Personal debt control

Robin Bowerman, Head of Retail at Vanguard Investments Australia.
Robin Bowerman, Head of Retail at Vanguard Investments Australia.

UNDERSTANDABLY, most of us are best at controlling our spending and our debts when times get tougher.

One of the toughest challenges of personal debt control is remaining vigilant when the good times return.

The household saving ratio, published by the Australian Bureau of Statistics as part of the Australian National Accounts, clearly displays this good time-bad time impact.

The household saving ratio is calculated quarterly by deducting spending on household consumption from net disposal income. It’s a straightforward calculation.

In the September quarter of 2008, the household saving ratio was negative but shot to a positive 6.5% in the December quarter of 2008, on a seasonally-adjusted basis.

Did Australia suddenly become a nation of great savers?

Probably not.

The reality was that the GFC drove a cutback in household spending. And in the December quarter of 2009, the household saving ratio had fallen – but not back into negative territory. The March quarter national saving ratio should make interesting reading given the continuing rebound in share prices.

As Smart Investing discussed in a recent column, total margin lending debt fell to a long-time low in September last year from a record high in December 2007. But by the end of last year, the margin lending debt had begun to rise again.

Unfortunately, memories concerning excessive spending and borrowing tend to be curiously short when confidence rises.

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Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.

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