tag:theconversation.com,2011:/au/topics/household-debt-11721/articleshousehold debt – The Conversation2023-08-07T20:06:11Ztag:theconversation.com,2011:article/2092902023-08-07T20:06:11Z2023-08-07T20:06:11ZHow debt has morphed into a new form of work for women<blockquote>
<p>“I spend my time managing and racking up debt. How do you expect me to work?” (Pushpurani)</p>
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<p>A Dalit woman (formerly untouchable) from a village in Tamil Nadu (India), Pushpurani is constantly juggling ten to twenty loans, taken out with finance companies, informal moneylenders, the local elite and neighbours.</p>
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<p>“Why do so many retired people go back to work? Because of debt” (Felipe, resident of a favela in Vitoria, Brazil).</p>
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<p>Felipe’s mother, Dona Gê, 74, has been making clothes and selling cakes on the street ever since repayment of her loans took up 70% of her retirement pension.</p>
<p>These testimonies illustrate the concrete repercussions for working-class women of a global trend observed over the last three decades: the explosion in household debt, driven by increased access to credit and heightened economic vulnerability.</p>
<p>In different parts of the world, managing debt on a day-to-day basis is a real form of work, and this “debt work” is carried out primarily by women. Finding the funds to repay the debt then leads to new forms of work, “work for the debt”, which again often affects women.</p>
<p>Work on and for the debt is emerging as a new form of unpaid shadow labour, symptomatic of financialised economies. Two recent doctoral dissertations, one in <a href="https://www.theses.fr/2021UNIP7255">economics</a>, the other in <a href="https://www.theses.fr/s185336">socio-anthropology</a>, and a <a href="https://www.sup.org/books/title/?id=36559">forthcoming book</a> give an account of this reality in India and Brazil.</p>
<h2>The scale of debt</h2>
<p>While household debt remains highly uneven from one country to another, its average level almost doubled between 1995 and 2021 in OECD countries, rising from 68% to 127% of disposable income (<a href="https://data.oecd.org/hha/household-debt.htm">OECD, 2023</a>. <a href="https://data.oecd.org/hha/household-debt.htm">The acceleration</a> is particularly evident in the South. According to the <a href="https://www.bis.org/statistics/about_credit_stats.htm">BIS</a>, household debt will jump from 28 to 50% of GDP in emerging economies between 2010 and 2022.</p>
<p>But while in the North property loans account for the bulk of indebtedness (<a href="https://abc-economie.banque-france.fr/sites/default/files/medias/documents/822050_endettement_des_menages.pdf">84% in France in 2021</a>), its growth in the South is mainly driven by various forms of consumer credit, which so-called <a href="https://journals.openedition.org/lectures/17781">financial inclusion policies</a> have democratised since the 2000s, targeting working-class people and women in particular.</p>
<p>In Brazil, according to data from the Central Bank, the proportion of households indebted to credit institutions rose from 44% to 55% between 2010 and 2015, before climbing during the Covid-19 pandemic to reach 80% by 2021.</p>
<p>In Tamil Nadu, following two decades of banking policies and the development of women’s microcredit, <a href="https://www.emerald.com/insight/content/doi/10.1108/S1529-212620200000029008/full/html">rural survey data</a> from the <a href="https://odriis.hypotheses.org/who-we-are">Observatory of Rural Dynamics and Inequality in South India</a> document an increase in average household debt from 160% to 250% of annual income between 2010 and 2016. And debt weighs more heavily on women, who earn on average <a href="https://www.sciencedirect.com/science/article/abs/pii/S0305750X20304915">22% of household income but shoulder 37% of debt</a>.</p>
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<a href="https://images.theconversation.com/files/522979/original/file-20230426-1034-38efal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/522979/original/file-20230426-1034-38efal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/522979/original/file-20230426-1034-38efal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/522979/original/file-20230426-1034-38efal.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/522979/original/file-20230426-1034-38efal.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/522979/original/file-20230426-1034-38efal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/522979/original/file-20230426-1034-38efal.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/522979/original/file-20230426-1034-38efal.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A bank correspondent (middle) surrounded by women. In a way, this activity replaces the</span>
<span class="attribution"><span class="source">I. Guérin</span>, <span class="license">Fourni par l'auteur</span></span>
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<p>The vast majority of these are aimed at “making ends meet”: food, healthcare, housing, water, gas and electricity bills. They also make it possible to take part in rituals, buy consumer goods… and pay off other debts.</p>
<p>In this respect, while <a href="https://www.odilejacob.fr/catalogue/sciences-humaines/economie-et-finance/vraie-revolution-du-microcredit_9782738132468.php">microcredit</a> has long been thought of as a way of helping people to set up their own business and escape poverty, it has turned out to be primarily a form of consumer credit, at best smoothing out income and expenditure over time, and at worst acting as a factor in <a href="https://www.routledge.com/Microfinance-Debt-and-Over-Indebtedness-Juggling-with-Money/Guerin-Morvant-Roux-Villarreal/p/book/9780367110840">over-indebtedness</a>.</p>
<h2>Debt work</h2>
<p>Working-class women are at the forefront of the new forms of labour generated by this increased use of finance. As managers of family budgets, they find themselves monopolised by the management and refinancing of debts, not only those contracted in their own name but often those of the family as a whole.</p>
<p>In the French context, the ethnographies of Ana Perrin-Heredia and Camille François clearly show that women manage <a href="https://www.cairn.info/revue-societes-contemporaines-2009-4-page-95.htm">shortfalls and overdrafts</a> and are <a href="https://www.editionsladecouverte.fr/de_gre_et_de_force-9782348074301">the first targets of bailiffs</a> when it comes to being behind on rent.</p>
<p>Managing debt is real work: the tasks are routine, time-consuming and require very specific skills. In Tamil Nadu, for example, this “debt work” involves handling <a href="https://econpapers.repec.org/paper/solwpaper/2013_2f290603.htm">monthly, weekly and even daily repayment transactions</a>. It involves juggling five, ten, fifteen loans at a time, and keeping track of these skeins of debt through incessant mental gymnastics, which require complex calculations based on price and sentiment criteria.</p>
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<img alt="" src="https://images.theconversation.com/files/522985/original/file-20230426-22-5dn7fm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/522985/original/file-20230426-22-5dn7fm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/522985/original/file-20230426-22-5dn7fm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/522985/original/file-20230426-22-5dn7fm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/522985/original/file-20230426-22-5dn7fm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/522985/original/file-20230426-22-5dn7fm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/522985/original/file-20230426-22-5dn7fm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A microcredit group manager: this work involves keeping a multitude of administrative documents up to date, very often</span>
<span class="attribution"><span class="source">I.Guérin</span>, <span class="license">Fourni par l'auteur</span></span>
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<p>Amounts, prices and repayment terms also have to be negotiated with a wide range of lenders, in order to adapt them to the irregularity and unpredictability of income. In addition to microcredit organisations and finance companies, loans come from a myriad of lenders in the neighbourhood or neighbouring towns, including pawnbrokers, itinerant moneylenders, shopkeepers, the local elite, friends, neighbours and relatives.</p>
<p>Dealing with debt also means having to deal with derogatory or contemptuous remarks from moneylenders, and sometimes insults, while keeping calm. Not honouring your debt is a sign of irresponsibility, frivolity and poor management, and prevents you from getting into debt again. For lenders, whatever their profile, sullying reputations is a formidable weapon for encouraging repayment.</p>
<p>Finally, you need to take care of your appearance and attitude, to come across as a strong, determined woman who is capable of repaying her debts. And if material means are lacking, it’s a case of <a href="https://anthrosource.onlinelibrary.wiley.com/doi/full/10.1111/amet.12912">monetising your body</a> and entering into a myriad of debt-sex exchanges, from smiling and touching to penetration.</p>
<h2>Working <em>for</em> debt</h2>
<p>Debt work often goes hand in hand with work for debt, aimed at finding the funds needed to pay debts and interest that are often exorbitant. In <a href="https://diplomatique.org.br/a-esquerda-brasileira-sobre-as-brasas-do-credito/">Brazilian favelas</a>, this means longer working days, extending into evenings and Sundays. People juggle two or three activities to keep the cash flowing in. For the men, it’s mainly a case of working on building sites in degraded conditions, with no social protection and for less than the legal minimum wage.</p>
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<a href="https://images.theconversation.com/files/523055/original/file-20230426-28-9lwn8p.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Luna hangs out the washing after spending a busy day between the restaurant where she cooks and the bank branches where she finances her business. Brazil" src="https://images.theconversation.com/files/523055/original/file-20230426-28-9lwn8p.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/523055/original/file-20230426-28-9lwn8p.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523055/original/file-20230426-28-9lwn8p.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523055/original/file-20230426-28-9lwn8p.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523055/original/file-20230426-28-9lwn8p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523055/original/file-20230426-28-9lwn8p.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523055/original/file-20230426-28-9lwn8p.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Luna hangs out the washing after spending a busy day between the restaurant where she cooks (at the top of the favela) and the bank branches where she finances her business (at the bottom of the favela).</span>
<span class="attribution"><span class="source">T. Narring</span>, <span class="license">Fourni par l'auteur</span></span>
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<p>For women, this may mean working outside the home, as a cleaner, or in the home, making clothes or cakes that are then sold at the market. This is particularly the case for <a href="https://www.cairn.info/revue-terrains-et-travaux-2022-2-page-181.htm">grandmothers</a>, who continue to work after retirement and use their access to credit to help their unemployed children.</p>
<p>Debt work and work for debt represent an immense source of dispossession for the working classes and profit for the financial industry, which relies on the free labour of women as well as on the capture of a considerable share of family income: the share of interest represents 30% in Tamil Nadu in 2016 according to the survey cited above, 12% in <a href="https://www.fecomercio.com.br/noticia/em-seis-meses-familias-gastaram-com-juros-o-equivalente-a-73-do-auxilio-emergencial-pago-em-2020-1">Brazil</a> in 2021.</p>
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<a href="https://images.theconversation.com/files/522986/original/file-20230426-518-aybvbw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/522986/original/file-20230426-518-aybvbw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/522986/original/file-20230426-518-aybvbw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/522986/original/file-20230426-518-aybvbw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/522986/original/file-20230426-518-aybvbw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/522986/original/file-20230426-518-aybvbw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/522986/original/file-20230426-518-aybvbw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/522986/original/file-20230426-518-aybvbw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Account management book kept by a woman in a village in Tamil Nadu, India.</span>
<span class="attribution"><span class="source">I. Guérin, 2021</span>, <span class="license">Fourni par l'auteur</span></span>
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<p>However, this exploitation cannot be reduced to financial predation. It is rooted in a system of accumulation that is incapable of ensuring the social reproduction of workers, combining the inability of private capital to provide subsistence wages with the inefficiency of the state to provide real social protection.</p>
<h2>Women’s resistance</h2>
<p>These characteristics can be found in Europe, albeit in more subtle and varied forms. In France, pension reforms and reforms to reduce the “cost of labour”, carried out against a backdrop of budgetary austerity, are making it harder for working-class people to “make ends meet”. Faced with these <a href="https://www.puf.com/content/Gilets_jaunes_la_r%C3%A9volte_des_budgets_contraints">growing constraints</a>, the “yellow vest” movement has highlighted the central role played by mothers in debt management (particularly bills and mortgages). These mobilisations also show that the “work of debt” is the support of women’s resistance and a political voice, rooted in the everyday lives of working-class people.</p>
<p>For while women are <a href="https://www.sup.org/books/title/?id=36559">shadowy players in finance</a>, they are also fervent opponents. In <a href="https://tintalimon.com.ar/libro/una-lectura-feminista-de-la-deuda/">Argentina</a>, in various [European] countries(https://www.lepassagerclandestin.fr/catalogue/essais/nos-vies-valent-plus-que-leurs-credits/), but also in <a href="https://www.cadtm.org/Caravane-Internationale-contre-le-microcredit">Morocco</a>, in <a href="https://www.ft.lk/opinion/%E2%80%9CLife-and-blood%E2%80%9D-of-our-country--but-we-only-have-debt/14-696863">Sri-Lanka</a>, in <a href="https://m.thewire.in/byline/isabelle-guerin-nithya-joseph-and-g-venkatasubrama">India</a>, and probably elsewhere, they are speaking out against the violence of debt and its excessive weight on their shoulders. These women are actively campaigning for the debt to be cancelled, but also for social policies to avoid this chronic indebtedness. It’s time to listen to them.</p><img src="https://counter.theconversation.com/content/209290/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>In different parts of the world, managing debt on a day-to-day basis is a real job, and one that is mainly taken on by women.Isabelle Guérin, Directrice de recherche à l'IRD-Cessma (Université de Paris), affiliée à l’Institut Français de Pondichéry, Institut de recherche pour le développement (IRD)Elena Reboul, Post-doctorante, Centre d'études de l'emploi et du travail, Conservatoire national des arts et métiers (CNAM)Timothée Narring, ethnographe et sociologue de l'endettement des milieux populaires, Cessma, Université Paris CitéLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2024962023-03-28T01:44:23Z2023-03-28T01:44:23ZDon’t let financial shame be your ruin: open conversations can help ease the burden of personal debt<figure><img src="https://images.theconversation.com/files/517807/original/file-20230327-28-t0byzo.jpg?ixlib=rb-1.1.0&rect=212%2C24%2C5177%2C3612&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Nearly <a href="https://www.ipsos.com/en-nz/19th-ipsos-new-zealand-issues-monitor">two-thirds of New Zealanders</a> are worried about the cost of living, and a quarter are worried about <a href="https://www.canstar.co.nz/wp-content/uploads/2023/03/Consumer-Pulse-Report-NZ-2023-Final-4.pdf">putting food on the table</a>. But the <a href="https://visionwest.org.nz/food-hardship-part-one/">shame</a> that can come with financial stress is preventing some people from seeking help. </p>
<p>According to a recent survey, a third of New Zealanders were not completely truthful with their family or partners about the state of their finances, and 12% <a href="https://www.stuff.co.nz/business/money/129477493/financial-infidelity-research-finds-kiwis-hiding-debts-from-their-partners">actively hid their debt</a>. This shame and worry about money can spill over into <a href="https://www.nzherald.co.nz/bay-of-plenty-times/news/concerns-buy-now-pay-later-schemes-could-fuel-addiction-as-kiwis-spend-17b-last-year/VOV3VIDIG2MZBGJEGPMLGWDMJI/">addiction</a>, <a href="https://www.newsroom.co.nz/i-had-serious-concussion-bad-credit-and-15000-debt-abuse-survivor">violence</a> and <a href="https://corporate.dukehealth.org/news/financial-strains-significantly-raise-risk-suicide-attempts">suicide</a>. </p>
<p>Considering the effect of financial stress on our wellbeing, it is clear we need to overcome the financial stigma that prevents us from getting help. We also <a href="https://www.apa.org/topics/money/family-financial-strain">owe it to our kids</a> to break the taboo around money by communicating our worries and educating them on how to manage finances better. </p>
<h2>The burden of growing debt</h2>
<p><a href="https://www.stuff.co.nz/business/money/300817697/mortgage-pain-homeowners-facing-repayment-hikes-of-up-to-900-a-fortnight">Ballooning mortgage repayments</a> are compounding the financial distress of many New Zealanders. At the beginning of 2023, an estimated 11.9% of home owners were behind on loan payments, with more than <a href="https://www.rnz.co.nz/news/business/485045/data-shows-430-000-new-zealanders-behind-in-credit-repayments-in-january">18,400 mortgagees in arrears</a>. </p>
