Straya’s cash-poor millionaires stop spending, start dying

Via Domainfax:

Who wants to be a millionaire? Forget the game show and the song titles – the average Australian household now has more than a million dollars in net wealth. The trouble is we are becoming increasingly cash poor.

While the value of our homes has risen to the point where the average household can boast millionaire status – on paper at least – Deloitte Access Economists has found 37 per cent of households are concerned about their ability to pay their bills and household costs. It expects this number to increase to 40 per cent within two years.

Deloitte quotes research showing 7.2 per cent of households are feeling mortgage stress – not because interest rates are high, but because they have taken out larger mortgages to pay for residential property. And 11.5 per cent of households are experiencing rental stress.

Having combined the macro research on households with micro research commissioned by supermarket discounter Aldi, a new report points to changes in the patterns of expenditure by increasingly cash-strapped consumers.

The conventional wisdom that grocery spending is largely immune from the economic cycle – because it falls into the basket of necessity rather than discretionary spending – has been thrown into doubt.

The report found that if day-to-day living expenses increased, one in three Australian households would fund this by cutting back on groceries either by switching to (cheaper) private-label brands or buying fewer groceries.

After luxury or discretionary spending on holidays and clothes, the survey showed consumers were more likely to cut back on groceries than any other spending category.

Those under less financial pressure prefer to cut back on discretionary spending while those with more financial pressure tend to switch to cheaper grocery items including private label.’

Of course, if things are really tight you can elect death, via the Herald Sun:

ELDERLY Australians and other vulnerable households too scared to switch on airconditioners or fans in heatwaves because of electricity costs are endangering their lives.

Other families are sacrificing buying groceries or school books so they can afford to keep cool, particularly those with babies, research reveals.

Three-quarters of health and community service workers surveyed for an RMIT University study said financial stress because of airconditioning use was common.

The crisis caused by rising power bills has prompted calls for dedicated free “heat refuges” in public spaces and extended library hours during sweltering conditions.

Authorities are also being urged to clearly excuse the elderly and unwell from public alerts that try to conserve electricity use in extreme heat to avoid shortages and blackouts.

Lead researcher Dr Larissa Nicholls, from RMIT’s Centre for Urban Research, said the frail, elderly, and those suffering chronic health conditions made worse by extreme heat were at greatest danger from rationing airconditioning.

Retail sales are at GFC lows:

So far it discretionary spending that has taken the brunt of it but essentials are weak as well:

We are the architects of our own demise thanks to years of inept policy that has favoured asset prices over income. And, more recently, unleashing a God-forsaken gas cartel upon households.

Suck it up! There’s nobody in charge to fix it.

Comments

  1. We are the architects of our own demise thanks to years of inept policy that has favoured asset prices over income. And, more recently, unleashing a God-forsaken gas cartel upon households. Suck it up! There’s nobody in charge to fix it.
    WW spot on, I know of many wealthy men who have had a stroke of recent time, cos of the stress of losing it all>>>their wives dont seem worried at all???

      • I was on the original power station at Gove, 40 yago, and did a red mud upgrade there 20 years ago.
        the place was worn out then.
        the only pace up there any good was the yacht club.

    • You Australians don’t realize your country is well on its way to 3rd world status:
      * Internet speeds slower than Kenya
      * Waits of up to a year in public hospitals
      * Dodgy electricity
      * A small but powerful land-owning class, many poor people who will never own a home
      * Increasingly draconian police powers, and a different set of rules for the rich.
      * Politicians who are easily bribed by lobbyists, business interests or foreign powers

      You will be the first country since Argentina in the 1920’s that slipped from 1st world to 3rd world.

      • The Traveling Wilbur

        You forgot public support of private banks.
        And the protection racket being run to cover them.
        And union bashing legislation.
        And no bill of rights.

    • WW
      It’s a man’s job to worry about where his family are going to get fed!!!

      Reports from retailers – it’s an absolute disaster in our area of endeavour!

      Also just an observation – young cousin of mine trains racehorses on GC. He reckons years ago it was the lawyers wealthy et al owned racehorses – now it is three or four tradies own a horse!!

      • I’ve just had a few days in BNE upgrading a computer, major drams getting a modern machine to run on windows 7, no wonder atlassian rejected so many, there is not very many cluey computer people around.
        BAck on the coast yesterday, I’m cured on BNE. it sone thing to read and hear about traffic jams, another thing to be in one and wondering WTF.
        So back on the coast, came in via surfers, and a big billboard there for flight centre advertising interest free holidays??
        So that will be in the next gold cost update. Where to GC’s go for holidays, eg Chapelle Corby etc??

