Australia has one of the highest household debts in the world, estimated at a staggering 119.30% of the country’s GDP.
Why is Australian household debt so high and what contributes the most to the rising levels of debt in the country?
Let’s find out.
7 Shocking Facts and Stats on Household Debt in Australia
- The average Australian household owes an estimated $250,000.
- Nearly two-thirds of households in Australia are in debt.
- Australian household debt accounts for 119.30% of the country’s Nominal Gross Domestic Product.
- Debt-to-income ratio stands at 88% in Australia.
- Mortgages for owner-occupier housing account for over half of household debt in Australia.
- At $56.8 thousand, Millennials in Australia have the highest amount of personal debt.
- 37% of debtors are having problems paying off their debt.
How Big is Australian Household Debt?
1. What is the average household debt in Australia?
(Trilogy Funds, Canstar, Talent)
Australia’s combined personal debt is somewhere around $2 trillion, which means the average Australian household owes an estimated $250,000.
The amount of personal debt outstrips both the average income and savings of people in the country. The average Australian has set aside a median of $5,000, while the average full-time salary comes out to $67,617 (both of which vary according to age and region, though).
2. Mortgages for owner-occupier housing account for over half of household debt in Australia.
(Trilogy Funds, ABS, Mozo)
Mortgages take up the biggest share of household debt in the country or 56.3%.
According to the ABS, there has been a rise in housing loans of $41.8 billion, mainly fueled by an increase of $34.3 billion in owner-occupier loans.
The ABS also estimates that the average Aussie had a mortgage of $595,568 in November 2021, an increase of $24,672 in just one month. Seen by states, NSW has the largest owner-occupier loan size of $769,459, whereas SA has the lowest at $421,801.
How to save on a home loan? Check out some tips here!
The second-largest portion with 36.5% of household debt is Investor debt, which is made up of shares, stock, rental properties and other types of investments. The Australian Bureau of Statistics noted a $7.5 billion rise in investor loans, which has further contributed to the increasing amount of debt.
3. The average Aussie has personal loans in the amount of $17,700.
(Canstar, Trilogy Funds)
Personal loan debt accounts for just 3.1% of household debt. Despite taking up a small share of overall debt, the amount of personal loans taken out between June and August 2019 jumped by $30 billion, which indicates a future rise in personal loan debt as well.
4. Credit card debt accounts for 1.9% of overall consumer debt.
According to Canstar, a typical Australian owes $3,841 on their credit cards in January 2022, up from $3,357 in 2021. Credit card debt takes the average resident 6.5 months to pay off.
5. The average student debt was $23,685 in 2020/2021.
(The Daily Mail)
Student debt averaged $23,685, while the total value of HELP debt in 2020 stood at $66.6 billion. According to estimates, student loans take up 2.1% of total household debt. There are 1.5 million students enrolled in Australian universities.
6. Buy Now, Pay Later debt is on the rise.
Judging by a survey of financial advisors in Australia in 2021, 46% said that the majority of their clients had Buy Now, Pay Later debt. This is a staggering increase from just seven per cent of respondents who said the same the year before.
What’s more, 48 per cent said that most of their clients with BNPL debt were having problems paying for living expenses, whereas only 2% had clients who did not experience this kind of issue.
General Australian Household Debt Statistics
7. Nearly three in four households in Australia are in debt.
In 2017/2018 (the latest available data), 73% of households were in debt. On top of that, 28% of them were paying off a debt that was at least three times more than their yearly disposable income. The levels of indebtedness remained unchanged since 2015/2016.
8. Australian household debt accounts for 119.30% of the country’s Nominal Gross Domestic Product.
(CEIC Global Database, Trading Economics)
In December 2020, the household debt to GDP ratio in Australia reached an all-time high of 129.2 % of the country’s GDP. Since then debt levels in Australia have gone down—in Q3 2021 household debt decreased to 119.30 per cent of GDP, down from 120.50% in the previous quarter.
9. Debt-to-income ratio stands at 88% in Australia.
Personal debt levels in Australia have exceeded the growth of income, resulting in a debt-to-income ratio of 88%. Declining interest rates, however, have helped borrowers make repayments, reducing the ratio of debt interest payments to disposable income to 6%.
10. Australia ranks fourth in the world in terms of household debt.
The OECD analysis looks at total household debt as a percentage of net disposable income. Judging by this indicator, Australia is ranked fourth globally with household debt taking up 203% of net disposable income.
11. House prices are the biggest contributor to rising household debt in Australia.
(The Guardian, 9News)
House prices have risen 141% in Australia since 1996, propelling the country to the list of most indebted in the world. In Sydney alone, house prices have gone up by 33.1 per cent, with median prices for an average-sized house reaching $1,601,467.
12. The average percentage of ‘bad debt’ in Australia is $18,000.
Loans used to create wealth on a long term basis are classified as good debts, whereas bad debts occur when one borrows assets that do not give any financial return.
In Australia, 92.8% of all debt is going towards wealth creation. Such loans can let you earn your way into owning a home or allow you to generate income by renting out and re-selling your investment property at a higher price on the market.
Luckily, only 7.2% of household debt is considered bad.
13. The Government’s gross debt will hit $963 billion by June 2022.
Although the government debt is quite different from household debt, it’s important to note that it’s not just the household sector that is facing rising debt levels. Government gross debt is further set to rise to $1,199 billion, or half of the GDP by 2025.
Australian Household Debt Demographics
14. At $56.8 thousand, millennials in Australia have the highest amount of personal debt.
According to a 2021 survey, it’s 26-41 years old that have the highest amount of personal debt, followed by Gen X, with an average debt of $55 thousand.
Baby Boomers had the least amount of debt in 2021—$31.202.
15. 37% of debtors are having problems paying off their debt.
Debt is a real struggle for most Australians, causing them to be more cautious when taking out loans, but also keeping them in the workforce for longer. For instance, a person with a mortgage in their 50s or 60s increases their chances of staying employed by 18% for every $100,000 increase in their mortgage debt.
Workers and women, in particular, are increasing their participation in the labour market. The employment-to-population ratio of 65-year-old women in 2020 stood at 35.6 per cent, or three times more than that of similarly aged women in the past.
16. 43% of Aussies rarely miss debt repayments.
A Statista survey reveals that 27% of respondents occasionally forget to repay monthly debts, while 15% often miss repayments. 14%, on the other hand, said they always miss debt repayments.
What happens when you don’t pay your debt? Here is an informative guide on the penalties you could face if you do not pay debt repayments.
Bottom Line: How Risky is Australian Household Debt?
As with all other countries, high debt levels come with certain risks involved, the biggest one being a decline in asset prices that could decrease consumption.
However, for the time being, interest rates have declined and loan-to-valuation ratios on residential mortgages have remained stable. More importantly, the distribution of debt does not seem to affect consumption.
How long the situation stays the same given recent global developments is anyone’s guess, though, and we could soon be faced with an increase in the cost of living, far worse than what we experienced during the pandemic.
1. What country has the highest household debt?
Globally, Japan has the highest debt-to-GDP ratio, at a shocking 256.9%. Japan is followed by Sudan (209.9%) and Greece (206.7%).
2. How much is Australia’s debt per person?
According to Canstar’s research on Australian household debt, the average person in the country owes $3,841 on their credit card, $17,700 in personal loan debt and $565,881 in house loans.