<p>Given the <a href="https://www.treasury.govt.nz/publications/an/an-21-01-html">majority of household wealth</a> in New Zealand is in property, our financial vulnerability is closely linked to the ebbs and flows of the <a href="https://content.knightfrank.com/research/84/documents/en/global-house-price-index-q2-2021-8422.pdf">second most overinflated property market</a> in the world. </p>
<p>There are also cultural reasons for growing financial distress. Many households have taken on significant debt to “<a href="https://www.stuff.co.nz/business/7616361/Keeping-up-with-the-Joneses">keep up with the Joneses</a>” and to pursue the quintessential <a href="https://www.interest.co.nz/property/99890/westpac-commissioned-survey-suggests-many-new-zealanders-still-pine-quarter-acre">quarter-acre dream</a>. Social comparison and peer pressure act as powerful levers contributing to problem debt and over-indebtedness. </p>
<p>The average household debt in New Zealand is more than <a href="https://tradingeconomics.com/new-zealand/households-debt-to-income">170% of gross household income</a>. That is higher than the United Kingdom (133%), Australia (113%) or Ireland (96%). </p>
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<h2>The rise of problem debt</h2>
<p>And we are digging a deeper hole. Over the past year, <a href="https://www.rnz.co.nz/news/business/485045/data-shows-430-000-new-zealanders-behind-in-credit-repayments-in-january">demand for credit cards increased by 21.7%</a>. The use of personal debt such as personal loans and deferred payment schemes <a href="https://www.nzherald.co.nz/business/demand-for-personal-credit-rises-arrears-also-up-as-cost-of-living-bites/YCEM74CII5FQBPJXO3UOG4Y3GY/">is also climbing</a>. There is a real risk this debt could become problem debt. </p>
<p>Problem debt can have severe and wide-reaching consequences, including <a href="https://theconversation.com/over-300-000-new-zealanders-owe-more-than-they-own-is-this-a-problem-173497">housing insecurity</a>, <a href="http://www.socialinclusion.ie/publications/documents/2011_03_07_FinancialExclusionPublication.pdf">financial exclusion</a> (the inability to access debt at affordable interest rates), <a href="https://www.tandfonline.com/doi/full/10.1080/07409710.2012.652016?journalCode=gfof20">poor food choices</a> and a plethora of <a href="https://bmcpublichealth.biomedcentral.com/articles/10.1186/1471-2458-14-489">health problems</a>. </p>
<p>Yet, the hidden <a href="https://spssi.onlinelibrary.wiley.com/doi/10.1111/sipr.12074">psychological</a> and <a href="https://link.springer.com/article/10.1007/s11205-008-9286-8">social cost of financial distress</a> remains often unspoken, overlooked and underestimated. </p>
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Read more:
<a href="https://theconversation.com/how-financial-stress-can-affect-your-mental-health-and-5-things-that-can-help-201557">How financial stress can affect your mental health and 5 things that can help</a>
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<p>Even before the pandemic, <a href="https://www.scoop.co.nz/stories/BU1909/S00616/research-shows-financial-stress-impacts-mental-wellbeing.htm">69% of New Zealanders were worried</a> about money. The share of people worrying about their financial situation was higher for women (74%), and particularly women aged 18-34 (82%). It is no coincidence that the latter are particularly at risk of problem debt through so-called <a href="https://acfr.aut.ac.nz/__data/assets/pdf_file/0008/691577/Gilbert-and-Scott-Study-2-Draft-v10Sept2022.pdf">“buy now, pay later” schemes</a>. </p>
<p>The stigma of financial distress extends beyond the vulnerable and the marginalised in our society. A growing number of <a href="https://www.rnz.co.nz/news/political/467417/middle-income-families-hoping-for-help-in-budget-as-rising-costs-sting">middle-class New Zealanders </a> are quietly suffering financial distress, isolated by financial stigma and the taboos around discussing money. When pressed, one in two New Zealanders would rather <a href="https://www.scoop.co.nz/stories/BU2203/S00384/research-shows-wed-rather-talk-about-politics-than-our-finances.htm">talk politics over money</a>. </p>
<h2>Time to talk about money</h2>
<p>Navigating financial distress and <a href="https://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=2526&context=sulr">stigma</a> can feel overwhelming. Where money is a taboo subject, it may feel safer to withdraw, maintain false appearances, be secretive or shun social support. </p>
<p>This tendency to avoid open discussions and suffer in silence can lead to <a href="https://loneliness.org.nz/lonely/at-home/financially-struggling/">feelings of isolation</a> and contribute to <a href="https://theconversation.com/how-financial-stress-can-affect-your-mental-health-and-5-things-that-can-help-201557">poor mental health</a>, such as depression, anxiety and emotional distress. </p>
<p>Sadly, the trauma of living in financial distress can also <a href="http://irep.ntu.ac.uk/id/eprint/39442/1/1307565_Wakefield.pdf">break up families</a>. Losing the symbols of hard-gained success and facing the prospect of a reduced lifestyle can be tough. It often triggers feelings of personal failure and self doubt that deter us from taking proactive steps to talk openly and seek help. </p>
<p>But what can families do to alleviate some of this distress? </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1504562088575918082"}"></div></p>
<h2>Seek help</h2>
<p>First, understand that <a href="https://www.ft.com/content/86767aac-98e0-4dae-8c5a-d3301b030703">you are not alone</a>. Over 300,000 New Zealanders <a href="https://theconversation.com/over-300-000-new-zealanders-owe-more-than-they-own-is-this-a-problem-173497">owe more than they earn</a>.</p>
<p>Second, seek help. There are many services that help people work through their financial situation and formulate a plan. In the case of excessive debts, debt consolidation or <a href="https://goodshepherd.org.nz/debtsolve/">debt solution loans</a> may help reduce the overall burden and simplify your financial situation. </p>
<p>For those struggling with increasing interest on their mortgages, reaching out to your bank early is critical. During the 2008 recession, banks in New Zealand <a href="https://www.beehive.govt.nz/release/banks-exchange-letters-crown-support-distressed-mortgage-borrowers">worked with customers</a> to avoid defaulting on mortgages, including reducing servicing costs, capitalising interest and moving households to interest-only loans. It is essential to understand that the <a href="https://www.stuff.co.nz/life-style/homed/real-estate/130677426/are-we-on-the-brink-of-a-wave-of-mortgagee-sales">banks do not want mortgagees to fail</a>, and that options exist. </p>
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Read more:
<a href="https://theconversation.com/are-you-financially-literate-here-are-7-signs-youre-on-the-right-track-202331">Are you financially literate? Here are 7 signs you're on the right track</a>
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<p>To help future generations avoid debt traps, we need open communication about money – also known as “<a href="https://link.springer.com/article/10.1007/s10834-020-09736-2">financial socialisation</a>”. This includes developing values, sharing knowledge and promoting behaviours that help build <a href="https://files.eric.ed.gov/fulltext/EJ1241099.pdf">financial viability and contribute to financial wellbeing</a>. </p>
<p>The lessons about handling money from family and friends are crucial for <a href="https://www.frontiersin.org/articles/10.3389/fpsyg.2020.02162/full">improving our children’s financial capability</a>, helping them be <a href="https://www.fsc.org.nz/it-starts-with-action-theme/growing-financially-resilient-kids">more financially resilient</a> and better able to survive the stresses we are experiencing now – and those <a href="https://www.stuff.co.nz/business/money/300836616/heres-how-much-household-costs-are-expected-to-increase">yet to come</a>.</p><img src="https://counter.theconversation.com/content/202496/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matt Raskovic is also a visiting professor at Zhejiang University in China and is also Vice-President Administration at the Academy of International Business (AIB). </span></em></p><p class="fine-print"><em><span>Aaron Gilbert receives funding from Te Ara Ahunga Ora (Retirement Commission).</span></em></p><p class="fine-print"><em><span>Smita Singh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Personal debt in New Zealand is growing. But instead of hiding the true extent of what we owe, New Zealanders should be talking about how we got here – and what needs to change.Matevz (Matt) Raskovic, Associate Professor of International Business & Strategy, Auckland University of TechnologyAaron Gilbert, Professor of Finance, Auckland University of TechnologySmita Singh, Senior Lecturer International Business, Strategy & Entrepreneurship, Auckland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1984662023-01-25T22:08:37Z2023-01-25T22:08:37ZStrikes: how rising household debt could slow industrial action this year<figure><img src="https://images.theconversation.com/files/506338/original/file-20230125-16-4t7llb.jpg?ixlib=rb-1.1.0&rect=34%2C7%2C955%2C639&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/crisis-high-burden-consumer-debt-financial-1699344271">William Potter/Shutterstock</a></span></figcaption></figure><p>After decades of declining real wages and deteriorating working conditions, strike activity has <a href="https://www.independent.co.uk/news/uk/home-news/strike-2023-february-train-school-teachers-nurses-when-who-b2268216.html">spiked over the last year</a>, particularly in the United Kingdom. From nurses and teachers to railway and postal workers, employees are demanding wage increases and improved working conditions – and walking out if they believe employers’ offers won’t <a href="https://www.sundaypost.com/fp/strikes-go-on-as-wages-become-battlefield-in-cost-of-living-crisis/">stave off the rising cost of living</a>.</p>
<p>However, my research suggests that many workers may increasingly feel unable to strike because of their growing household debt.</p>
<p>This current wave of strikes is the largest in more than a decade, but it is nowhere near the heights reached in the UK during the 1970s. September 1979 saw the all-time peak of post-war era industrial activity, with more than 11 million working days lost due to strike action. The latest figures for November 2022 show 467,000 days lost.</p>
<p><strong>Working days lost to strike activity</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/506328/original/file-20230125-18-v08xom.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing working days lost to strikes (UK, thousands) from January 1931 to November 2022. As per the above par, the chart shows a significant spike in 1979." src="https://images.theconversation.com/files/506328/original/file-20230125-18-v08xom.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506328/original/file-20230125-18-v08xom.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506328/original/file-20230125-18-v08xom.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506328/original/file-20230125-18-v08xom.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506328/original/file-20230125-18-v08xom.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506328/original/file-20230125-18-v08xom.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506328/original/file-20230125-18-v08xom.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/timeseries/bbfw/lms">Office for National Statistics (ONS)</a></span>
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<p>The recent resurgence of industrial action has in part been driven by the <a href="https://www.theguardian.com/commentisfree/2023/jan/15/high-inflation-is-to-blame-for-these-strikes-not-trade-unions">ongoing inflation crisis</a> that many countries face right now, including the UK, with workers struggling because of recent slow wage growth. Public sector unions have also become <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/989116/Trade-union-membership-2020-statistical-bulletin.pdf">stronger in recent years</a>. But the wider reasons for the most recent peaceful era of industrial relations might tell us more about the outlook for current strike action.</p>
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Read more:
<a href="https://theconversation.com/uk-strikes-six-milestones-in-the-history-of-industrial-action-in-britain-186364">UK strikes: six milestones in the history of industrial action in Britain</a>
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<p>My <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/irj.12391">recently published research</a> indicates that a rapid increase in personal indebtedness has been a major factor suppressing industrial action over the last four decades. The decline of social housing and the deregulation of the financial system in most advanced countries over this period has encouraged workers to borrow heavily. </p>
<p>Consequently, financing personal debt has become a major priority, and the fear of losing their job and defaulting on their debt has made workers more self-disciplined in the workplace. In other words: a bad job is better than no job.</p>
<p>Since at least the early 1980s, household debt-to-income ratios have been <a href="https://academic.oup.com/economicpolicy/article-abstract/31/85/107/2392378?login=false#no-access-message">increasing dramatically</a>. Household debt is consistently over <a href="https://www.oecd.org/sdd/na/statisticalinsightswhatdoeshouseholddebtsayaboutfinancialresilience.htm">100% of disposable income</a> in most advanced economies – in some OECD countries it’s at least 300%. </p>
<p>While household debt accumulation stabilised and even slightly declined after the 2008 global financial crisis, the current cost of living crisis and the impact of the pandemic on people’s finances have caused outstanding debts to start to <a href="https://commonslibrary.parliament.uk/research-briefings/sn02885/">rise again</a> for most households – particularly the poorest. And because many governments and central banks are treating the current inflation crisis as <a href="https://www.ft.com/content/a7db7285-ac15-40a6-83c7-ff92295d7b68">demand-driven</a> and increasing interest rates to fight it, household debt and debt servicing costs are likely to keep rising for the foreseeable future.</p>
<p>My research looks at the relationship between the long-run increase in household debt and strike activity over the last 50 years in the USA, UK, Japan, Korea, Sweden and Norway. I used historical data from the statistical databases of the <a href="https://ilostat.ilo.org/topics/work-stoppages/">International Labor Office</a> (ILO) of the United Nations, the International Monetary Fund and the World Bank, among others. </p>
<p>I found evidence that a steady increase in personal indebtedness is strongly associated with a steep decline in the number of strikes organised, strike participation, and days lost to strikes in the vast majority of these economies. Inflation and changes in the power of trade unions have also played a part, but personal debt obligations have been key in suppressing industrial action.</p>
<h2>UK strikes in 2023</h2>
<p>As a result, the very thing that has has triggered today’s strikes – the cost of living – could also bring about an end to this action. It is unlikely that workers whose personal debt is rising will be able to participate in indefinite strike action.</p>
<p>And since the main consumer price increases right now relate to fuel consumption, energy-related debts accumulated during the coldest months of the year could push lower income households to abandon strike action out of <a href="https://www.endfuelpoverty.org.uk/news/">necessity</a>. While the government has introduced <a href="https://helpforhouseholds.campaign.gov.uk/help-with-your-bills/">limited energy subsidies</a>, these are unlikely to save the most vulnerable households from poverty.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/energy-crisis-the-uk-is-still-heading-for-widespread-fuel-poverty-despite-the-governments-price-cap-190290">Energy crisis: the UK is still heading for widespread fuel poverty – despite the government’s price cap</a>
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<figure class="align-center ">
<img alt="Dissatisfied father and daughter having problem with central heating, sitting on sofa at home, freezing. Freezing family warm blankets looking at camera while sitting on sofa in cold kitchen" src="https://images.theconversation.com/files/506148/original/file-20230124-12-natns7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506148/original/file-20230124-12-natns7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506148/original/file-20230124-12-natns7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506148/original/file-20230124-12-natns7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506148/original/file-20230124-12-natns7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506148/original/file-20230124-12-natns7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506148/original/file-20230124-12-natns7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Fuel poverty has been a growing concern for many workers in recent months.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/dissatisfied-father-daughter-having-problem-central-2200941285">Nenad Cavoski/Shutterstock</a></span>
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<p>So, if trade unions think strikes are the best way to successfully achieve their workers’ demands, there are some steps they could take. Firstly, since the <a href="https://journals.sagepub.com/doi/10.1177/003232928301200205">disruption power of workers</a> varies substantially across sectors, coordination and collective demands for country-wide pay increases and workplace reforms could strengthen the impact of strikes. </p>
<p>Trade unions should also use pre-strike donation campaigns to provide more generous strike compensation to striking workers. They could also collaborate with <a href="https://www.dissentmagazine.org/online_articles/there-is-power-in-a-debtors-union">debtor unions</a>. These associations represent indebted households and demand reforms or even the cancellation of certain debts.</p>