      • You realise that a Win 7 machine is very exposed to any malware. Keep it off the internet. No email. No network connectivity.

      • @Flawse
        yep horses like dogs wankery for the mainstream.
        They get to look rich hanging out in the carpark at Flemington once or twice a year.

      • Monty mate that has been on the path for some time now, Juniors in a law firm just dont exist.
        what needs to occur now is that case istory and precedent need to be made generally available and we can do away wiht courts, eg the high court and this citizenship thingy.
        AI can interperet the law better than most judges, other wise you would nt need to keep appealing
        A robot gets the knowledge, and becomes the final arbiter. All this extenuating circmatances thingy gos out the window. Black or white. (judge roy bean and ww style) How is that going to go.???

      • the legal, accounting and professional services lobbies will fight this kicking and screaming until they are washed up husks. but they will go down fighting for sure.

        like with the link, the new automated competitors will start by penetrating those market segments that were previously out of reach of legal advice – once they are delivering good results to those who couldn’t afford a lawyer, then they will have the runs on the board and start targeting those infrequent users of legal services. slowly they’ll work their way up the food chain.

        IBM, Google and Microsoft will go the other way – they will sell their AI advisory offerings from the C-level down to government and big business. and then they’ll meet in the middle.

      • Bring it on. Legal advice is insanely expensive … and more so in a country whose economy is almost entirely centred on the service industry.

    • Two full-time, stressed out income earners that’s how, back in the day a one-income household could easily buy a house and support a family, but that’s racist/sexist of course!

      • boomengineeringMEMBER

        Many times Iv’e put women into shock trying to explain how much less stress and better off they were before women’s lib ended unchaining them from the kitchen sink then chaining them to a mortgage.

      • conspiracy world has it that trans men now ‘women’ fronted the womens lib movement. Google is your friend.
        Generations of social engineering and programming. None of the gentlewomen in my family aged or behaved as badly as the hags crying for womens lib. The women in my family and circle of friends are beautiful, kind and strong but not loud mouthed men hating crazies. Mad stuff.

  2. boomengineeringMEMBER

    Not this little brown duck, just work till you die ( Flawse back me up ) stop spending start dying because they stop working. Whats the world coming to, how hard can it be to put extra blankets on instead of power guzzlers. Even better if you live in the country just chop wood well after you pass 100YO, get a free workout to boot.
    When working with the young;uns they have trolleys instead of carrying their tool boxes, how would they have gone in Botany Bay big swell up a rope ladder to the ship, tool box in other hand hoping that the next wave wasn’t bigger than the one you got from the pilot boat ie squashed between. Tried the trolley thing discarded and just say free workout.

    • Boom
      Hey steady mate – I’m just trying to sell them all a neat fold up trolley to carry the tools!!!

      You’re right!!! These damned retirement villages and the advertsing thereto drives me nuts! That said there is an expectation by our gen that they are entitled to sit around on their a..e! I’m like you, and as my sister, who is 73, remarked on the weekend, “”just leave me alone to dig some holes in my yard”‘….and we’re bloody grateful we have a yard!!

      Mate and I were having a discussion one day when I was out giving him a hand with his shearing. We were staying in some old (unused) shearer’s quarters. Cold as charity out at Texas but big old stove in the quarters and wood for miles around. We reckoned we could have a pretty nice life – two or three days a week working on the tables – get $500 – $600 in hand. Live in an old shearer’s quarters which you could probably get for nothing for keeping an eye on the waters or something and throw a line in the creek for a few fish a couple of days a week!!!
      Mind you it would be no good to most – no air-conditioning so you’d have to make use of nature’s air conditioner and go out and camp under a tree for an hour or two!!

      • “If you see my lying in the yards, drive back out. If I’m still there the next morning, call the ambulance. I’m not going into one of those homes.” – Bernie, ~90 something years old, near Sofala, NSW.

        As far as I know he did end up in a hospice briefly, dying shortly after. Nobody knew how old he was. I take my had off to him; pretty much worked his couple of thousand acres till the day he died.

