The Financial Roller Coaster – Where Do We Get Off?

Most people will agree that the last few years have been somewhat financially turbulent for everyone worldwide. Something that is definitely not up for debate is that the world is a completely different place economically than it was before the world credit crisis began.

People lost their jobs, lost their homes, racked up debt on their credit cards, and stopped spending in the high street. Now that things would appear to be improving slightly around some parts of the world, where has it left us, and what are current figures telling us about our financial standings?

Initial Optimism

As far as the home buying situation goes, figures would suggest that in May the amount of home loans increased for the first time in 8 months. Financial insiders seem to put the increase in lending down to investment loans which increased by 2.6% the month before.

Even with this slight upturn caution is being called for. Helen Kevans of JP Morgan warned there is still a lot of pressure surrounding home loans, and that current strength should not be taken for granted.

So although possibly only temporary, these small increases in lending would suggest people are maybe slightly better off?

To confuse matters figures also show that the average credit card balance is higher than it was last year. So if people are slightly better off, why would they have more debt?

Two Schools of Thought

So some lending is up, yet so is credit card debt. There are two potential explanations for this:

A. People have a little more money and security than they did last year, and so have increased the amount they are spending on their credit cards.

B. People are struggling to make ends meet, and are having to rely on their credit cards to pay for day to day things like fuel, and groceries.

Either of these scenarios is possible, and it is very difficult to really pin point the real reasons behind the figures. To get a better idea of what is really going on we would need to see stats that relate to other areas of our financial world.

Employment – How Are We Doing?

When compared to some of the other major developed countries around the world, Australia is moving strongly in the right direction when it comes to it’s employment figures.

In fact recent reports worldwide show that the country’s unemployment rate is now just 5.1%, compared to 7.9% in the UK, and a larger 8% in Canada. Strength in the Labour market has meant that unemployment is now at it’s lowest rate since the beginning of 2009 which can only be good news for all.

In fact these recent increases have put the RBA under pressure to induce interest rate rises.

So with more people in work, we can maybe begin to assume that the increase in credit card spending may be down to consumer confidence returning in the form of increased high street activity.

Drivers

Petrol prices seem to be another strong indicator of financial health, and in Australia the cost of fuel  dropped by around 0.9 cents this month, which will once again provide some much needed respite for those that are still struggling.

Individuals

Like most worldwide economies, the figures only really give you part of the story. Although the majority of people may be in the bracket of being financially comfortable, it can be the actions of those in a worse financial position that can cause problems to the wider economy.

To give an example from the UK, some of you may have heard of the bank Northern Rock. Up until a few years ago they had a home loan product which lent people up to 125% of the value of their home.

This meant that if you did not have the money for a deposit on a new home it did not matter. If you had outstanding debt it did not matter. Really these 125% home loans were most attractive for people who weren’t in a strong financial position.

The result of this lending was that some of these borrowers could not afford to pay for their massive loans and began defaulting. This left many in negative equity, and the bank repossessing homes, and losing money hand over fist.

This led to savers pulling out of the bank in panic, and the government having to jump in to stop the bank going under. Although the lender played a major part in the problem, it was those in a worse financial standing that began the chain of events. This sort of lending also caused major chaos in the States.

The lesson that hopefully has been learned in the UK and the rest of the world, is that it is also the responsibility of the lenders to try and keep some sort of balance in what is being given out, and to whom. This is something that we in Australia have done quite well so far.

Although at the moment the demand and supply of property is slightly out of kilter with each other, insiders are predicting that by the end of the year there will be a better balance in supply and demand, and this should steady the home loan ship even further.

Overall Picture

Things certainly seem to be a little more positive economically than they were last year, and although we cannot be completely sure of the reasons for the change in figures the signs are better.

Although people are breaking down the doors of the high street in their droves yet, they are coming back slowly.

A slight increase in credit card spending may signal a little more confidence in our own personal finance, and although there is still a long road to recovery ahead, if we keep moving in the right direction, work together, and stay focused, we can continue to take the steps necessary to build a strong, healthy economy for our children.

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