<p>So, mobilising more workers to achieve their goals of better pay and conditions, could mean coordinating union demands and incorporating debt relief measures so that workers can strike without fear of financial ruin. Given the government’s general reluctance to <a href="https://www.bloomberg.com/news/articles/2022-12-23/sunak-says-limiting-public-sector-pay-is-in-the-uk-s-interests">negotiate on pay terms</a>, a short but sharp burst of industrial action – a general strike – could be the way forward.</p><img src="https://counter.theconversation.com/content/198466/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Giorgos Gouzoulis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Research shows household debt plays a role in workers’ deciding to strike.Giorgos Gouzoulis, Lecturer (Assistant Professor) in HRM & Future of Work, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1425712020-07-20T19:49:48Z2020-07-20T19:49:48ZHere’s another reason not to boost compulsory super: it’ll ramp up debt<figure><img src="https://images.theconversation.com/files/348322/original/file-20200720-31-e50vf2.jpg?ixlib=rb-1.1.0&rect=43%2C199%2C3470%2C1929&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The government receives the long-awaited report of its retirement incomes review on <a href="https://treasury.gov.au/consultation/c2019-36292">Friday</a>.</p>
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<a href="https://images.theconversation.com/files/348323/original/file-20200720-18366-1yqgcde.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/348323/original/file-20200720-18366-1yqgcde.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/348323/original/file-20200720-18366-1yqgcde.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=963&fit=crop&dpr=1 600w, https://images.theconversation.com/files/348323/original/file-20200720-18366-1yqgcde.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=963&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/348323/original/file-20200720-18366-1yqgcde.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=963&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/348323/original/file-20200720-18366-1yqgcde.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1210&fit=crop&dpr=1 754w, https://images.theconversation.com/files/348323/original/file-20200720-18366-1yqgcde.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1210&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/348323/original/file-20200720-18366-1yqgcde.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1210&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage">Source: Australian Tax Office</a></span>
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<p>Key among the questions it has been asked to examine is whether to proceed with the legislated increases in employers’ compulsory super contributions from the present 9.5% of salary to 12%, in five annual steps of 0.5% of salary, starting next July.</p>
<p>In a study with colleagues from Victoria University’s Centre of Policy Studies published in the <a href="https://www.sciencedirect.com/science/article/pii/S0161893819300638">Journal of Policy Modeling</a> we examined the effects of such an increase on financial stability. </p>
<p>We found it could have adverse impacts on two indicators of economy-wide debt: the ratio of private debt to income, and the ratio of debt to equity in housing finance.</p>
<p>These indicators <a href="https://www.oecd.org/economy/monetary/Debt-and-macroeconomic-stability.pdf">matter</a> for stability. High debt levels tend to amplify what would otherwise be manageable economic shocks.</p>
<h2>Ultimately paid by households</h2>
<p>How would an increase in compulsory super contributions increase debt?</p>
<p>The increase will ultimately be borne by households through a matching reduction in take-home pay. How long this takes will depend on how far in advance the planned increases have been announced and on broader labour market conditions. </p>
<p>Regardless, the end point will be that the extra superannuation will come from employees through lower take-home pay than they would have had.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/think-superannuation-comes-from-employers-pockets-it-comes-from-yours-130797">Think superannuation comes from employers' pockets? It comes from yours</a>
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<p>Households will need to apportion the lower take-home pay than otherwise between lower spending than otherwise and lower other saving than otherwise. </p>
<p>How they do this will depend on how they save at the moment.</p>
<p>For households in which compulsory superannuation is the only or the main way in which they save, the increase in contributions will bring about extra saving. They will spend less than they would have.</p>
<h2>For some, it’ll change the way they save</h2>
<p>For households who are already saving more than is mandated through superannuation, the increase in contributions is more likely to lead them to cut other saving than it is to lead them to cut their spending. </p>
<p>For these households, total saving will be largely unchanged, but a greater proportion of it will be routed through super and a lower proportion through other types of saving. </p>
<p>These are the households who are likely to push up economy-wide debt.</p>
<p>To understand why, it is helpful to shift our focus to housing.</p>
<h2>More borrowing, less equity</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/348299/original/file-20200720-27-kr1qr7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/348299/original/file-20200720-27-kr1qr7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/348299/original/file-20200720-27-kr1qr7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/348299/original/file-20200720-27-kr1qr7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/348299/original/file-20200720-27-kr1qr7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/348299/original/file-20200720-27-kr1qr7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/348299/original/file-20200720-27-kr1qr7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/348299/original/file-20200720-27-kr1qr7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">More debt, less equity.</span>
<span class="attribution"><span class="source">STEFAN POSTLES/AAP</span></span>
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<p>A rise in compulsory super has little direct impact on demand for housing as shelter, whether by owner-occupiers or renters. But it does affect the way housing is financed.</p>
<p>In making decisions about where to allocate their saving outside of super, households show a preference for buying equity in housing. </p>
<p>In contrast, the super sector invests more heavily in market securities, including lending money to and buying shares in <a href="https://www.copsmodels.com/ftp/workpapr/g-266.pdf">banks</a>.</p>
<p>Shovelling more household savings into super and less into home equity will at the margin cut the amounts households are able to advance as deposits for homes and increase the amounts banks are able to lend them on top of those deposits.</p>
<p>The complex chain by which some savings that would have been home deposits end up financing the same homes via debt means a fair proportion of them is <a href="https://theconversation.com/heres-how-superannuation-is-already-financing-homes-76159">lost along the way</a> in fees, expenses and profit margins.</p>
<h2>Reasons for caution</h2>
<p>Even in normal times, these would be reasons for caution about increasing compulsory super contributions. Of course, the times aren’t normal. </p>
<p>COVID-19 has had a dire impact on the labour market and <a href="https://theconversation.com/why-even-the-best-case-for-jobs-isnt-good-well-need-more-jobkeeper-139648">broader economy</a>. The recovery path is likely to be long and uncertain, with heightened risks of new economic shocks.</p>
<p>Before COVID-19, Australia had one of the world’s highest ratios of <a href="https://stats.bis.org/statx/srs/table/f3.1">household debt to GDP</a>. COVID-19 will exacerbate it by pushing down GDP. </p>
<p>An increase in compulsory super risks pushing up household debt further, further weakening economic stability.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/5-questions-about-superannuation-the-governments-new-inquiry-will-need-to-ask-124400">5 questions about superannuation the government's new inquiry will need to ask</a>
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<p>As noted earlier, for households with low saving rates the increase in compulsory super will be accommodated by lower spending than would have been expected.</p>
<p>During a recession this constitutes an additional risk to recovery.</p>
<p>It is also worth noting that while the legislated increase in compulsory contributions will ultimately be borne by workers through lower take-home pay than otherwise, in the short-run some of it might be borne by firms. </p>
<p>The risk there is that by pushing up short-run hiring costs, the increase in compulsory super will delay the labour market recovery.</p><img src="https://counter.theconversation.com/content/142571/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Giesecke received funding from the CSIRO-Monash Superannuation Research Cluster. </span></em></p><p class="fine-print"><em><span>Jason Nassios received funding from the CSIRO-Monash Superannuation Research Cluster.</span></em></p>At the margin, more compulsory super will mean less equity in homes and more borrowing for homes. Australia already has one of the world’s highest household debt ratios.James Giesecke, Professor, Centre of Policy Studies and the Impact Project, Victoria UniversityJason Nassios, Senior Research Fellow, Centre of Policy Studies, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1056862019-01-07T16:18:20Z2019-01-07T16:18:20ZHow Universal Credit perpetuates the false equation between public and private debt<figure><img src="https://images.theconversation.com/files/251875/original/file-20181221-103660-161hsgw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What the 'credit' in Universal Credit actually means.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-women-worried-about-bills-789678214?src=yTFgisO_2_R7E_03ub5xaw-2-9">Fure/Shutterstock</a></span></figcaption></figure><p>The full roll out of Universal Credit, the government’s plan to collapse six welfare benefits into one, was <a href="https://www.theguardian.com/society/2019/jan/05/amber-rudd-to-delay-universal-credit-roll-out-pilot-study">delayed in early January</a>. This followed mounting concerns by MPs and months of trenchant <a href="https://www.independent.co.uk/news/uk/home-news/benefit-sanctions-universal-credit-dwp-report-study-no-evidence-a8577061.html">criticism</a> of its design, including from the <a href="https://www.ohchr.org/Documents/Issues/Poverty/EOM_GB_16Nov2018.pdf">UN’s special rapporteur</a> on extreme poverty and human rights. </p>
<p>These criticisms are warranted and important. Yet the concept of Universal Credit, and its approach to debt, reveals something wider about the UK’s current political moment.</p>
<p>Taken at face value, Universal Credit has a seemingly innocent meaning. “Credit” simply means a payment made to your account. “Universal” means that it replaces previously separate benefits payments with a singular one that should fit all requirements. On this <a href="https://www.gov.uk/universal-credit">official</a> reading, the concept may invoke positive connotations of efficiency and solvency. </p>
<p>But people generally associate credit with a form of borrowing, which produces an interest-bearing debt. Under this interpretation, the repayment of a debt is taken to be a moral obligation – and this is relevant to Universal Credit.</p>
<p>Some may argue that Universal Credit is not a loan: no interest is charged, no debt is created, no underwriting takes place. Yet it nevertheless establishes a loan-like relationship to recipients who will be <a href="https://theconversation.com/constant-anxiety-of-benefit-sanctions-is-toxic-for-mental-health-of-disabled-people-105067">sanctioned</a> if they fail to meet the conditions set up in the “claimant commitment” each recipient must sign. The conditions are all about finding as much work as possible quickly. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/universal-credit-is-built-around-flawed-incentives-that-are-doing-real-damage-fixing-it-is-essential-105202">Universal Credit is built around flawed incentives that are doing real damage – fixing it is essential</a>
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</em>
</p>
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<h2>Public services become conditional</h2>
<p>The “credit” in Universal Credit is then not about an actual loan of money. It’s rather about a relationship of discipline and punishment similar to the relationship of debtor to creditor – a relationship of unequal power which supposedly generates moral obligations. </p>
<p>The idea here is that if people receive money through Universal Credit they do not do so primarily as a right, but as a form of performance-dependent loan to help them become “fit to work” and to start working. In this morality story, taxpayers prepay for your benefits so that you can repay this figurative debt by becoming a working taxpayer yourself. If you fail to comply with your “claimant commitments”, you become unworthy of their support. Then your means for subsistence will be reduced or withheld. </p>
<p>But it is not only money that these “debtors” are supposed to eventually pay back by becoming taxpayers. They also repay by submitting to a way of living in which everything becomes secondary to gainful employment. </p>
<h2>Fixation on private debt</h2>
<p>The reason why the creditor-debtor relationship is used as the model for the obligations of those who receive Universal Credit lies in the grip which the logic of private debt has on British politics.</p>
<p>Private debt is rightly a worry for many Britons. Millions of UK households currently have negative equity or rely on credit card debt or overdrafts to pay for essentials. Unsecured consumer credit, the type that’s not related to mortgages, is fast <a href="https://www.theguardian.com/business/2017/sep/18/uk-debt-crisis-credit-cards-car-loans">on the rise</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/252639/original/file-20190107-32127-1y6knsd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/252639/original/file-20190107-32127-1y6knsd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/252639/original/file-20190107-32127-1y6knsd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/252639/original/file-20190107-32127-1y6knsd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/252639/original/file-20190107-32127-1y6knsd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/252639/original/file-20190107-32127-1y6knsd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/252639/original/file-20190107-32127-1y6knsd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Public and private debt: not the same thing.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/773824573?src=8KStCIohsomNgA8iNK62Lg-1-81&size=medium_jpg">John Williams RUS/Shutterstock</a></span>
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<p>Public debt has been at the forefront of British politics at least since the onset of the recent great financial crisis in 2008. The austerity policies of recent UK governments were framed as a direct response to dangerous levels of public debt. The reduction of public spending was justified as necessary to avoid economic collapse. The consequences of these spending cuts are widely felt and <a href="https://www.theguardian.com/commentisfree/2017/mar/16/women-austerity-poor-vulnerable-gender-inequality">disproportionately borne</a> by the disadvantaged and vulnerable. </p>
<p>At the same time, there has been an equation of public and private forms of debt. This equation works via transferring the idea of overspending that causes life-changing bankruptcy from your own household to the nation. As the then deputy prime minister, <a href="http://www.libdemvoice.org/full-text-nick-cleggs-speech-to-liberal-democratautumnconference-21236.html">Nick Clegg, put it</a> in 2010: </p>
<blockquote>
<p>We can’t keep spending money as if nothing had changed … It’s the same as a family with earnings of £26,000 a year who are spending £32,000 a year. Even though they’re already £40,000 in debt. Imagine if that was you. You’d be crippled by the interest payments.</p>
</blockquote>
<p>With this equation, any pound spent on welfare is a pound added to the debt tally that urgently needs to be reduced. Under this logic, welfare payments should therefore be cut as much as possible. Any pound spent on welfare that cannot be cut should be tied to as strong an expectation as possible that it will be repaid – in some form or other – like a private loan. </p>
<h2>A misplaced equation</h2>
<p>But the equation hides the differences between public and private debt. States which have sovereignty over their currency such as the UK (and unlike members of the Eurozone) cannot become insolvent like private households. They can always issue more currency to remain solvent. Under some circumstances the issuing of currency can lead to inflation but that is a different question, to which a <a href="https://www.routledge.com/The-Philosophy-of-Debt/Douglas/p/book/9781138929746">more complex answer</a> than “balance the budget or go bust” is in order. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/two-real-life-accounts-of-the-effect-of-benefits-sanctions-46500">Two real-life accounts of the effect of benefits sanctions</a>
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</em>
</p>
<hr>
<p>The concept of Universal Credit illustrates the fixation on debt in current British politics. This fixation supports the ongoing shift from a period when public services were considered as a right, to the point where they are received conditionally, on “credit”. </p>
<p>To become free of this fixation, people should spend more time trying to <a href="https://www.luminosoa.org/site/books/10.1525/luminos.14/">understand public debt</a> and <a href="https://positivemoney.org/publications/#1504779308350-888031e1-fb67">money creation</a>. Doing so would not only be useful for assessing arguments for austerity and conditional welfare. It could also help expand the limits of what kinds of politics are “economically” possible after all.</p><img src="https://counter.theconversation.com/content/105686/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Janosch Prinz receives funding from The Leverhulme Trust. </span></em></p>The concept of Universal Credit reveals something wider about the UK’s current political fixation on debt.Janosch Prinz, Leverhulme Early Career Fellow, University of East AngliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/939002018-04-19T10:50:24Z2018-04-19T10:50:24Z2008 financial crisis still seems like only yesterday for single women<figure><img src="https://images.theconversation.com/files/214856/original/file-20180414-570-i6t6p1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A woman walks by the New York Stock Exchange. </span> <span class="attribution"><span class="source">AP Photo/Richard Drew</span></span></figcaption></figure><p>For many Americans, the financial crisis that plunged the global economy into recession a decade ago may seem like a distant memory. </p>