      • Retirement villages are the biggest scam in Australia, been through it with my Mum, won’t be going that route myself.
        The contracts are appalling, so one sided that it’s practically impossible to move-in/out without loosing 1/3 of the price you pay, that’s on top of paying for all manner of meal and other services that you neither need nor want (that often aren’t even really available, you just get charged for them) It’s a total scam.
        This is what posters here don’t understand when they suggest that all these retirees should down-size and live in these Assisted living places. For the most part the economics of such a move are just terrible….make $100K/year paper gains staying in the house I’ve owned for 30 years OR loose $50K per year moving into an Assisted Living scam. In my Mum’s case they more or less told us to move her out because her dementia was clearly getting worse when there really wasn’t much change from our perspective ….total scam. Naturally they flipped the property in no time for a huge profit and took most of it as exit fees.

      • Not that I disagree aged care is a massive scam, but let’s be fair, if you’ve lived in the same house for thirty years, your paper gains are almost certainly a hell of a lot more than $100k.

        (Eg: we are looking at a block of land in Brisbane that was bought by its current owners in ’88 for $100k, current rateable value is $600k).

      • @drs
        $100K+ per year gain (living in her house) vs $60k per year loss (on the Assisted living unit)
        was roughly how it worked out for my Mum.
        What really annoyed me was the way they shipped her off to hospital every time anything happened.
        Minor fall…off to hospital
        Minor UTI problem…off to hospital
        Bit of a cough ….off to hospital
        In the end Mum spent about 1/3 of her time in hospital and 1/3 visiting friends and family…total scam.

      • Good Luck with shearers life Flawse.
        Look out for petty local laws that prevent said living due to health and safety, asbestos – bad building etc.
        It will never happen – not now. Buy a box or die.

  3. pyjamasbeforechristMEMBER

    Tax the assets instead of income.

    Allow the tax liability to be carried forward if needed (until asset are sold)

    Let these millionaires to pay for thier aged pensions. Instead of asking the young workers with maybe $10k to thier name, that are locked out of this housing market too.

    • pyjamas – put the house in the assets test and make them the same as any other asset as far as capital gains go.
      Bit of a discussion around a family reunion breakfast table on Sunday – we are all just plainly amazed at how people of our age group are all getting pensions and part pensions while able to take overseas trips etc. We’re old bushies (boomers) from way back who don’t think it is right to take from governments – more fools us I guess.

      • “put the house in the assets test and make them the same as any other asset as far as capital gains go”

        This is soooo…. right. And way overdue too. Comparisons with most other countries are apt. Australian property owners have no idea how lightly taxed their assets are.

      • We’re old bushies (boomers) from way back who don’t think it is right to take from governments
        We were clearly bought up with similar morals. My Dad made it clear to me that it was only ever acceptable to take handouts if you really had absolutely no other option.
        He told me that if he found out I was on the dole he’d come round and break my arm, so that I would at least have a reason for my conduct, he was not a man that made idle threats.

      • Agree that some of that wealth should be recovered by the community, but only getting it back from pensioners is highly regressive. What about really rich retirees who aren’t getting a pension, but have received several times the value of the pension in superannuation tax concessions? I think that an inheritance tax would be much fairer.

        There is also the issue of the interest rate, if any, if the pension will have to be repaid after the pensioner’s death or when the house is sold. Reverse mortgages have interest rates of as much as 6.5%, which means a debt doubling time of 11 or 12 years, and the debt will continue to snowball even after the retiree becomes eligible for the full pension. The bank or the government could end up owning all or most of the house if the pensioner or survivor of the pensioner couple lives long enough.

      • Entitlement is hard to see if you’re entitled, and doubly so if you have to take a bit of pain should it be even slightly adjusted downward. Chatting to older Australians shows me this every time. The logic of “I’ve paid taxes all my life, now it’s my turn” is pervasive and perverse. You don’t pay taxes so you can get perks in retirement; you pay taxes (supposedly) to fund the government activities now.

        I pay tax and think it a privilege. More fool me, apparently.

        re: old bushies,
        As soon as I can afford to get the family back in the country from the burbs, I’m there. Our modern cities and surrounds is no place to bring up kids.

      • feeling for DRSMITHY here, he’ll be having a heart attack thinking his domestic tax shelter is for the chopping block.

      • I’m another ancient Boomer who took a total of 26GBP off the UK government in benefits. Oh – the guilt!

  4. Jumping jack flash

    “Suck it up! There’s nobody in charge to fix it”

    Certainly not the government.
    The private companies control our everyday experience and gouge us for all they can.

