Finding the Balance Between Income, Credit & Debt

30 October 2015
The Reserve Bank of Fiji has revealed many Fijians are being denied finance. On not-so-distant shores, Australians have one of the world’s highest levels of credit card debt.

Nations around the world need a more balanced approach to finance if we are to find a middle ground between low incomes with high levels of personal poverty, and high incomes with high levels of personal debt.

Credit and other finance in Fiji

On 2 October, the Governor of the Reserve Bank of Fiji, Barry Whiteside, announced a national workshop to formulate a new financial strategy for the country.

The Fijian National Financial Inclusion Taskforce has recently released a report of its findings from the past five years, and the results aren’t good.

  • Nearly 1 in 3 adult Fijians (27%) are being completely excluded from accessing any form of finance or financial services.
  • Women, young workers aged 15-20, casual workers, and agricultural workers are the least likely to be granted finance.
  • 71% of Fijians had managed to save some money in the past year, but only 38% put that money in a bank to gain interest.
  • Only 32% of Fijians are able to use a form of credit including credit cards or loans.

It is unfortunate that women are being excluded from finance because, as we have previously reported, communities in developing nations benefit when funds are put in the hands of women.

Credit and other finance in Australia

While Fijians are denied credit, banks in Australia are more than happy to lend. There are more credit cards in circulation than ever before – 16.1 million in July 2015, according to the Reserve Bank of Australia (RBA).

Our national credit card debt hit $51 billion in February 2015, which is close to our all-time record. And we are paying interst on approximately $33 billion of this debt.

The average Australian cardholder has a debt of $4,300. This is a lot for a household to carry. That’s why we always recommend, if you carry an ongoing debt, that you shop around for the best rate on a low or no annual fee card on our website, so you can pay off your debt and keep it off.

In August 2015, our Reserve Bank reported on its inquiry into credit card interest rates, showing that debt levels have fallen thanks to reforms for transparent interest rates and ATM fees. But there is still a fair way to go to get us out of debt.

Searching for balance

Such a stark contrast makes you wonder which way is better. Is it Fiji, where workers can only spend what they earn but can’t access a loan to buy a car to use for work, or Australia, where workers can spend up to their credit limit but struggle to get out of debt created by impulse purchases?

Or is there a balance to be found between poverty and excess – and how can we achieve it?

We sincerely hope the Fijian Reserve Bank workshops will be able to create solutions for community development loans that could help individuals access funds to build their futures. Similarly, we hope the Australian Reserve Bank will go beyond reporting that credit card interest rates are stable, and suggest real policy change so that individual Aussies can pay off their debt.

In the meantime, let’s take a look at one way that many consumers use to get out of debt – switching from a credit card to a debit card.

What would a world without credit cards look like?

On the surface, it might not look too different. After all, everything you can do with a credit card, you can do with a debit card attached to an everyday transaction account:

  • Book a hotel
  • Pay for things online
  • Pay the bond on a hire car
  • Pay for emergencies
  • Maintain a good credit rating

Below the surface, however, things would be fundamentally different.

We would have to stop and think every time we swiped our debit card, even using PayWave and payPass – is there enough money in the account for this transaction?

We would have to plan ahead and use a weekly or monthly budget in order to save towards large purchases. More people might look for a savings account with a higher interest rate, or a good value term deposit, so they can grow their savings without spending them for a while.

The use of personal loans might increase, and this may be a less risky option than using credit cards. When you take out a loan, you have to declare a specific purpose for taking out that line of credit, and there is a set time in which you must repay it. By contrast, nobody asks you why you’re using a credit card, and you can unthinkingly swipe it a hundred times a day and quickly send yourself bankrupt.

Life without credit cards might not be perfect. For example, what if you lose your debit card one day and have no cash or other cards in your wallet to pay for lunch? You might have a few hungry hours until you get home.

But when we’re searching for balance, living within our means is one of the easiest ways to do it.

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