<p><a href="https://www.federalreserve.gov/releases/z1/20180308/z1.pdf">Household net worth</a> – the difference between assets and debts – reached a record US$98.7 trillion in the last quarter of 2017, up from $56.2 trillion in 2008. </p>
<p>Yet net wealth, by itself, masks a lot of information that could signal troubling trends. For example, this measure doesn’t tell us which households are getting richer. It also doesn’t reveal how much borrowing is fueling these ostensibly swelling balance sheets. </p>
<p>More specifically, it doesn’t show that for households headed by women, particularly poorer ones, the financial picture is still very cloudy. That’s in part because, as my soon-to-be-published research shows, low-income single women borrowed a lot more than single men in the years leading up to the crisis. And their indebtedness relative to their income and wealth remains far more elevated than is the case for pretty much everyone else.</p>
<p>This is especially worrying because female-headed households are vulnerable to begin with – and so are at risk again if <a href="https://theconversation.com/recent-stock-market-sell-off-foreshadows-a-new-great-recession-92471">another crisis looms on the horizon</a>. </p>
<h2>Why debt matters</h2>
<p>To understand why debt is so integral to household financial health, it’s helpful to look at what happened during the 2008 financial crisis. </p>
<p>Overall household debt grew dramatically in the early 2000s, driven in large part by the <a href="https://files.stlouisfed.org/files/htdocs/publications/review/06/01/ChomPennCross.pdf">subprime mortgage</a> boom. This borrowing eventually reached levels that proved to be unsustainable and, after interest rates began rising in 2004, forced millions into <a href="http://money.cnn.com/2006/09/13/real_estate/foreclosures_spiking/index.htm?postversion=2006091508">foreclosure</a>.</p>
<p>While things have recovered, the significant gains in net worth are illusory, in part because <a href="https://www.washingtonpost.com/news/wonk/wp/2017/12/06/the-richest-1-percent-now-owns-more-of-the-countrys-wealth-than-at-any-time-in-the-past-50-years/?utm_term=.ba02d0976df1">they have gone disproportionately</a> to the richest households. Moreover, they have been financed through a lot more borrowing.</p>
<p>Total household debt reached <a href="https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2017Q4.pdf">a record $13.15 trillion</a> at the end of 2017, up about $2 trillion since the most recent trough in 2013. Nonhousing debt like credit cards and student loans made up most of the increase. </p>
<p>To understand why net worth is misleading, consider two households with identical net worth of $10,000: One has $15,000 of assets and $5,000 of debts, while the other has $10,000 of assets and no debts. </p>
<p>Whether the $5,000 turns out to be unsustainable or not depends on the household’s ability to service the debt and pay down the principal. If its income becomes insufficient, the debt will accumulate, and eventually the family will have less and less money for the necessities of life – as occurred during the financial crisis. </p>
<p>Sustainable debt can quickly become unsustainable if a household suffers what economists call a “shock,” or any unexpected change to the family’s ability to make ends meet, like losing a job or caring for a sick relative. And some households are more vulnerable, or <a href="https://economics.mit.edu/files/5998">financially fragile</a>, than others. </p>
<p>Unpredictable shocks can push such households over the edge.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/214855/original/file-20180414-540-xpgtw0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/214855/original/file-20180414-540-xpgtw0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214855/original/file-20180414-540-xpgtw0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214855/original/file-20180414-540-xpgtw0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214855/original/file-20180414-540-xpgtw0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214855/original/file-20180414-540-xpgtw0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214855/original/file-20180414-540-xpgtw0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Households that are financially fragile are more vulnerable to unpredictable shocks such as medical bills or job loss.</span>
<span class="attribution"><span class="source">kudla/Shutterstock.com</span></span>
</figcaption>
</figure>
<h2>The feminization of poverty</h2>
<p>Female household heads are particularly at risk to shocks because of their greater economic insecurity and may be more likely to use high-cost borrowing to make ends meet. </p>
<p>For a start, single women’s median wealth is <a href="http://www.mariko-chang.com/AFN_Women_and_Wealth_Brief_2015.pdf">one-third that of single men</a>. And single women – mothers in particular – <a href="http://poverty.ucdavis.edu/sites/main/files/file-attachments/policy_brief_stevens_poverty_transitions_1.pdf">have more frequent and longer poverty spells</a> and <a href="https://statusofwomendata.org/explore-the-data/employment-and-earnings/employment-and-earnings/">higher unemployment rates</a> than other households. They also experience <a href="https://www.americanprogress.org/issues/economy/reports/2017/04/27/431251/single-women-face-greatest-risk-economic-insecurity/">high levels of economic risk</a> from shocks such as divorce and unexpected care obligations. On top of all this, the social safety nets such as federal welfare programs that used to support female-headed households <a href="https://www.thenation.com/article/the-american-social-safety-net-does-not-exist/">have been weakened</a>. </p>
<p>Economists have also pointed to evidence of a “<a href="http://www.tandfonline.com/doi/abs/10.1080/10511482.2011.615850">feminization of high-cost credit</a>,” particularly among women of color. That’s because low-income single women’s economic vulnerability and historically limited access to traditional credit products have made them <a href="https://www.journals.uchicago.edu/doi/full/10.1086/675391">targets for predatory subprime lending</a>. In a 2006 sample of mortgage borrowers, more than <a href="http://www.tandfonline.com/doi/abs/10.1080/10511482.2011.615850">half of mortgages</a> owned by black single women were subprime, compared with 28 percent for non-Hispanic white single male borrowers. </p>
<h2>Pushed into the red</h2>
<p>My research, which will be published in the Forum for Social Economics, shows that female-headed households experienced a concerning increase in two major forms of borrowing leading up to the financial crisis: mortgage and educational debt.</p>
<p>Controlling for other household characteristics such as household size and marital status, I examined differences in the growth of average mortgage and student debt among single female- and male-headed households in three time periods: the late 1990s, the credit expansion of 2002 to 2007, and the post-crisis period of 2008 to 2013. I also compared differences between incomes below and above the median, which varied from $24,000 in 1995 to $35,000 in 2007.</p>
<p>My most significant finding is that average mortgage debt for households headed by lower-income unmarried, divorced or widowed women increased substantially during the credit expansion – rising from about $9,800 to $16,600 after adjusting for other household characteristics – while similar households led by single men showed no statistically significant change during the period. This gender gap persisted during the recovery; debt for men and women changed very little through 2013. </p>
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<p>One explanation is that lenders saw poorer single women – and <a href="http://www.tandfonline.com/doi/abs/10.1080/10511482.2011.615850">women of color in particular</a> – as a largely untapped market in their rush to originate all the high-interest loans that they could. <a href="https://consumerfed.org/pdfs/WomenPrimeTargetsStudy120606.pdf">Other research</a> has found that women were more likely than men to receive subprime mortgages. </p>
<p>In terms of student debt, I found that the average single woman borrowed an extra $2,000 or so during the lead-up to the crisis, compared with an increase of only $775 for men. This was particularly prevalent among younger single women. After the crisis, when many people went back to school because there were so few jobs, female-headed households increased their student debt by an additional $3,400 on average, while men borrowed an additional $2,800. </p>
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<p>One reason for this is likely that <a href="https://iwpr.org/publications/single-mothers-overrepresented-profit-colleges/">single mothers</a> are overrepresented at for-profit colleges, where students are <a href="https://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.pdf">three times more likely</a> than their peers at nonprofit universities to hold costly private loans. Another is that <a href="https://www.aauw.org/research/deeper-in-debt/">more women</a> were studying at college.</p>
<p>One important caveat to my data. My data show only averages over time, not how the fortunes of particular borrowers changed. In other words, I can only show trends, not whether individual households are in fact better or worse off than they were at different points in time.</p>
<h2>Wealth and financial fragility</h2>
<p>Of course, debt isn’t always a bad thing. Many households use debt to acquire assets to improve their financial situation down the road.</p>
<p>Homeownership is an <a href="https://www.nbcnews.com/feature/in-plain-sight/american-dream-home-whats-middle-class-without-house-n296346">important way</a> to build wealth, so it’s not altogether a bad thing that a record share of unmarried women <a href="https://www.nytimes.com/2017/09/28/realestate/most-unmarried-homeowners-are-women.html">owned their own homes in 2006</a>. Similarly, educational investments lead to long-run payoffs that far exceed tuition costs: Someone with a college degree <a href="https://www.aeaweb.org/articles?id=10.1257/jep.26.1.165">is estimated</a> to earn one and a half times as much as a high school graduate. </p>
<p>Still, there are good reasons to question whether all that pre-crisis borrowing really improved households’ financial health. In my own research, I found that lower-income women’s debt-to-wealth ratio doubled from the late 1990s to 2013. It turns out, the wealth created by the surge in female homeowners simply vanished when the housing bubble popped. </p>
<p>Today, as borrowing again crescendos, there are good reasons to worry that the next bursting of a debt-driven bubble is right around the corner. And when it happens, once again many low-income single women and their dependents will be among the worst hit.</p><img src="https://counter.theconversation.com/content/93900/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Melanie G. Long does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Single women borrowed heavily in the run-up to the financial crisis, ensuring they suffered the most in its fallout. Will history repeat itself?Melanie G. Long, PhD Candidate in Economics, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/924712018-03-19T10:38:10Z2018-03-19T10:38:10ZRecent stock market sell-off foreshadows a new Great Recession<figure><img src="https://images.theconversation.com/files/210667/original/file-20180315-104676-j2vnia.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">An ice sculpture titled 'Main Street Meltdown' melts near Wall Street.</span> <span class="attribution"><span class="source">AP Photo/Frank Franklin II</span></span></figcaption></figure><p>In early February, concerns about inflation and rising interest rates sent global financial markets into a frenzy, <a href="https://www.npr.org/sections/thetwo-way/2018/02/05/583325123/stocks-extend-losses-with-dow-dropping-more-than-300-points-at-the-open">prompting the biggest single-day drop</a> ever in the Dow Jones Industrial Average. Stocks have since recovered some of their losses.</p>
<p>A similar episode occurred exactly 10 years earlier, <a href="https://blogs.cfainstitute.org/investor/2017/01/31/the-ars-debacle-the-forgotten-crisis-of-2008/">though few may remember</a>. In February 2008, the failure of an obscure market precipitated a <a href="https://blogs.cfainstitute.org/investor/2017/01/31/the-ars-debacle-the-forgotten-crisis-of-2008/">similar selling frenzy</a>. At the time, this sell-off went mostly unrecognized as a harbinger of something worse because the stock market quickly recovered. </p>
<p>Just as the world shouldn’t have been complacent in 2008, we shouldn’t rest easy today. Both events are proverbial dead canaries in a coal mine. </p>
<p>That’s because they have something else in common. Both stemmed from worries that rising borrowing costs would hurt debt-burdened consumers, the housing market and ultimately the U.S. economy.</p>
<p>Our soon-to-be-published research shows that the same problems that led to the biggest financial market meltdown since the Great Depression are alive and well today. </p>
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<h2>2008’s canary in a coal mine</h2>
<p>In the mid-2000s, the U.S. economy <a href="http://www.washingtonpost.com/wp-dyn/content/article/2007/01/31/AR2007013100422.html?referrer=email">seemed to be riding high</a>, but two key problems lurked below the surface: excessive household debt and a housing bubble.</p>
<p>Part of the first problem was that real, <a href="https://fred.stlouisfed.org/series/MEHOINUSA672N">inflation-adjusted household incomes were actually lower</a> than they had been in the late 1990s. To maintain living standards, Americans took on more debt thanks to <a href="https://fred.stlouisfed.org/series/FEDFUNDS">relatively low borrowing costs</a> and weak underwriting standards among lenders. <a href="https://www.newyorkfed.org/microeconomics/hhdc.html">Total household debt soared</a> more than 50 percent, from a little over US$8 trillion in 2004 to $12.69 trillion by 2008. </p>
<p>That brings us to the second problem. Most of that was mortgage debt. The housing bubble pushed it to the point <a href="http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/son2008.pdf">that it was unsustainable</a> as housing prices outstripped incomes, leading banks to come up with <a href="https://www.theguardian.com/business/2007/sep/30/5">ever creative ways</a> to lend people money they ultimately couldn’t pay back. </p>
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<p>At around the same time, the Federal Reserve began to lift interest rates, from 2004 to 2006, making credit more expensive. This reduced consumer spending as more of households’ falling real incomes went to repay debt, thus <a href="https://fred.stlouisfed.org/series/GDP">slowing economic growth</a> and the housing market. </p>
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<p>To <a href="http://keenomics.s3.amazonaws.com/debtdeflation_media/2007/03/SteveKeenDebtReportNovember2006.pdf">some observers</a>, it was only a matter of time before an economic recession or worse. </p>
<p>Among the first significant signs that things were seriously amiss came from the <a href="http://www.mondaq.com/unitedstates/x/60418/securitization+structured+finance/AuctionRate+Securities+Bidders+Remorse+A+Primer">auction rate securities</a> market, which was worth about $330 billion at its peak in 2008. Auction rate securities are essentially packages of mortgages, student loans and other medium- to long-term debt. Back in 2008, broker dealers held weekly <a href="https://www.investopedia.com/terms/d/dutchauction.asp">Dutch auctions</a> at which these short-term securities changed hands and interest rates were set after a bidding process. <a href="https://www.barrons.com/articles/SB121159302439419325">Credit-rating agencies gave them</a> their <a href="https://www.investopedia.com/terms/a/aaa.asp">super-safe ranking of AAA</a>. </p>
<p>Investors <a href="https://blogs.cfainstitute.org/investor/2017/01/31/the-ars-debacle-the-forgotten-crisis-of-2008/">liked them</a> because they were paid a much higher rate than other short-term securities with AAA ratings. Because they could be sold quickly to investors, borrowers could get loans more easily. </p>
<p>But on Feb. 7, 2008, the <a href="https://fas.org/sgp/crs/misc/RL34672.pdf">market began to seize up</a>. It started when the big investment banks, responsible for ensuring the market had plenty of “liquidity” by purchasing the securities if demand was weak, backed away because a growing number of households couldn’t repay their debts and this was beginning to squeeze their bottom lines. </p>
<p>This spooked investors, who sensed something was wrong. By the end of the month, there were no auctions, and billions of dollars in securities were frozen. The auction rate securities market remains closed to this day. </p>
<p>Within months of its February seizure, the broader market had moved on, as the Dow Jones Index reached the year’s peak by May. Yet the event sent ripples throughout the economy as investors continued to avoid mortgage-related assets. </p>
<p>By September 2008, when investment bank Lehman Brothers collapsed because of problems with these securities, the Great Recession was in full swing. </p>
<h2>Deja vu?</h2>
<p>Fast forward to today. </p>
<p>The economy has mostly recovered from the financial crisis, the <a href="https://data.bls.gov/timeseries/LNS14000000">unemployment rate has dropped</a> from 10 percent in 2009 to 4.1 percent in January and <a href="https://fred.stlouisfed.org/series/MEHOINUSA672N">real median household income surged</a> to a record at the end of 2016. </p>
<p>Good news, right? </p>
<p>Our new research shows that these rosy-looking stats conceal the same two related problems as 10 years ago: excessive consumer debt (relative to income) and unaffordable housing.</p>
