By Robin Bowerman Smart Investing Principal & Head of Retail, Vanguard Investments Australia 18th April 2011
Australians continue to cut their borrowing levels at a time when their per capita wealth has reached a record high.
What is the behind these seemingly puzzling figures from Treasury and the ABS?
Craig James, chief economist for CommSec, offers this explanation: Many consumers are concentrating on perception rather than reality.
"For the most part, the perception is that they [the consumers] are going backwards, the cost of living is rising, incomes aren't keeping up and wealth levels are stagnating," James writes last week in his newsletter, Economic Insights.
"But the reality is that incomes continue to grow at a faster rate than prices while balance sheets are improving through record wealth levels and reduced debt levels," James adds. And unemployment is below 5 per cent.
However, another crucial point to emphasise is that the GFC appears to have really driven home to consumers the dangers of excessive debt. This is, of course, a most valuable lesson - that is often quickly forgotten after times of economic upheaval.
The GFC stung so many people, so hard that it would be perplexing if they were to rush back into heavy debt.
Most members of super funds, for instance, would be acutely aware - particularly those nearing retirement or in early retirement - that their longer-term returns and their balances are still suffering from the impact of the GFC.