    “After luxury or discretionary spending on holidays and clothes, the survey showed consumers were more likely to cut back on groceries than any other spending category.”

    True. And this can be done relatively easily. How many discretionary items do we buy in the groceries? There’s a lot of fat to trim in my weekly grocery bill. If I stopped buying the “luxury” pre-packaged stuff and switched to making my own using a (still) cheap bag of S.R flour and sugar, butter, etc. I could save quite a few dollars.
    My parents were hippies and we made our own everything.

    It was a lot of work though.
    Society is simply coming full circle.

    When my mother was a child in the 50’s, electricity was a luxury item and people made their own stuff. It was like that for decades prior.
    Relatively recently society lurched into a pre-packaged and disposable era, only possible because energy was super cheap.
    A few decades later energy is becoming expensive again. The gougers must expect that society will return to doing things for themselves. People are not robots they are adaptable.

    The only thing stopping it of course, is time and debt slavery. Something has to give.

    It is very hard to cut back on work to give more time to preparing essentials cheaply for you and your families when you have a fixed cost for your mountain of debt that must be serviced each week.

  5. Suck it up! There’s nobody in charge to fix it.

    I’d say: Suck it up we’ve backed ourselves into a corner where there are only bad and really bad choices.
    It’s hardly surprising when no one wants to take charge.

  6. Correct H&H: “We are the architects of our own demise thanks to years of inept policy that has favoured asset prices over income. And, more recently, unleashing a God-forsaken gas cartel upon households.

    This report shows that the elderly, so often accused of being “wealthy” to the demise of younger people are in fact victims of inept governments. Owning a house is a benefit but it is very different to having cashflow with which the elderly can buy food, clothing a car and other necessities.

    This cash poor living is a very good reason why income tax is equitable as it is not paid at very low incomes. It is also a very good reason why GST and Land Taxes are inequitable as they rise with the value of land and goods and services and MUST BE PAID even if income is low. In particular Land Tax means that the elderly can (and do in many countries) have their homes taken from them, While GST increases the disposable income of low income earners that must be paid as a tax regardless of how low their income is.

    This is another reason why income tax is a socially beneficial tax.

    • Hill Billy 55MEMBER

      Yep, you have the killer punch for the average household right there! As the $A gets wallopped, see the money get VERY stretched. Its been quite a while since petrol was over $1.50 a litre.

  7. Anecdote from the weekend:
    Visited friends who own a 2 bedroom terrace in inner-west Sydney. Paid over $1mil a couple of years back, spent another $100k or so making it liveable. They have 2 small children, including one only 3 months old, so down to one average income for the time being. The living area is so small it’s impossible to move around. There’s literally nowhere to extend (possibly up, but that’s limited) so when the kids are bigger they will either share a small bedroom or it’s time for a new house.

    They don’t order take-away or eat out. They own one old, small car, and can’t afford to replace it. There is the occasional camping holiday (they complain that it’s the only time they have space), sometimes flying Jetstar paid for on credit card. New furniture is on 12 months interest free. Money is a constant source of stress.

    The mortgage is currently interest only, but that’s ok because in 12 months time they will “re-finance it” which they insist will bring their repayments down.

    This is a story repeated , certainly across Sydney if not across the country.

    • Refinance an IO loan to bring their payments down? Lol. Are they aliens from planet Tharg who have no communication with the outside world? That is so not gonna happen. The poor bastards are doomed and don’t even know it yet. Not only that, when they are eventually forced to sell they’ll get nowhere near what they paid for the place, so all their equity will be gone.

      I wonder if their relationship will survive the stress? It’s gonna be a common story…

    • Those I know in that scenario are refinancing to buy an investment property to help them ‘get ahead’. They quietly feel like they’re in some kind of poverty cycle.

    • Locus of ControlMEMBER

      Your anecdote has me asking ‘why?’ Why did they buy such a small, expensive place that is barely livable if they were expecting to have a family not long after purchase? Their lifestyle is hardly enviable. Interest only and they’re down to one income? Heaven forbid the mortgage switches to P & I down the track. Surely they could have rented something more suitable?

      • I am asking myself the same question. This was their “dream”.

        The funny/sad thing is that they see themselves as being really smart with money, they half-joke about being millionaires, and ask me concerned questions about when I’m going to buy (and it needs to be soon before I miss out). I was even told “the smartest thing is to borrow as much as you can, because it means you’ll make more at the other end”.