<p>First, debt and income. After falling in the aftermath of the Great Recession, debt is once again reaching new highs. Especially worrisome, nonmortgage household debt (student loans and credit cards) has soared at a rapid pace and <a href="https://www.newyorkfed.org/microeconomics/hhdc.html">is now 41 percent above</a> its previous peak in 2008. We estimate that the resulting interest payments on nonmortage household debt have reduced living standards of the typical household by 3.1 percent since 2008. That either lowers consumption or prolongs the vicious cycle of more and more household debt. </p>
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<p>But things are even worse than this. Income data ignore <a href="http://www.pewresearch.org/fact-tank/2017/05/05/its-becoming-more-common-for-young-adults-to-live-at-home-and-for-longer-stretches/">recent demographic shifts</a>, such as more multi-generation households and college students living with their parents longer. We adjusted household income by family size because more people living together requires more money to attain the same living standards. Our data show this has lowered average living standards by 3.3 percent. This is on top of the 3.1 drop due to greater interest payments on nonmortgage debt.</p>
<p>Second, although there is no great housing bubble today, the fundamental problem is the same as 10 years ago – people with average incomes cannot afford to buy and live in an average priced home. Low interest rates helped the housing market recover, but <a href="https://www.usatoday.com/story/money/2017/07/25/u-s-home-prices-reach-record-high-6th-straight-month/507808001">also helped drive prices to record highs</a>. </p>
<p>Just like before the 2008 crisis, incomes <a href="https://www.cnbc.com/2018/03/13/economist-home-prices-are-increasing-twice-as-fast-as-income-growth.html">have not kept pace</a> with home prices. Too many people cannot afford to buy a home. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Dark days ahead?</span>
<span class="attribution"><span class="source">Sunny Boy/Shutterstock.com</span></span>
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<h2>Storm clouds brewing</h2>
<p>So what does this all mean? </p>
<p>Home prices and consumer debt are again at record highs, and the Fed has been steadily raising benchmark borrowing costs for over a year now. The central bank <a href="https://www.cnbc.com/2018/01/30/fed-will-be-forced-to-raise-rates-more-rapidly-than-expected-cnbc-fed-survey.html">is expected</a> to accelerate the process because the recent tax cut is likely to cause inflation to rise, requiring the Fed to lift interest rates to cool things down. This will hurt the housing market, pushing more homeowners underwater and making it harder for them to pay their mortgages and repay other debt.</p>
<p>At the same time, incomes have only grown modestly and, as our research shows, average American households have 6 percent to 7 percent less spending power than they did a decade ago, before the global financial system collapsed. Something will have to give. Households can take on more debt to maintain their living standards for a short while, or they can significantly reduce their spending. </p>
<p>In either case, the U.S. economy is primed for another recession. We believe it’s not a question of if. It’s a question of when.</p><img src="https://counter.theconversation.com/content/92471/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The collapse of an obscure corner of the financial market a decade ago foreshadowed the Great Recession. The stock-market swoon in February should offer a similar warning.Steven Pressman, Professor of Economics, Colorado State UniversityRobert H. Scott III, Professor of Economics & Finance, Monmouth UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/871822017-11-15T19:16:43Z2017-11-15T19:16:43ZIncreasing wages would make the Australian economy safer<figure><img src="https://images.theconversation.com/files/194746/original/file-20171115-19829-1ogp92h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Slow wage growth is leading to over-indebtedness among those that can afford hosues. </span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>Australian wages have <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mediareleasesbyCatalogue/71b77142e6fdc370ca2581d700791977?OpenDocument">again</a> failed to meet expectations - rising by just 2% on an annual basis. This is bad not just for workers, but for the economy in general. Wages need to rise, especially for those on low to middle incomes. </p>
<p><a href="https://www.researchgate.net/publication/317703679_The_Balancing_Act_Household_Indebtedness_Over_the_Lifecycle?ev=prf_high">Research</a> shows that even a small increase in interest rates disproportionately harms borrowers who are on lower incomes, and especially those at the start of the debt repayment process. </p>
<p>The Bank of England <a href="http://www.bankofengland.co.uk/publications/Pages/news/2017/007.aspx">recently raised interest rates</a> for the first time in a decade. The US Federal Reserve and European Central Bank will eventually follow suit. And as interest rates rise across the developed world, Australia will also be forced to follow. </p>
<p><a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/6523.0%7E2015-16%7EFeature%20Article%7EHousehold%20Debt%20and%20Over-indebtedness%20(Feature%20Article)%7E101">Around 29%</a> of Australian households are “over-indebted”. As interest rates rise, many of these households will be unable to meet their mortgage repayments. An increase in mortgage defaults will hit banks’ balance sheets, and will spread through the financial system.</p>
<p>Increasing wages would not only ease some of this financial stress, but would also jolt inflation as these newly enriched workers buy themselves things. Rising inflation will erode some of the debt repayment the household sector faces over the coming years.</p>
<h2>Warning signs</h2>
<p>A <a href="https://www.researchgate.net/publication/317703679_The_Balancing_Act_Household_Indebtedness_Over_the_Lifecycle?ev=prf_high">study</a> in Ireland (which has similar household debt levels to Australia) found that a 1-2% increase in interest rates leads to a 2-4% reduction in a typical borrower’s disposable income after debt repayments.</p>
<p>Households are <a href="https://scholar.harvard.edu/campbell/publications/model-mortgage-default">considered</a> “vulnerable” if their debt service ratio (the share of debt repayments to income) is over 30%. If you earn A$1,500 after taxes every week, but are barely making a A$850 mortgage repayment, you’re going to be in trouble if repayments rise to $A900. </p>
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<p>Part of the reason for the increased household debt is that the “labour share” of the Australian economy has been declining.</p>
<p>In 1960, Australian workers took home 62% of the value of what they produced. Australian owners of capital got 38%. This split <a href="https://www.quandl.com/data/AMECO/AUS_1_0_0_0_ALCD2-Adjusted-wage-share-total-economy-as-percentage-of-GDP-at-current-factor-cost-Compensation-per-employee-as-percentage-of-GDP-at-factor-cost-per-person-employed-Australia">was similar</a> in the rest of the developed world.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/how-market-forces-and-weakened-institutions-are-keeping-our-wages-low-83446">How market forces and weakened institutions are keeping our wages low</a>
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<p>In 2018, workers will <a href="https://www.quandl.com/data/AMECO/AUS_1_0_0_0_ALCD0-Adjusted-wage-share-total-economy-as-percentage-of-GDP-at-current-prices-Compensation-per-employee-as-percentage-of-GDP-at-market-prices-per-person-employed-Australia">most likely</a> take home less than 50% of the value of what they produce. The <a href="https://www.oecd.org/g20/topics/employment-and-social-policy/The-Labour-Share-in-G20-Economies.pdf">average drop</a> in the labour share as a percentage of GDP since 1960 is 12% across the OECD. </p>
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<p>Wages <a href="https://www.rba.gov.au/publications/bulletin/2017/mar/pdf/bu-0317-2-insights-into-low-wage-growth-in-australia.pdf">have been growing</a> at less than 2% a year since 2014. This is despite the fact that unemployment is 5.5% and falling, which is around the level where we would expect to see wages rise because workers can command a premium in the market. </p>
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Read more:
<a href="https://theconversation.com/explainer-what-exactly-is-a-living-wage-86927">Explainer: what exactly is a living wage?</a>
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<p>But the Australian labour market is also changing. Underemployment (workers who would like to work more hours) is a key problem in many households. Underemployment is relatively high among 15-24-year-olds and is projected to rise.</p>
<p>According to the Oxford Internet Institute’s <a href="http://ilabour.oii.ox.ac.uk/online-labour-index/">online labour index</a>, Australia is number three in the world for “gig economy” jobs, behind Britain and the United States. These jobs provide cash flow but no security. They also build up other vulnerabilities - <a href="https://theconversation.com/how-gig-economy-workers-will-be-left-short-of-super-85814">many Uber drivers will be short on Super</a>, for example.</p>
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<p>As you can see from the previous chart, Australian corporations aren’t doing too badly even as the labour share declines. The chart shows the gross profits, compared to the last month of 2008 – pretty much the peak of the crisis. This comparison allows us to see the changes in profits before and after the crisis more clearly. </p>
<p>The raw data <a href="https://www.quandl.com/data/AUSBS-Australian-Bureau-of-Statistics?keyword=operating%20surplus">show</a> the same pattern. </p>
<p>You can see clearly a drop after the global financial crisis hits, and then a very sharp recovery in 2015 and 2016. Gross operating surplus, our rough measure of the profits of the private sector, are more than 24% higher than they were in 2008. One important reason for the increase in profits is the lack of wage growth for households. </p>
<h2>What should be done?</h2>
<p>In the longer term the ratio of debt to income and assets will have to fall. This could happen via write-offs, sell-ons and bankruptcies, or via increases in incomes. But we don’t live in the longer term. </p>
<p>Right now, middle-income workers need more cash in their pockets. There are a couple of options available. </p>
<p>The first is to reduce the burden of debt repayment on those new entrants to the mortgage market. One solution is to provide tax relief on the interest that a household pays in the first few years of a mortgage (as <a href="https://www.revenue.ie/en/property/mortgage-interest-relief/index.aspx">Ireland</a> and the <a href="http://taxsummaries.pwc.com/ID/United-Kingdom-Individual-Deductions">United Kingdom</a> do). This will keep the property market working well and support younger borrowers, if only temporarily. But it could also bid up house prices if not properly targeted. </p>
<p>The second is the simplest approach - reduce taxes, combined with tax reform. But the federal government is already running a budget deficit of <a href="http://www.budget.gov.au/2017-18/content/glossies/overview/download/Budget2017-18-Overview.pdf">around</a> 2% of GDP, so this doesn’t work in the short term. </p>
<p>The third option is to reduce the cost of living by making public transport easier to access, improving early education, and reducing energy prices. But <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2424835">research shows</a> that the “worst” infrastructure projects are the ones that generally get built, so this isn’t advisable either. </p>
<p>The solution, then, is to increase wages, especially at the middle of the income distribution. Minimum wages have already gone up by more than 3% this year, but this is unlikely to help those on middle incomes, who have access to enough credit to afford current house prices and so <a href="http://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0010/2437426/HILDA-SR-med-res.pdf">have become stretched</a>. </p>
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Read more:
<a href="https://theconversation.com/the-costs-of-a-casual-job-are-now-outweighing-any-pay-benefits-82207">The costs of a casual job are now outweighing any pay benefits</a>
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<p>There are models Australia can learn from internationally. In Germany, the <a href="https://www.eurofound.europa.eu/observatories/eurwork/comparative-information/national-contributions/germany/germany-wage-flexibility-and-collective-bargaining">Variable Payment System</a> links pay increases to profit sharing and bonuses. When the company or the sector does well, the worker does well. The reverse is also true. </p>
<p><a href="http://ftp.iza.org/dp3867.pdf">A survey</a> of 23 different wage-increasing mechanisms found almost all countries bar the US, Hungary and Poland have some collective bargaining and minimum wages. These range from hard wage indexation enforced by law, to intra-associational coordination (roughly what we have here in Australia). The right model for the 21st century and the changing nature of work may be very different, however. </p>
<p>As we’ve seen, private sector is doing very well and can afford a wage hike. And productivity increases in the Australian workforce has <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/5260.0.55.003">long outpaced</a> wage increases. A wage increase is not only feasible and justified, it is in the national interest.</p><img src="https://counter.theconversation.com/content/87182/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Kinsella does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Low wage growth isn’t just bad for households - it’s also bad for the overall economy. Research shows that increasing wages would take some of the risk out of the housing sector.Stephen Kinsella, Reseach Fellow, School of Government, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/846952017-10-22T19:04:28Z2017-10-22T19:04:28ZFinancial literacy is a public policy problem<figure><img src="https://images.theconversation.com/files/190960/original/file-20171019-30520-1j2dzoq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Financial illiteracy contributed to the last financial crisis. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>As the world of finance becomes more complex, most of us aren’t keeping up. In this series we’re exploring <a href="https://theconversation.com/au/topics/what-is-financial-literacy-45200">what it means to be financially literate</a>.</em></p>
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<p>It’s pretty common nowadays to see the likes of the <a href="http://www.rba.gov.au/publications/fsr/2017/oct/pdf/financial-stability-review-2017-10.pdf">Reserve Bank of Australia</a> or the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/6523.0%7E2015-16%7EMain%20Features%7EKey%20Findings%7E1">Australian Bureau of Statistics</a> issue warnings about the size of Australian household debt. The reason is that the consequences of poor financial decisions often reach far wider than an individual or family.</p>
<p>The global financial crisis showed us <a href="https://www0.gsb.columbia.edu/faculty/moehmke/papers/BrunnermeierOehmkeHandbookSystemicRisk.pdf">how rapidly financial contagion can spread</a> - one person’s debt is another person’s asset, so when the debt is written off so is the asset. However, there has been <a href="https://www.anz.com/resources/5/4/54720a2d-a540-49f0-b0a7-62f1ffb922e6/adult-financial-literacy-survey-summary.pdf?MOD=AJPERES">little improvement</a> in financial literacy in the wake of the financial crisis, the lack of which was one of the underlying causes.</p>
<p>For instance, <a href="https://books.google.com.au/books?id=ndnxlIqRJ7QC&pg=PA226&lpg=PA226&dq=subprime+borrowers+did+not+understand+the+terms+of+their+loans&source=bl&ots=5dwfRFbOUF&sig=FOrFhb79lF0EEY002Ka_PJyoy4w&hl=en&sa=X&ved=0ahUKEwjvp5j35frWAhWBrJQKHZbcCvkQ6AEIZjAJ#v=onepage&q=subprime%20borrowers%20did%20not%20understand%20the%20terms%20of%20their%20loans&f=false">surveys just prior to the global financial crisis</a> revealed that many Americans taking out home loans either did not read their loan documents or did not understand them. This meant that, in many cases, they did not understand that they were signing <a href="http://www.investopedia.com/terms/t/teaser-loan.asp">teaser loans</a> where the interest rate starts out very low but increases after a few years. </p>
<p>This lack of financial literacy <a href="http://www.nber.org/papers/w19550">combined with predatory lending</a> caused the <a href="http://www.investopedia.com/articles/basics/07/subprime_basics.asp">subprime loan crisis</a>, the precursor to the full blown financial crisis.</p>
<h2>What is financial literacy?</h2>
<p>Financial literacy <a href="http://www.financialliteracy.gov.au/strategy-and-action-plan/financial-literacy-strategy">refers to</a> the ability to make sound financial decisions based on knowledge, skills and attitudes, taking into account personal circumstances. </p>
<p>Low financial literacy is particularly concerning in home loans. In an alarming parallel to the United States before the financial crisis, <a href="https://www.eurekareport.com.au/articles/141622/interest-only-borrowers-fail-literacy-test">roughly one third</a> of interest-only mortgagees do not understand that their repayments make no inroads into their debt, and that their interest rates will jump considerably after the interest-only period of the loan has expired. </p>
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Read more:
<a href="https://theconversation.com/financial-crises-101-could-provide-lessons-for-all-10432">Financial crises 101 could provide lessons for all</a>
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<p>But it isn’t just that low financial literacy increases risk. It is also important for achieving a productive economy. Economic efficiency requires borrowers to not only have good information but to understand it. This allows them to weigh up the costs of borrowing with the benefits that they expect to receive. </p>
<p>If the information is distorted, either deliberately by lenders or through the misunderstanding of borrowers, they will miscalculate the benefits and capital in the economy will be misallocated. Economists call this <a href="http://www.investopedia.com/terms/m/marketfailure.asp?optly_redirect=integrated&lgl=term-video-baseline">market failure</a>, a lot of which occurred in the housing market in the United States before the global financial crisis.</p>
