Posted on October 17, 2017
How much is too much debt?
Survey reveals new information
It came as no surprise to me last week when it was announced that figures from the Inland Revenue show that 15,081 KiwiSavers have dipped into their retirement savings because of financial hardship. A total of 60,495 hardship withdrawals have been made since the scheme began in 10 years ago this month with $272 million withdrawn.
At NZCU Auckland we have seen a steady rise over the last year in the debt levels many ordinary Kiwis have got into and end up struggling to pay it off.
It was reported by the NZ Herald that more than 1500 people took $9.2m out of the scheme in May alone - the biggest monthly withdrawal so far. This follows an earlier report in March that withdrawals had increased 23% over the previous year.
More and more people are getting into unhealthy levels of debt and sooner or later, the crunch must come. This is not just an individual problem – it goes on to affect families, work stability and relationships. And in the end, it affects communities and the economy.
We know from our own experiences at NZCU Auckland dealing with people that when the debt mountain gets too high, its impact is major and stressful. We also know from our dealings with employers that productivity is affected by workers with problems at home – and one of the major causes of those household problems is money or the lack of it to meet all the bills.
We have been talking about this issue for some time, but it’s not only us. Respected commentators like Diana Clement and Mary Holm have both spoken about the rising tide of debt many households are racking up. They have also pointed to the dangers that rising interest rates will have on that tide. Eventually rates will go up and repayments will get harder to meet.
With all these warnings ringing in our ears, we wanted to find out for ourselves what people thought was too much debt and whether or not they thought they were caught in the tide of easy credit – so we asked our Members.
Last month we surveyed our Members with two simple questions – do you have too much debt and if so, how much?
So what did the survey show?
In response to these enquiries, people were split exactly 50/50. Fifty percent of people thought they had too much debt and the other half didn’t. When asked how much debt they had, common responses were “too much” and “a lot”. Of concern were those who answered “not sure” or “don’t know”!
Those who put a figure on their debt averaged at over $46,000 excluding mortgages. That’s credit cards, HP, store cards and finance company loans. With the average annual pre-tax income being approx. $48,000, that’s more than a year’s wages! When mortgage debt is included, the average debt climbs to over $93,000 which equates to 190% debt to income ratio.
This figure is consistent with statistics produced by the RBNZ last year which put the national ratio at 170%. Only a few weeks ago, an Australian commentator was reported as saying that debt levels in that country were 200% and it would cripple the economy!
What can you do about it?
Many people have ready advice to give on how to work your way out of debt and some of it is bordering on desperate – like declaring bankruptcy. Some of it will say don’t get into debt in the first place – but that’s very hard not to, given all the advertising thrown at people. As Diana Clement said in a recent Herald On Sunday article, she trusts least those who advertise finance most on TV.
The best advice anyone can take if they think they have too much debt or are getting close to that position, is to talk to a professional who isn’t getting a commission from the companies they might put you in contact with. You want your advisers to be looking after your interest, not their own. You need their advice to be independent, not based on how much brokerage they’ll get.
And as this article is on our website, you could do worse that talk to one of my people about how we can help.