Get a handle on debt

5 Min Read
1009 words

It could be Fridayitis, but I am having more trouble than usual concentrating today, though I have a lot of work to do. I have sat at my desk (working remotely today) and pretty much stared at the several open documents I am meant to be developing, but accomplishing very little. Sometimes it is better to just step away for a bit, in order to get a grip.

I put handles on our new doors yesterday and went with white, so they don't stand out. On this floor, there are only two doors and they are visible only from the lobby area and because all the colors are quite light and simple, having chrome or brushed steel handles will draw the eye to them, and who cares that much about door handles that they want them to be features?

Speaking of "features", I was reading a story about one of the large Australian banks cutting savings interest loans for the second time this year and it was positioned as "dealing a blow" to savers. Yet, the rate is so far beneath the inflation rate that even if they doubled it instead of cut it, it would still be a terrible deal, as it costs more money to hold it, than the money earns. They would have to more than triple it in order to break even with the lowside of the inflation rate and obviously go higher than that for it to start giving a return. But, what kind of return on savings is adequate, considering that savings capital is used by the bank to make money for the bank.

But, if it costs money to save money, what should a person do with their money to generate money instead? The answer is to invest of course, but with housing markets increasing at an incredible pace in Australia, at some point, the buyers start to dry up, as they are already in a house or have been priced out of the market.

The modelling of incomes and prices revealed 99.9 per cent of Sydney houses were unaffordable for a quarter of city residents because of price increases outstripping wage growth for decades

Middle-income earners, those on the 50th percentile for wages and earning about $100,000 a year, can only afford about a quarter of Sydney’s houses

Those on the 75th percentile for ­incomes, which would be about $172,000 a year before tax, would be unable to ­afford about 40 per cent of the houses in Sydney.

The higher prices go, the less people are able to buy, yet because interest rates are so low and banks are trying to put the customer savings cash they hold to work, loans keep increasing in size, driving prices even higher. But at some point, there are just not enough buyers left able or willing to get into the market, and prices retract. If this is then combined with increasing interest rates or costs of living, the potential for collapse increases. That collapse would wipe out the people who can least afford to lose, as they are the one who have been forced into taking higher loans in order to get into a home.

Houses aren't very good investments for the most part, but buying houses moving into a bubble that is likely to crash is probably unwise. Buying as investment properties for rent return might be okay though, as even in a crash, the rents aren't likely to come down much, so as long as the rent covers the overheads, things are okay to ride into the next rise.

But culture around taking debt has changed a lot over recent years, where it seems people are increasingly willing to take debt on lower and lower value items. The Buy Now, Pay Later (BNPL) services are booming in Australia and around the world and they are being used on items that used to be considered luxuries, not necessities. One of these services, AfterPay, is sponsoring Australian Fashion Week, which indicates a couple of things - firstly that they are encouraging "getting in" on the latest fashions on credit, and secondly that the fashion is so expensive, credit is needed.

This is all indicative of the changing cultural climate around credit usage for the satisfaction of desires. The dream of a decent job, owning a house, having a family and living an average and comfortable life is all but dead and instead, people are taking the approach of, "since I can't have that, I will spend everything I get and more". After all, we only live once and we don't know what tomorrow holds - we could get hit by a bus.

Though I don't know what the risk of being hit by a bus is, whilst sitting on the couch gaming.

While it is easy to get caught up in the FOMO (I saw this term used for the first time in regards to the housing market the other day too) due to the media hype, the cost of rushing investments of house magnitude is likely going to see a lot of people end up in trouble down the track. A lot of the economic "recovery" in Australia has been driven by printing and pumping cash into the system by borrowing on the future, but that too will eventually have to stop and the debt reigned in. Right now though, the governments don't care, as dealing with it won't be their problem.

Essentially and as normal, it is up to us as individuals to make our own decisions and if we don't get a handle on our consumer behaviors soon, we are going to find ourselves suffering for the majority of our lives, struggling to make ends meet, because before we can buy food, we have to service our debt, otherwise we will lose the roof overhead.

Unfortunately, the handles of the doors to economic freedom get hidden by FUD and the paths to economic slavery are lined with glitter.

[ Gen1: Hive ]

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