<h2>Financial literacy isn’t improving</h2>
<p>Evidence suggests that financial literacy has not improved since the global financial crisis, and may have gotten worse. </p>
<p>A <a href="https://www.anz.com/resources/5/4/54720a2d-a540-49f0-b0a7-62f1ffb922e6/adult-financial-literacy-survey-summary.pdf?MOD=AJPERES">survey of adult financial literacy</a> in Australia found that in 2014 the number of people who could actually recognise an investment was “too good to be true” - for example a financial asset promising to pay a return much higher than the going return on similar assets and for no greater risk - had actually declined, to 50% from 53% just three years earlier.</p>
<p>The survey also found that those who recognised that good investments (something with relatively low risk) may fluctuate in value fell to 67% from 74%. </p>
<p>But financial literacy education must also go hand in hand with general literacy and numeracy. The <a href="http://www.pc.gov.au/research/supporting/literacy-numeracy-skills/literacy-numeracy-skills.pdf">Productivity Commission</a> found that 14% of the adult population had relatively low literacy skills in 2011-12. This is defined as being able to, at best, locate basic information from simple texts but being unable to evaluate truth claims or arguments.</p>
<p>The report also found 22% of the population had low numeracy skills, meaning that they can count, add and subtract and do other basic arithmetic. But they cannot understand statistical ideas, mathematical formula or analyse data.</p>
<p>In other words, a significant proportion of the Australian adult population are not equipped to understand the effect of an interest rate increase on their loan repayments, or understand a loan document that includes an interest rate increase after an initial period. </p>
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Read more:
<a href="https://theconversation.com/students-low-financial-literacy-makes-understanding-fees-loans-debt-difficult-45088">Students' low financial literacy makes understanding fees, loans, debt difficult</a>
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<p>Fixing the problem of financial illiteracy cannot wait until people are in the throes of negotiating home loans and credit cards. And it should definitely take place before Australians resort to pay day loans. </p>
<p>This was the aim of the Australian Government’s <a href="http://www.financialliteracy.gov.au/media/546585/report-403_national-financial-literacy-strategy-2014-17.pdf">National Financial Literacy Strategy</a>, that ends this year. The strategy proposes a number of educational initiatives including embedding financial literacy in the school curriculum, a formal teacher training program, and development of educational resources and tools.</p>
<p>The strategy draws on <a href="http://www.oecd.org/finance/National-Strategies-Financial-Education-Policy-Handbook.pdf">similar steps</a> that have been adopted by other countries and recommended by the Organisation for Economic Cooperation and Development (OECD).</p>
<p>The problem is that the curriculum is a crowded space. Financial literacy must compete with the latest fashions in school education as well as traditional curriculum content. </p>
<p>Fighting for curriculum space for financial literacy is a political exercise which governments must play hard. For example, by attaching serious funding to the achievement of financial literacy indicators at the school level, and training and certification for teachers. Increasing financial literacy isn’t just in the best interest of individuals, we all benefit from a more literate population.</p><img src="https://counter.theconversation.com/content/84695/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ross Guest has in the past received funding from the Australian Research Council.</span></em></p>It’s not just individuals who pay for low financial literacy. It also increases financial risks and holds back the economy.Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/784362017-05-26T23:34:05Z2017-05-26T23:34:05ZPoor and middle-income families need a better way than 529s to save for college<p>A college education is increasingly necessary for success in today’s economy. It’s also <a href="https://theconversation.com/explainer-the-us-student-loan-problem-and-how-we-got-here-32676">increasingly expensive</a>. </p>
<p>Americans with a college degree earn, on average, <a href="https://collegepuzzle.stanford.edu/?p=4551">US$1 million more over the course of their lives</a> than those without one. At the same time, the <a href="https://trends.collegeboard.org/college-pricing/figures-tables/average-rates-growth-published-charges-decade">cost to attend a four-year school</a> has been climbing 2 percent to 3 percent a year above the rate of inflation. </p>
<p>Unfortunately, American families are not saving enough to cover these rising costs. More than half <a href="http://nypost.com/2015/04/29/most-parents-arent-saving-money-for-kids-college-education">have no college savings at all</a>. Those that do typically don’t set aside nearly enough to pay for even one child to attend college for one year.</p>
<p>A few decades ago <a href="http://www.savingforcollege.com/articles/infographic-history-of-529-plan">Michigan tried to change this</a> by helping state residents save for college. This eventually morphed into the 529 plan. Yet after more than 20 years, <a href="http://www.gao.gov/products/GAO-13-64">only 2.5 percent of households have one</a>.</p>
<p>Part of the failure is a lack of communication, which is why most states celebrate “529 Day” on May 29 to try to raise awareness about this college savings option. The real reason so few families use them, however, is that 529s don’t actually make college more affordable. </p>
<h2>The college affordability crisis</h2>
<p>The rising cost of a college education – coupled with the lack of adequate savings – means that students are graduating with a <a href="https://theconversation.com/is-student-loan-debt-really-a-crisis-44069">great deal of debt</a>. </p>
<p>Total student debt <a href="https://www.federalreserve.gov/releases/g19/current/">rose to a record $1.44 trillion</a> in March, about $33,000 per borrower, more than double the level in 2008. </p>
<p>This has both <a href="http://www.cnbc.com/2015/12/08/the-long-term-consequences-of-student-loans.html">personal and economy-wide consequences</a>, from credit-ruining defaults and significant financial stress to impairing the ability to save enough to buy a home or retire. Money spent repaying these loans means less consumer spending, thus slowing economic growth. </p>
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<h2>529s to the rescue?</h2>
<p>Enter the 529. The plan’s name comes from section 529 of the U.S. tax code, which created it. </p>
<p>In 1986, before 529s existed, <a href="http://colofma.com/web_documents/2014_fall_529_2.pdf">Michigan</a> sought to help state residents deal with the rising cost of college by letting them prepay. A tussle over whether Michigan’s plans qualified for a tax exemption led Congress to pass section 529 in 1996, which exempted earnings in these plans from federal taxes. </p>
<p>Today all 50 states offer a 529 plan. Families can put after-tax income in a college savings plan that then grows tax-free. Arizona, Kansas, Missouri, Montana and Pennsylvania also offer state income tax deductions for money put into a 529 savings plan. </p>
<h2>Why 529s haven’t worked</h2>
<p>While their intention was good, in practice they’ve done little for those who need the most help paying for college. </p>
<p>For starters, half of families saving for college <a href="http://www.gao.gov/products/GAO-13-64">don’t even know 529s exist</a>, and those that do say they don’t understand them because the investment options are too complex. </p>
<p>More importantly, 529 plans are poorly designed to help low- and middle-income families. Their main selling point is their tax savings, but this doesn’t help families that don’t make a lot of money and thus don’t have a large tax liability. Savings in a 529 also <a href="http://www.savingforcollege.com/articles/five-things-to-know-about-529s-and-financial-aid">count against families</a> when they apply for financial aid, and there are tax penalties if the money is not used to pay for college expenses.</p>
<p>That’s why only <a href="https://www.federalreserve.gov/econresdata/notes/feds-notes/2016/saving-for-college-and-section-529-plans-20160203.html">0.3 percent of households</a> in the bottom half of the income distribution (under $56,516 in 2015) have 529 accounts, while 16 percent of the top 5 percent do. </p>
<p>In addition to all this, 529 plans <a href="https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/WP-113.pdf">cost the federal government</a> close to $2 billion per year in lost tax revenue for a benefit that mostly helps upper-income families. </p>
<h2>Ending the 529</h2>
<p>That’s why President Obama <a href="http://time.com/money/3676300/529-taxes-obama-state-of-the-union">proposed eliminating</a> the 529 tax break in 2015. He quickly dropped the idea, however, after encountering strong bipartisan opposition. </p>
<p>While it may have been bad politics to propose killing 529s without replacing them with something else, in our view ending the plans is the right thing to do. There are better ways for the federal government to invest $2 billion and make college more affordable.</p>
<p>One excellent way would be to increase the Pell Grant – currently $5,920 – which has been shown to <a href="https://www.americanprogress.org/wp-content/uploads/2014/01/PovertyAnniversary.pdf">increase college enrollment rates</a> for students who do not come from wealthy households. </p>
<p>Another option is to follow the example of New York, which <a href="https://www.ny.gov/programs/tuition-free-degree-program-excelsior-scholarship">recently made tuition free</a> at state public colleges for residents with household incomes below $125,000. A program in Tennessee provides free community college to all state high school students, which <a href="http://money.cnn.com/2015/09/18/pf/college/free-community-college-tennessee/">has significantly increased enrollment rates</a>. </p>
<p>In sum, 529 plans have failed to help low- and middle-income households pay for college. Instead, these plans benefit the financial industry (via the high management fees) and wealthy families that do not need the help.</p>
<p>It is time to replace them with something that will actually help make college more affordable.</p><img src="https://counter.theconversation.com/content/78436/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More than half of American families aren’t able to save a dime to cover the cost of college, and the 529 college savings plan has done almost nothing to change that.Robert H. Scott III, Associate Professor of Economics, Monmouth UniversitySteven Pressman, Professor of Economics, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/699562016-12-09T12:35:26Z2016-12-09T12:35:26ZYour serious pursuit of happiness is key to protecting the planet<figure><img src="https://images.theconversation.com/files/149392/original/image-20161209-31385-16mrjrt.jpg?ixlib=rb-1.1.0&rect=72%2C203%2C951%2C614&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/adwriter/257937032/in/photolist-oMZGd-JkhqDU-jUyTn3-7YDWn8-8MxRAg-ky3xSy-6tscsS-pa8YH1-k5gLxz-A9AkDh-dWkABG-6MF5uD-5PcyZT-anbob7-dQ7GGq-h9P828-bh3NW8-rgvmFY-pQQRVR-eTeKaF-iRXJ2Q-e8PgBg-m5oZMu-d3S6xY-e5K9Zk-6etVPi-6agmPN-fmo2L7-j24Vqp-8nah6B-ooKtjh-C81u3-4Qwaam-3shMP-aEnqBb-5zs88B-o8NVfm-LdVaf-auoFkq-eMfrbW-bgcr4k-7ZvoNr-pXMvrb-4gP5ez-ei9zFQ-oqwLaB-rhpQgZ-6vh444-5Fn3kY-dMkLaG">Patrick/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>Michelle McGagh is a bold woman. A personal finance journalist, she has just completed a year in which she vowed to spend no money at all except on essential bills, simple food, and charitable donations. It was a tall order and a tough experience but her perseverance <a href="https://www.theguardian.com/money/blog/2016/nov/26/no-spending-year-over-new-way-living-wealthier-wiser">rewarded her</a> with new confidence, skills and insights.</p>
<p>McGagh’s experiment is telling in a society in which each household owes an average of <a href="http://themoneycharity.org.uk/consumer-debt-rising-fastest-rate-decade/">about £2,400 on credit cards</a>. Consumer debt causes great distress to many people, and is closely associated <a href="https://www.mind.org.uk/media/273469/in-the-red.pdf">with mental ill health</a>, so any advice on how to reduce spending is welcome.</p>
<p>But debt is not the only serious consequence of consumerism. Our collective demand for energy, water, land, meat, palm oil, timber, and much else besides is rapidly and irreversibly depleting and polluting the resources and eco-systems on which everyone depends. Leonardo DiCaprio’s new film <a href="https://www.beforetheflood.com/">Before the Flood</a> brings this vividly into focus.</p>
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<h2>Positive spending</h2>
<p>Spending per se, though, does not necessarily result in material consumption. One could spend a fortune on the environmentally benign business of buying antiques, planting trees, or commissioning music. But spending money can be used to better benefit the environment if used to buy a train ticket rather than a cheap flight, or better quality, longer-lasting goods, or solar panels.</p>
<p>But generally speaking, spending does translate directly into material consumption. Clothes exemplify prevailing attitudes and behaviours. The average UK household spends about £1,700 a year on clothes. About 30% of these garments remains in wardrobes unworn and an estimated £140m worth <a href="http://www.wrap.org.uk/sustainable-textiles/valuing-our-clothes%20">are sent to landfill every year</a>.</p>
<p>Such casual consumption and waste creation is highly problematic, given the research that suggests three of the nine planetary boundaries essential for avoiding unacceptable environmental change have <a href="http://www.nature.com/nature/journal/v461/n7263/full/461472a.html">already been crossed</a>. It’s time to recognise that every manufactured item or service we buy is at several environmental costs. As well as asking ourselves whether we can afford a particular purchase or experience, we also need to ask whether the Earth can really afford to provide it?</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/149394/original/image-20161209-31383-xuil2e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/149394/original/image-20161209-31383-xuil2e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/149394/original/image-20161209-31383-xuil2e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/149394/original/image-20161209-31383-xuil2e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/149394/original/image-20161209-31383-xuil2e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/149394/original/image-20161209-31383-xuil2e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=500&fit=crop&dpr=1 754w, https://images.theconversation.com/files/149394/original/image-20161209-31383-xuil2e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=500&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/149394/original/image-20161209-31383-xuil2e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=500&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Ready to burst?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/ancienthistory/3237586679/in/photolist-9wKyz5-pZfzj-b5BgL6-8mokEf-q8gwR3-b4yyLc-7asH2U-5abpwf-7nfW71-7DAAV-5W6tHZ-5KvgCU-7sRKA4-5NfTPj-74KsyH-8gWyyT-5Kr6fx-5KfdDy-jzpV6-n933g-yXvLx-7xq9m-5EWrez-dvm6b-7oHjVd-e4a34R-8mk5YF-7JaSy-8mobVm-wdvNt-4XFyQ-8Kx5Mj-f7RQD-afYgUd-fucbHD-4EyMC7-4EdfXC-B319et-ANZgHj-ANZdmj-94EcJg-8Gyoyb-cn8Q13-52y1Yn-xVniWp-krGLF-krFNE-krFGk-krFrC-krELw">ancient history</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
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<p>Climate change is the greatest threat we face. It’s reckoned that the world can absorb 2.5 tonnes of CO2 <a href="https://profilebooks.com/how-bad-are-bananas.html">per person each year</a>, but the average Briton currently emits around 15 tonnes (compared with 20 tonnes for the average American and 1.5 in India). The affluent of the world urgently need to curb personal consumption if the global temperature is to be kept to a liveable limit. </p>
<h2>Stay happy</h2>
<p>The prospect of changing our buying habits and expectations may be uninviting, but it helps to remember that personal well-being is not about material wealth (once basic needs are met). Powerful evidence can be found in the New Economics Foundation’s <a href="http://www.happy-planet-index.com">Happy Planet Index</a>. The HPI logs measures of life-expectancy, well-being and ecological footprint for 89 nations, and produces an overall score for each country. </p>
<p>Costa Rica comes out top. Although its GDP per capita is less than a quarter of the size of many Western European countries and North America, and its per capita ecological footprint is just one third of the size of the USA’s, <a href="http://happyplanetindex.org/countries/costa-rica/">people living in Costa Rica</a> enjoy higher well-being than the residents of many rich nations, and live longer than people in the US. American research suggests that there is no increase in well-being <a href="http://www.advisorperspectives.com/dshort/commentaries/2016/10/21/happiness-revisited-a-household-income-of-75k#ixzz37eM5xPxF">with an income above US$75,000</a>.</p>
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<a href="https://images.theconversation.com/files/149395/original/image-20161209-31396-yt5swd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/149395/original/image-20161209-31396-yt5swd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/149395/original/image-20161209-31396-yt5swd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/149395/original/image-20161209-31396-yt5swd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/149395/original/image-20161209-31396-yt5swd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/149395/original/image-20161209-31396-yt5swd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/149395/original/image-20161209-31396-yt5swd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/149395/original/image-20161209-31396-yt5swd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Alpaca contentment levels at record highs.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/tintedglass/4902881749/in/photolist-8tfxVX-5SXi4h-qjSUqe-8eFMvR-cdAJ9w-96Da6j-8ffRsh-7tfZxK-5BbmMF-taBCe-87Wheb-q2QiL7-ekpgFL-fCMq9U-2hV6Zw-4xMZKc-8WYCSS-7xToAM-kPJkTc-9f2Lv5-dVz2Me-4x1E4H-4pgpkL-5qppHM-29UdBU-tviW9-3ywhw-dhpABr-c3Dfg9-jPqon-cRBg1-2mcz5K-26KU4R-aqnyHE-5zsPQn-9hxS9s-EsRsQB-aY7h9-ivGLu-9GYx4H-DU4B1j-3MpvJv-upfUt-28WN9a-7v4Nyu-4yD7d-ctFea-43AtwB-bMpuRH-66R1ZT">Katherine/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>We may know deep down that you can’t buy happiness but this intuition often gets lost under the many pressures to consume. A much happier future can be ours, though, if we concentrate on cultivating non-material assets such as good relationships, appreciating what we’ve got, a sense of meaning, and new skills, instead of on making and spending money. </p>