      • Locus of ControlMEMBER

        Wow. Because it’s the Australian Dream to raise two kids in a poky 2 bed terrace house, huh?

        The cognitive dissonance leaves me incredulous. On the one hand, no dining out, basic holidays (not that there’s anything wrong with that – as long as that works for them – I admire frugality), but it’s balanced with considerable mortgage debt, 12 month interest free furniture purchases (debt) and airfares on the credit card (debt). They’re not saving at all by sacrificing a $100 meal out for a family of four or a $2000 holiday here and there if the other side of the ledger is $1,000,000 mortgage debt and $10,000 furniture debt!

        Keep us posted. Sydney housing has been going nowhere of late. I’ll be curious to know the response if they don’t sashay off into the sunset with $2 000 000 when they sell the house in ten years.

        Personal anecdote: friend of mine bought an ‘investment property’ at the height of the 2014 property boom here in Darwin. Cost $320 000. Paid for with a mortgage, very little deposit down. A year later it’s worth $240 000 due to oversupply of apartments and gradual wind-down of Inpex. My friend has gone from saying “it’s an investment in my future, I’m 50, with no super, etc etc to three years later, openly admitting it was a big mistake. Also, my friend is not working, so the property has to pay itself off and rents have plummeted by 25% since 2014…

      • Because literally almost everyone they know, or have asked, or who has offered information unsolicited, has told them that “normal” wage and price growth would give them the ability to upgrade into a more suitable place in a few more years and pay it off in time to retire.

        And for the last 50-odd years, they’ve been right.

      • @Drsmithy – yes your view BUT that would mean they would jump off a cliff if everyone else told them so. I suspect rather they are like most other people buying into this bullcoks is that they have some psychological need to be validated by material possessions and being part of the group. I’d be interested to see how they are personality wise, I’d bet they have some deep historical insecurities manifesting themselves through the group think.
        Edit: they clearly are unquestionning and incapable of forward thinking.

      • @Drsmithy – yes your view BUT that would mean they would jump off a cliff if everyone else told them so.

        If the typical outcome of jumping off a cliff for the last fifty years was that you were picked up by a giant eagle and flown away to live happily every after, of course you would.

        You seem to struggle mightily with the idea that a whole bunch of people just want to live securely in a home.

      • “You seem to struggle mightily ….” – no struggles here I fully get it. Rather my criticism is for the apologist, hypocritical sniping that you’ve given us from time to time. Today was a beauty. Your original comment was effectively saying it’s not the coupe’s fault because that is what they’ve always been told. No blame on them from you about their financial recklessness and their implied financial illiteracy. If that is not an exercise in “socialising the losses” then I don’t know what is. I’m just now waiting for you to champion the gains (internalising) should they make a profit. Perhaps your previous “insatiable greed” stance clouds your view because if I recall correctly you were critical of banks believing they could socialise the losses and internalising the gains. I just can’t work out why it’s ok for the punters and not a corporation.

      • Rather my criticism is for the apologist, hypocritical sniping that you’ve given us from time to time. Today was a beauty. Your original comment was effectively saying it’s not the coupe’s fault because that is what they’ve always been told. No blame on them from you about their financial recklessness and their implied financial illiteracy.

        My point was that it’s been economically stupid (in terms of income multiples, etc) to buy a house pretty much anywhere in the country for a decade or so (recent decreases in a few mining towns and Perth aside) and probably 30+ years in Sydney – yet most doing so have not had anything catatrophically bad happen to them and have prospered – so it’s hard to get too judgemental about people expecting they will see the same outcomes everyone else has since before they were born.

        But, hey, if you want to argue that decades of cultural norms and carpet-bombing advertising are trivial influences that anyone should be able to shrug off as easily as a browser pop-up, knock yourself out.

  8. Oh please. Poor millionaires. Simple solution, sell your home – downsize and move elsewhere. You don’t need the 5 bedroom mansion in the swish location. There are plenty of smaller and cheaper homes withing 50Ks of where you are already.

  9. Maybe as more and more companies adopt ‘green’ summer air conditioning policies we might finally get some cultural movement around ‘business attire’. Ie get rid of the stupid adherence to European/American fashion standards. The executives who decide dress codes and aircon policy are not themselves subjected to conditions where they might realise how stupid it is to wear long sleeves with tie (and even possibly suit jacket!) on a 35C day.

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