ASIC media releases are point-in-time statements. Please note the date of issue and use the internal search function on the site to check for other media releases on the same or related matters.

Wednesday 12 March 2014

14-041MR Smart people not so smart with their money

Over half a million Australians carry more than $5,000 in credit card debt [1]. It may come as a surprise to know that it is often middle income earners, managers and degree qualified people who are most likely to carry $5,000 or more compared to the general population.

Research by Roy Morgan shows 22% of Australians over the age of 18 earn more than $70,000 per year, and these people make up 42% of those who carry credit card debt over $5,000.

In addition, 12% of the population are managers and managers make up 26% of those with debt above $5,000.

And, while 42% of Australians have a degree or diploma they represent 49% of those carrying $5,000 or more in credit card debt.

Miles Larbey, Senior Executive Leader of ASIC’s MoneySmart said, ‘This group of Australians are well educated and have above-average incomes, but they aren’t necessarily making the smartest decisions when it comes to managing their finances. People might be excellent managers in the workplace, but they aren’t necessarily managing their finances in the best way possible.’

‘While credit cards can be helpful if used wisely, making only the minimum repayment on a $5,000 credit card debt will take you 30 years to pay off [2]. That’s the length of your average home loan. We’re encouraging people to use the credit card calculator on ASIC’s MoneySmart website to see how much money they can save by paying off more than the minimum and consider how they could use the money saved in a smarter way,’ said Mr Larbey.

Around 2 million Australians do not pay off their personal credit card debt in full each month, rising from 24% of personal credit card holders in 2009 to 27% of personal credit card holders in 2013 [3]. Australians have over $34 billion owing on credit cards where interest is being charged and pay $6.2 billion a year in interest [4].

Mr Larbey added, ‘It’s important to understand that the interest rate on credit cards is often higher than on other credit facilities. Instead of just making the minimum repayments and incurring interest and fees, why not put your money towards building a solid financial future. For example, through extra contributions to your super, extra repayments on your home loan or by starting a savings or investment plan.’

Financial issues are a leading cause of stress amongst Australians [5]. Among all those who do not pay off their credit card in full each month, 53% say they worry about credit card debt [6].

Mr Larbey added, ‘If you are feeling stressed about your financial situation, start by reducing the debt which is costing you the most on an after tax basis. The most expensive debt based on interest is usually your credit card. This will improve your financial situation and help alleviate some of the stress in your life.’

MoneySmart’s four simple steps:

  1. Increase your repayments and make a plan to pay it off.
  2. Use the MoneySmart credit card calculator to see how much time and money you will save.
  3. Reduce your interest rate. Shop around for the best deal on your credit card or consider a balance transfer deal.
  4. Work out how you will use the money you save to invest in building your wealth in 2014.

For more information and guidance about managing your finances that help you achieve your financial goals, visit ASIC's MoneySmart website.

Notes

1. 12 months to November 2013 Roy Morgan Research. Back to [1] in text

2. Calculated using the MoneySmart credit card calculator, with an interest rate of 18.0% (the median of interest rates published on Canstar's website) and the minimum repayment. Back to [2] in text

3. 12 months to November 2013 Roy Morgan Research. Back to [3] in text

4. Reserve Bank of Australia, credit and charge card statistic, C1, statistical release, December 2013, available from RBA website. Back to [4] in text

5. 2013 Stress and Wellbeing Survey in Australia (PDF 709 KB), Australian Psychological Society. Back to [5] in text

6. Galaxy research commissioned by ASIC's MoneySmart June 2013. Back to [6] in text

Last updated: 12/03/2014 12:00