<h2>About time</h2>
<p>Standard of living has much less bearing on happiness than the attitudes, values and expectations we bring to the way we live. I learnt this repeatedly from the participants in a study I undertook of people who actively choose material modesty, while writing my book <a href="http://happierpeoplehealthierplanet.com">Happier People Healthier Planet</a>. They were a diverse collection of 94 individuals aged 18 to 83. There were three whose finances were at subsistence level, two who could be described as “well-heeled”, and everything else in-between. Critically, they viewed time as more valuable than money. This often shaped their working lives and level of income. It was important to them to be independent, useful and responsible.</p>
<p>But these people did not consider their choices as self-denial. Their non-essential expenditure went on cultural events, books and CDs, alcohol and eating out with friends or inviting them round for home-cooked meals. They spent their time on being creative, community, volunteering, meditation, gardening, contact with nature – just the kinds of enrichment which research finds generates well-being. Indeed, the “modest consumers’” satisfaction with their lives was unusually high. Their stories raise pertinent questions.</p>
<p>Essential for well-being are a warm dry home, decent food and reasonable income. It’s shameful that the UK, the world’s sixth largest economy, sees increasing numbers going without, and that national wealth depends partly on worker exploitation. The global economic system, fixated on growth and profit, and resulting in environmental destruction, is deeply flawed. </p>
<p>Radically different frameworks exist, based on real human needs and environmental limits. One is set out by economist Tim Jackson in his just republished book <a href="http://timjackson.org.uk/ecological-economics/pwg/">Prosperity without Growth</a>, and the new Centre for the Understanding of Sustainable Prosperity is <a href="http://www.cusp.ac.uk/">developing such thinking</a>.</p>
<p>It’s time to get real. The Earth’s environmental limits are the ultimate bottom line. Slowing the rapid trend towards <a href="http://www.tyndall.ac.uk/node/4520">disastrous higher temperatures</a> demands economic transformation. This will be complex to achieve, but the guiding principle is simple: life offers rich possibilities far more satisfying than constant consumption. All of us who have more than enough, need to learn to become happily modest consumers.</p><img src="https://counter.theconversation.com/content/69956/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Teresa Belton does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Modesty in your spending (and half an eye on the future) could make you very cheerful indeed.Teresa Belton, Visiting Fellow at the School of Education & Lifelong Learning, University of East AngliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/643672016-08-26T02:17:28Z2016-08-26T02:17:28ZTwo million Aussies are experiencing high financial stress<p>A new study shows two million Australians are experiencing high financial stress which prevents them from coping in difficult situations, for example, in paying unexpected expenses such as a big mobile phone bill or the fridge breaking down. </p>
<p>Adults face these sorts of scenarios frequently. When they arise, people usually turn to savings, a credit card, or a friend or family member to help out. </p>
<p>Our report, <a href="http://www.nab.com.au/about-us/corporate-responsibility/our-programs-and-initiatives/social-and-financial-inclusion/financial-exclusion-research?own_cid=shortURL:financialresilience">Financial Resilience in Australia</a>, funded by the National Australia Bank, quantifies the amount of Australians: experiencing problems paying debts; meeting the costs of living; and accessing appropriate, affordable and acceptable financial products and services. </p>
<p>It also shows some Australians have trouble accessing social support in times of crisis and may have low levels of financial knowledge.</p>
<p>Our research measured financial resilience by the four key resources that support it: personal economic resources (such as savings), financial products and services (such as insurance), financial knowledge and behaviour (including financial literacy), and social capital (having social support in times of crisis, including friends and families). </p>
<p>Many Australians simply don’t have the resources to bounce back. For example, around:</p>
<ul>
<li>One in two adults have limited to no savings</li>
<li>One in two only have a “basic understanding” of financial products and services </li>
<li>One in ten have unmet need for credit and/or insurance</li>
<li>One in five have limited or no social connections</li>
<li>One in 30 stated they needed but did not have access to any form of government or community support. </li>
</ul>
<p>This has implications for the short and long-term impact on individuals and their families.</p>
<h2>Who is most at risk?</h2>
<p>Our research found secure housing, steady income, education, being employed and good mental health are strongly associated with financial resilience. </p>
<p>On average, financial resilience is significantly lower among people who are homeless, living in social housing, are short-term renters or live in student accommodation. </p>
<p>Financial resilience increases with the level of education and, unsurprisingly, people with very low personal incomes fare poorly. </p>
<p>Employment status is a key marker. People who are unemployed, underemployed, not in the labour force and those who only work odd jobs are more likely than their full-time employed counterparts to have lower levels of financial resilience.</p>
<p>People with a serious mental illness are significantly more likely to be in severe or high financial stress, are less likely to be financially secure and fare worse on each of the individual resource groups than people without mental illness. </p>
<p>The gender split in financial resilience is fairly even overall. However, the four components of financial resilience are influenced by gender. Women have lower general levels of economic resources than men, but men have lower levels of social capital than women. </p>
<p>People who were born overseas in a non-English speaking country have lower levels of resilience than those who were born in Australia. Finally, the influence of age on financial resilience varies and is often affected by other factors. </p>
<p>One in four study participants reported difficulties accessing financial services. The barriers are varied, but include cost, trust, poor and inadequate services, and (for a few) language, disability and discrimination. </p>
<p>This underscores the importance of making financial information, products and services more user-friendly and accessible. This will ensure these resources are available and accessible to everyone who needs and wants them in society. </p>
<p>The factors influencing financial security are not surprising. People who own their own homes, have a university-level education and have a personal yearly income of more than A$100,000, for example, have higher levels of financial resilience. However, only 35.7% of Australians are financially secure.</p>
<p>The prevailing attitude around financial problems is that individuals are solely responsible for their situation. Our research challenges this ideas as it shows multiple aspects to financial resilience, some out of the individual’s control. </p>
<p>The below shows how interlocked the different components of financial resilience are and when pieces of the puzzle are removed, the most vulnerable people are at risk.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/135575/original/image-20160826-11150-bc398a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/135575/original/image-20160826-11150-bc398a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/135575/original/image-20160826-11150-bc398a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=394&fit=crop&dpr=1 600w, https://images.theconversation.com/files/135575/original/image-20160826-11150-bc398a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=394&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/135575/original/image-20160826-11150-bc398a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=394&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/135575/original/image-20160826-11150-bc398a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=495&fit=crop&dpr=1 754w, https://images.theconversation.com/files/135575/original/image-20160826-11150-bc398a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=495&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/135575/original/image-20160826-11150-bc398a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=495&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The jigsaw of financial resilience.</span>
<span class="attribution"><span class="source">The Centre for Social Impact</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>At the moment social sector leaders are lobbying the government to scrap proposed budget cuts that <a href="http://www.acoss.org.au/media-releases/?media_release=unemployed-and-pensioners-collateral-damage-in-budget-fight">will reduce the amount of certain welfare payments</a>. Our research shows these same people have the least resilience to bounce back if they were to lose some financial support. </p>
<p>This is an example of how the government needs to play a more active role in understanding financial resilience and where support is needed. By understanding the often interrelated elements of financial resilience, tipping points and who is most at risk, prevention and intervention can be better tailored.</p><img src="https://counter.theconversation.com/content/64367/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Rebecca Reeve was part of the research team funded to complete this research by National Australia Bank (NAB) at the Centre for Social Impact (CSI) based at UNSW Australia. In addition to her role at CSI, Rebecca is also Senior Research and Advocacy Officer at The Smith Family. </span></em></p><p class="fine-print"><em><span>Professor Kristy Muir received funding from National Australia Bank to undertaken this research at the Centre for Social Impact (CSI) based at UNSW Australia. Kristy Muir represents CSI on the Financial Inclusion Action Plan leadership group with the Australian Government, Good Shepherd Microfinance and EY. Kristy Muir is a member of the NSW Premier's Council on Homelessness and on the committee for Opportunity Child.</span></em></p>A new report finds two million Australians lack the resources to bounce back when difficult circumstances arise.Rebecca Reeve, Senior Research Fellow, Centre for Social Impact, UNSW SydneyKristy Muir, Professor of Social Policy / Research Director, Centre for Social Impact, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/642932016-08-23T20:19:44Z2016-08-23T20:19:44ZNot on struggle street yet, but mortgage stress risk is rising<p>Newly released analysis from Roy Morgan reaffirms that it is the lowest-income households that face the highest mortgage stress. And, contrary to what many might expect, the worst stress is not in Sydney and Melbourne, where property prices have <a href="http://www.news.com.au/finance/real-estate/buying/real-estate-sydney-housing-boom-set-to-break-all-records/news-story/27c7b0e2a1328c515d6f44205435e326">hit record highs</a>.</p>
<p>The Roy Morgan report estimates that 18.4% of Australian households are experiencing mortgage stress, a situation where over one-third of their income goes towards servicing a home loan. </p>
<p>Mortgage stress can lead to many complex social issues. It is considered one of the underlying causes of the Global Financial Crisis. </p>
<p>For many households affected by mortgage stress, defaulting is the last resort. Yet, as the mortgage-servicing pressure increases, so does mortgage risk.</p>
<p>Mortgage risk, the chance of a borrower defaulting, has increased to 83.2% for households earning under $60,000 per year. It is, however, virtually non-existent for households earning more than $150,000.</p>
<h2>Income is more important than interest rates</h2>
<p>The Roy Morgan report highlights the importance of income, more so than house prices and borrowing costs, to mortgage stress. In fact, interest rates would need to more than double to match the impact of a loss of income on housing stress.</p>
<p>The previous peak in mortgage stress was in 2008-09, a period of high interest rates and bubble-like price growth in Sydney and Melbourne. </p>
<p>This time around, record low interest rates appear on the surface to be counter-balancing the default rate. Yet this is tied to a stagnation in income levels. </p>
<p>House prices and income levels moved in step until 2013. While house prices have continued to increase, household income levels have flattened since then, when the cash rate dropped to a historic low of 2.75%. The cash rate is now even lower at 1.50%, with <a href="http://www.heraldsun.com.au/business/rba-will-cut-cash-rate-to-1pc-and-look-to-quantitative-easing-nab-forecasts/news-story/2463ed1682bef13d5c7e0d3357e71c3a">further cuts</a> forecast.</p>
<p>The troubling prediction from this is that mortgage stress among Australian households is set to remain high, despite the current low interest rates.</p>
<h2>Widening inequality</h2>
<p>As home ownership concentrates among wealthier households, this report also shows that higher-income households are more resilient to increases in interest rates. This means, too, that home ownership increasingly requires a dual income.</p>
<p>The owner-occupied home is often referred to as the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6554.0Main%20Features22011%E2%80%9312?open">largest single asset that most households own</a>. In countries like Australia and the USA, home ownership is promoted by government and linked to many aspects of <a href="https://www.stlouisfed.org/%7E/media/Files/PDFs/HFS/20130205/papers/GrinsteinWeiss_paper.pdf">future wellbeing</a>. However, as recent <a href="http://www.news.com.au/finance/owneroccupiers-become-minority-as-younger-generation-struggle-to-buy-own-home/news-story/3790f2f3a092bb134af1bcbbc637f788">HILDA analysis</a> shows, owner-occupied households are becoming far less common.</p>
<p>The “Great Australian Dream” is expected to apply to only a minority of households next decade. With those in the already most marginalised parts of society most affected by mortgage stress, a change in the structures that incentivise home ownership is required to minimise the growing inequality gap.</p>
<h2>Pockets of pain</h2>
<p>The limitation with national averages is that pockets of pain are brushed over. The report drills into state-by-state analysis and metro vs regional comparisons.</p>
<p>While the largest mortgages across the country, averaging over $300,000, are in Sydney, mortgage stress is highest in Tasmania and South Australia.</p>
<p>Mortgage stress in Tasmania and South Australia sits well above the national average, as do their <a href="http://lmip.gov.au/default.aspx?LMIP/LFR_SAFOUR/LFR_UnemploymentRate">unemployment figures</a>, 6.5% and 6.9% respectively, against a national average of 5.7%. Households in regional areas are also facing more acute mortgage stress than their city counterparts. </p>
<h2>The housing market underpins the Australian financial sector</h2>
<p>Regulators aren’t taking any chances. With nearly $1 trillion in outstanding mortgage debt, double the pre-GFC level, the <a href="http://fsi.gov.au/files/2014/07/FSI_Report_Final_Reduced20140715.pdf">2014 Financial Systems Inquiry</a> identified that mortgages are now a significant systemic risk. In a <a href="http://www.apra.gov.au/Speeches/Pages/A-prudential-approach-to-mortgage-lending.aspx">recent speech</a> on the prudential regulator’s outlook, APRA general manager Heidi Richards stated that “the housing market now underpins our financial sector”.</p>
<p>APRA has been tightening the lending standards of the big banks. Effective from July 1, the big banks have been required to apply <a href="http://www.smh.com.au/business/banking-and-finance/apra-lifts-mortgage-capital-on-big-banks-by-billions-of-dollars-20150719-gify5r.html">higher “risk weightings”</a> to residential mortgages. These determine the amount of capital held against assets to limit the likelihood of insolvency. </p>
<p>The silver lining to this otherwise depressing analysis is that the risks to financial stability are relatively low. Home ownership concentrated amongst wealthier households actually means there is a high degree of aggregate resilience to changes in future interest rates and incomes.</p>
<p>However, the report’s focus is on current incomes. To brace for a true housing market downturn, the key will be monitoring employment and income statistics – unemployment rates as well as hours.</p><img src="https://counter.theconversation.com/content/64293/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danika Wright does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New analysis shows low-income earners, particularly in Tasmania and South Australia, face the most mortgage stress.Danika Wright, Lecturer in Finance, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/428862015-06-22T20:18:12Z2015-06-22T20:18:12ZThe lies of happiness: living with affluenza but without fulfilment<figure><img src="https://images.theconversation.com/files/84980/original/image-20150615-9561-iywmb3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Seeking constant distractions and identifying with brands and status symbols, we struggle to escape the superficial self.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-17841535/stock-photo-professionals-waiting-on-bench.html?src=csl_recent_image-1">Shutterstock/Sean De Burca</a></span></figcaption></figure><p><em>This article is the first in a new series, <a href="https://theconversation.com/au/topics/on-happiness">On Happiness</a>, examining what it means and how it might be achieved in the 21st century.</em></p>
