celebrating nation wide like a drunken bowler with a cricket stump, as our debt to income ratio sits happily at 150%. Making us the highest debt to income ratio in the world…

Before you go “oh no finance and numbers post”, I am going to keep it simple.. Put bluntly for every 10 dollars that you earn, you are borrowing 15 dollars.. The “Aussie” dream of owning your own home, as shown in the Castle. Is quickly becoming the Aussie nightmare as personal debt spirals out of control.. On average Australians have 4 (up to 12 maxed is not that uncommon) credit cards and will regularly payout one card with another transferring the debt across…. To see the state of Australian Debt do a search on seek for debt collection positions, 333 current vacancies. Adds constantly for consolidation we are in trouble to say the least.. Working with debt has opened my eyes, seeing up to 20000 dollars revolved at 25 % interest but they still try to borrow more..

What is creating this cycle of debt? Why are we driven to consume? What do we get from it? Is it our culture?

“There are so many things we need so desperately and the TV preaches that we cant live with out them” –TV - Chris Hall – Stabbing Westward. Very true though, every day we are shown images of people happier than us, they look like us, but they have product X , the logical inference is that Product X is causing the opiate release. Maybe it is status, like the magpie, hording many coloured objects to show our wealth and attract a mate… Many objects = great success = better to sleep with.

Finance is available for those incapable of saving, interest free terms buy now pay nothing for 12 months, only 20% of consumers pay this off the rest revolve at 27- 30%… with no real idea of what they are getting into. Gimmicks and marketing hide the truth that it is DEBT! Which in my opinion is not a good idea. Should they read the fine print, yes, should it be intentionally misleading, No.

Government? The Australian Government has actively encouraged debt to fight rising inflation, similar to that of America in the 60s and 70s (a major contribution to third world debt). Australian Government in the face of insane inflation began the home buyers grants 10,000 dollars to buy the first home, marketed as the Aussie dream huge debt was generated and the inflation dropped. In response to falling inflation interest rate goes up. The dream falls apart.

Irresponsible lending? Credit cards, personal loans, store cards all available at the click of a button confirming the most basic of financial details. Income and out going, age and outstanding debt (only on cards). No details to see if someone could really afford it. How about IQ and personality test? Are they smart enough to use a credit card? Will you understand a credit contract? Are you a shop-a-holic? Are you genetically predisposed to spending? Statements are misleading asking for minimum monthly payments, the way to avoid interest and get out of debt is hidden. The money is shown to be your own, “your available credit is” its your card, personalised cards. The terms and conditions are long and drawn out, we think of it as our card. Somehow they convinced us that debt was cool. My suggestion is that terms and conditions need to be as bright and colour full as the adds for the card.. Make people interested in what it means to have a card, how it all works, how interest is applied.

Where do you draw the line between corporate, government and personal responsibility? Are smokers responsible for their cancer, when the dangers of smoking were hidden for so long? Are consumers responsible if they are forced into a toxic environment?


Blogger Stace said...

It's an interesting point. In an age where personal responsibility seems nill and corporations are sued for an individual's stupidity, part of me WANTS to blame the individual. Look up the word "credit" in a dictionary before applying for a card; read the terms and conditions you are supplied with for a good reason; do some basic maths every once in a while. But you're right that credit cards are marketed in a highly misleading fashion. We are all but told the money is "ours", rather than a floating loan. We pay what we are billed for, without realising that is only the "minimum monthly" and never contemplating paying MORE - after all, you don't pay your phone or electricity supplier more than they bill you, why would you do so for the credit provider? Perhaps the credit card companies need to step up and take some responsibility for their biggest asset.

The other major factor is education - from schools and from parents and peers. Parents seem unable to teach their kids the value of a dollar (you only have to look at a teenager's mobile phone bill to figure that out), so perhaps it's time for basic finance to be included in the curriculum of state schools?

Excuse the dreadful pun, but - "credit where credit is due" - the Commonwealth Government are running the "Understanding Money" campaign, but I don't believe it's very effective. So far as I've seen, it consists of billboards advertising a website. I am curious as to how many people actually bother to visit the site...

4:46 PM  
Blogger Aidan said...

Stace: thank you for your tolstoy-esq answer

A phone bill however only gives one payment ammount, so we pay that ammount, as does a gas bill, electricity bill etc. You recieve a bill from your credit card (CC) with an ammount due... how much are you going to pay. This is misleading but common practice.

Schools try and teach life skills but they never seems to get it right, in my experience it was always the obvious thta was focussed on, not the real world.

The information in the understanding money campaign is basic but well writen and concise. I was actually impressed, but its hit count will suffer as it cannot compete with the environment of marketing. Imagine gov spending compared to the spending of a single bank.

CCs are relatively new, (70s), our parents dont teach this information as they have never been taugh to use them. in comparison the dangers of smoking. If the risks were commonly known to begin with we would not be in the situation we are in now.

People believe what they are told and act on faith, regardless how implausable. ooooh free money, tthats how it is shown, thats what they believe... The masses are not entirely responsible. we need a serious overhaul.

12:37 PM  
Blogger Aidan said...

This comment has been removed by a blog administrator.

12:38 PM  
Blogger Homo Escapeons said...

OUCH..that is scary. What an excellent expose...it sounds quite similar to our world... unlike Australia we only have foreign investors artificially inflating the housing market in a small part of Canada...the rest we do on our own.

11:12 AM  
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