Going Shopping
Not to go on about bad debts this week – but there are some other numbers we have been digging up as we start to take the temperature of the economy this quarter.
Right now the numbers are starting to get interesting around credit cards, household debt and income.
As you all know according to the venerable Reserve Bank of Australia, household debt as of December 2006 is now 1.58 times greater than household income – and not all of that is nice stable low cost housing debt, which the RBA likes because it sucks money straight out of the spending part of the economy and straight into the saving part of the economy.
Indeed, 28 billion odd dollars of this debt is owed on Australia’s 13.4 million credit cards which kick-off at around 10% interest for the more reasonable ones and rises to a staggering 28% for the really expensive ones – that’s money out of the income line and straight into the spending line.
According to a source burningpants spoke to this week, the really nasty bad debts it seems come from store sponsored cards and we are told the GE Genie, who lends easy but charges hard, hits customers with a 27.99% rate of interest on its GO MasterCard.
The GO MasterCard is a card used primarily for extended interest free and deferred payment purchases with a wide range of retailers covering auto, electrical, furniture, flooring, home improvement and sports.
The attraction of the card is that customers can make more substantial purchases sooner.
However some often over-stretch themselves on goods that carry interest free periods, which before they know lapse leaving them still owing a fair whack.
Add to this a few missed payments – getting hit with $30 late fees each time – and high rates of interest and the costs, not to mention the profits (in this instance for GE) quickly add up.
Therefore the free credit being offered by participating retailers has a fairly nasty sting in the tail.
The problem, primarily for lower income households, comes when collection agencies try to collect debts for furniture or a PC which is two or three years old and has depreciated significantly – so a word to the wise – don’t borrow $5,000 to buy a PC which in two years, when you start to pay for it, will be worth about $1,000.