<hr>
<p>In a short story, Grief, Anton Chekhov tells of a wood-turner named Grigory Petrov, a drunkard and bully who for 40 years regularly beat his wife. One night he arrives home drunk and brandishing his fists. This time, instead of shrinking from him, his wife gazes at him sternly, “as saints do from their icons”, wrote Chekhov.</p>
<p>It was her first and last act of defiance.</p>
<p>Now driving a sled through a blizzard, Petrov is taking his dying wife to the doctor. He curses and whips the horse. He is seized by grief for a life wasted, and wonders how he will live without this woman who has sustained him for so long.</p>
<p>I may have been a drunkard and ne’er-do-well, he mutters to himself, but that was never the true man, and now my wife is dying on me, she will never know my better nature. I beat her, it’s true, but never out of spite. Am I not rushing her to the doctor because I feel sorry for her?</p>
<p>In Chekhov’s story, Petrov engages in grotesque rationalisations. His dignity will not allow him to face the truth of the sort of man he is. He engages in a litany of self-deceptions, even though the truth threatens to overwhelm him.</p>
<p>The myriad ways humans lie to themselves is a recurring theme of literature. Because we all engage in self-deception, we recognise ourselves in the characters. We are forever composing stories about ourselves and our world so as to smooth a path through life.</p>
<h2>Benign fictions and the loss of freedom</h2>
<p>The psychologist Shelley Taylor calls them <a href="http://www.amazon.com/Positive-Illusions-Creative-Self-Deception-Healthy/dp/0465060536">“benign fictions”</a>: the lies we deploy to defend our happiness. For a long time I have believed that if we deceive ourselves about our strengths and weaknesses, creating a veil that distorts our vision of the world so as to render it more agreeable, we may actually be sacrificing the opportunity to find a more authentic self from which to live. </p>
<p>But is that chasing a phantom? Does it really matter if we find contentment by deploying benign fictions?</p>
<p>The philosophers have always told us that happiness should be discounted if it floats on a mirage of lies. But maybe the thinkers are deceiving themselves, rationalising away their melancholy and inflating the value of their solemnity.</p>
<p>Perhaps. Yet there is another reason to question happiness built on self-deception. It opens us up to manipulation.</p>
<p>When we are not truthful with ourselves, we are driven by forces of which we are unconscious, but our real motives and desires can be discerned by others – advertisers, for instance. They can smell weaknesses to be exploited.</p>
<p>So, I am willing to argue, those whose happiness rests on fabrications risk surrendering their freedom. Happiness at the price of freedom is not worth it, unless the limits to one’s freedom are freely chosen after careful reflection.</p>
<p>But is the truth always to be preferred?</p>
<p>The Trade Practices Act outlaws deceptive and misleading conduct by companies making claims about their products. But what if we want to believe the lies? The essence of branding is that by identifying ourselves deeply with a brand – an Apple computer, Diesel clothing, a Volvo car – we take on the image associated with it. </p>
<p>We accept these commercially provided identities because our societies no longer offer other means of creating a sense of self that satisfies. And we are bored.</p>
<p>Increasingly, our attention is seen as a scarce commodity. As always, anything that is scarce has a value, and some are willing to pay for it.</p>
<p>There is even a new branch of economics called <a href="https://en.wikipedia.org/wiki/Attention_economy">“attention economics”</a>. When others thrust information upon us it can be regarded as a form of pollution. We sometimes try to stop this pollution harming us with devices like spam blockers, television mute buttons, “Do not call” registers and “No junk mail” stickers.</p>
<p>However, I think many of us watch television and listen to iPods to avoid paying attention to aspects of our lives that are uncomfortable. And we want our attention to be captured because we have developed a strong aversion to boredom. </p>
<p>It seems to me that the flight from boredom means our society as a whole is suffering from a form of Attention Deficit Hyperactivity Disorder. Movies and television programs have shorter scenes and more action to keep us “glued to the set”. Yet in order to transcend boredom it is necessary to get beneath the superficial self that is entertained by television and a thousand other distractions.</p>
<h2>Is a more authentic life possible?</h2>
<p>It is one thing to recognise that money and the consumer life are in some way shallow; it is quite another to find out what a more “authentic” life would be. Sometimes I doubt whether there can be such a thing in our secular societies. Are we destined to live out selves wholly given to us by the social conditions in which we find ourselves?</p>
<p>Still, there must be some identity more authentic than those constructed for us by the clever manipulators who make brands and produce popular culture. At a minimum, we must fight hard against those influences, for if we do not we will end up as mere cyphers.</p>
<p>Creating the illusion of independence is the most potent tool of the contemporary advertisers’ trade, but the irony is generally lost because most people are too busy congratulating themselves on “being their own person”. The essential ideology of modern consumerism is that we can all live freely and independently.</p>
<p>This is an idea that emerged from the marriage of modern consumerism and the ideology of the liberation movements of the 1960s and 1970s. We now hear it expressed in inane phrases such as “be true to yourself” and “you are responsible for your own happiness”. So instead of pledging allegiance to God, nowadays a Girl Guide <a href="http://www.girlguides.org.au/About-Us/Promise-and-Law.html">promises</a> to be “true to myself”, a vapid pledge that nevertheless resonates with the inherent nihilism of individualised societies.</p>
<p>In Australia over the past 13 or 14 years we have engaged in a national conversation about happiness and how to get it. This was in large part stimulated by the work of my former colleagues and I at the <a href="http://www.tai.org.au/">Australia Institute</a>, building on the work of <a href="http://www.richardeckersley.com.au/main/page_about_me.html">Richard Eckersley</a>.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/84981/original/image-20150615-9549-vjxxmb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/84981/original/image-20150615-9549-vjxxmb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/84981/original/image-20150615-9549-vjxxmb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/84981/original/image-20150615-9549-vjxxmb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/84981/original/image-20150615-9549-vjxxmb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/84981/original/image-20150615-9549-vjxxmb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/84981/original/image-20150615-9549-vjxxmb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/84981/original/image-20150615-9549-vjxxmb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">When parents spend more time in traffic than playing with their children, is it worth it?</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-26052433/stock-photo-england-january-traffic-jam-on-one-side-of-m-in-buckinghamshire.html?src=pTwOiF0fxNbe6wS_UGXhKg-2-35">Shutterstock/gemphoto</a></span>
</figcaption>
</figure>
<p>From the early 2000s we asked whether national wellbeing was rising along with rates of economic growth. We found that the answer was “no”. We built the <a href="http://www.tai.org.au/node/898">Genuine Progress Indicator</a> as a substitute for GDP. </p>
<p>We showed how advertisers were persuading us to go into debt and how they were increasingly targeting children. We pointed to an epidemic of overwork and estimated that one-third of Sydney fathers spend more time in their cars commuting than at home playing with their children. We measured the value of stuff that we buy and then throw out unused (billions of dollars worth).</p>
<p>We discovered a deep vein of discontent, with <a href="http://www.abs.gov.au/ausstats/abs@.nsf/lookup/4102.0main+features202014">oppressive levels of debt</a>, marriages under stress, overwork leading to illness and depression, children being neglected and a pervasive anomie. And then we uncovered the reaction against it all by describing the remarkably large numbers who had decided to <a href="https://en.wikipedia.org/wiki/Downshifting">downshift</a> – that is, to voluntarily reduce their incomes and consumption in order to take back some control over their lives.</p>
<p>For a time we had some success, but then something happened. The 2008 global financial crisis brought to a sudden end the zeitgeist and the happiness debate that was part of it. The crash was the direct result of excessive consumption, unsustainable debt and the industries that made them possible; in other words, everything we had criticised.</p>
<p>I always saw the happiness debate we triggered as no more than a prelude to the real task of opening people to an examination of some deeper sense of meaning in their lives, and to precipitate reflection on the moral basis and behavioural structure of our society.</p>
<p>Yet here we are, in the embryonic stages of the next consumer boom, with no collective lessons learned from the last one.</p>
<hr>
<p><em>This article is based on an essay in the collection <a href="http://uwap.uwa.edu.au/products/on-happiness-new-ideas-for-the-twenty-first-century">On Happiness</a>: New Ideas for the Twenty-First Century (UWA Publishing, June 2015).</em></p>
<p><em>You can read other articles in the series <a href="https://theconversation.com/au/topics/on-happiness">here</a>.</em></p><img src="https://counter.theconversation.com/content/42886/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Clive Hamilton does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the first of our series, On Happiness, the question is whether unsustainable consumption and debt can ever bring us happiness. The global financial question was a chance to take stock, yet did we learn anything?Clive Hamilton, Professor of Public Ethics, Centre For Applied Philosophy & Public Ethics (CAPPE), Charles Sturt UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/427872015-06-22T13:30:12Z2015-06-22T13:30:12ZGreece woes show how the politics of debt failed Europe<figure><img src="https://images.theconversation.com/files/85879/original/image-20150622-17748-qdxprv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Athens is the epicentre of a dangerous relationship.</span> <span class="attribution"><span class="source">Simela Pantartzi/EPA</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>In the world of brinkmanship, endgames and last minute concessions that have come to define <a href="http://www.theguardian.com/world/2015/jun/22/greek-debt-crisis-tsipras-offer-is-welcomed-as-good-basis-for-progress">Greece’s relationship with Europe</a>, we can see the blueprint of <a href="https://theconversation.com/syriza-tensions-reveal-political-stress-in-debt-and-social-justice-42080">an abusive relationship</a>. </p>
<p>In his book <a href="http://www.amazon.co.uk/Governing-Debt-Semiotext-Intervention-Series/dp/1584351632">Governing by Debt</a>, Maurizio Lazzarato argues that the creditor-debtor centred politics of contemporary capitalism is substantially different from the capital-labour centred politics of post-war capitalism. In fact, to understand what is at stake in contemporary Europe we need to approach debt in its totality – government, corporate, financial and household debt. We have to recognise that the debt relationship is not merely an economic relationship of money owed and collected, but a deeply political relationship of power exercised by one person or institution over another.</p>
<p>Consider the following graph. It shows the total debt by sector in selected EU countries at the end of 2014. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/85810/original/image-20150621-3383-1v492fi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/85810/original/image-20150621-3383-1v492fi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/85810/original/image-20150621-3383-1v492fi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=443&fit=crop&dpr=1 600w, https://images.theconversation.com/files/85810/original/image-20150621-3383-1v492fi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=443&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/85810/original/image-20150621-3383-1v492fi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=443&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/85810/original/image-20150621-3383-1v492fi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=556&fit=crop&dpr=1 754w, https://images.theconversation.com/files/85810/original/image-20150621-3383-1v492fi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=556&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/85810/original/image-20150621-3383-1v492fi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=556&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Data from McKinseyGlobal Institute (2015)</span></span>
</figcaption>
</figure>
<h2>A continent sinking under debt</h2>
<p>When debt is seen in its totality a different picture emerges from the one usually portrayed by the media. The total debts of the Netherlands and Ireland are nearly seven times their GDP, Denmark’s is 5.5 times and the UK’s more than four times. <a href="https://theconversation.com/four-undiscussed-dangers-that-could-shackle-the-uk-recovery-40132">How sustainable in the long run</a> are the levels of non-government debt in these countries? Is the exceptionally low exposure of the Greek financial sector to debt an indicator that its liabilities have been disguised as Greek government debt? And how sustainable is household debt?</p>
<p>Years of austerity have resulted in European families sinking under debt while experiencing increasing job insecurity, reductions in pensions and the gradual privatisation of welfare services and education. </p>
<p>These different types of debt are not independent from one other. They are mutually constitutive. Behind them are numerous creditor-debtor relations between actors with often diametrically opposed interests and unequal power: states, corporations, banks, financial institutions, small businesses, voters.</p>
<p>This “system” of European debt interacts with a global financial architecture, dominated by the demands of the financial sector. Far from being prudent, this sector is itself exposed to colossal amounts of debt-related risk, endangering all other sectors. </p>
<h2>Banking dangers</h2>
<p>Consider the following numbers. According to a recent <a href="http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2015/q1prerelease_2.pdf">Bank of England report</a>, the global aggregate amount of derivatives – once described by <a href="http://news.bbc.co.uk/1/hi/2817995.stm">Warren Buffet</a> as “financial weapons of mass destruction” – was estimated to be £500 trillion; at least ten times the planet’s GDP. Deutsche Bank’s exposure to the market alone was an <a href="http://www.marketoracle.co.uk/Article50999.html">estimated $54 trillion</a>, about 20 times Germany’s GDP. To give a degree of measure: the Greek sovereign debt is a mere 0.5% of this amount.. </p>
<p>So far, the dominant narrative has presented the debt problem to the European citizens as primarily a problem of sovereign (government) debt. At the national level, debt is supposed to be cured by continuous doses of austerity. At the EU level, austerity has been constitutionalised as the only economic policy option available to elected governments. Within this context, further financialisation of the European economy and securitisation of sovereign debt – essentially packaging debt for sale – are promoted as solutions. However, as Lazzarato described:</p>
<blockquote>
<p>The securitisation of public debt is the instrument for an immense transfer of wealth from wage-earners and the population toward financial investors. Since the start of the crisis, Europe has thus gone from an average public debt of 66.55% of GDP in 2007 to 90.5% in 2012, allowing creditors to get rich off the interest … Public debt has enabled the recovery and expansion of financial markets.</p>
</blockquote>
<h2>‘Pious nonsense’</h2>
<p>The <a href="https://theconversation.com/life-under-austerity-shows-why-syriza-is-fighting-it-so-hard-42953">impact of the politics of debt is well documented</a>: rising levels of unemployment, especially for the young, proliferation of precarious employment, household indebtedness, income inequality, scandalous wealth concentration and stagnating economic growth. More alarmingly, austerity has given rise to social and political polarisation, fuelling the rhetoric of xenophobia and fear. Hardly an inspiring vision for Europe. </p>
<p>How much credibility remains in this politics? Lets take the case of Greece. The Financial Times’ leading commentator <a href="http://www.ft.com/cms/s/0/a614c36c-141f-11e5-9bc5-00144feabdc0.html#axzz3dhh0r3oG">Martin Wolf</a> recently argued that “the vast bulk of the official loans to Greece were not made for its benefit at all, but for that of its feckless private creditors”, that is, primarily, European banks and financial institutions. After exposing the futility of austerity, ex-IMF economic advisor <a href="https://agenda.weforum.org/2015/06/why-europe-cant-allow-greece-to-default/">Jeffrey Sachs</a> recently declared: “Europe’s leaders are hiding behind a mountain of pious, nonsensical rhetoric” risking an economic and social disaster “in order to insist on collecting some crumbs from the country’s pensioners”. </p>
<p>Describing the treatment of Greece as “the Iraq War of finance”, Daily Telegraph’s <a href="http://www.telegraph.co.uk/finance/economics/11687229/Greek-debt-crisis-is-the-Iraq-War-of-finance.html">Ambrose Evans-Pritchard</a> wrote: “rarely in modern times have we witnessed such a display of petulance and bad judgement by those supposed to be in charge of global financial stability.” </p>
<h2>Hope and glory</h2>
<p>“Whoever equates Europe with the euro has already given up on Europe,” proclaimed the late German sociologist Urlich Beck. From Paris to Athens, from Dublin to Brussels, from London to Madrid, the European political classes are challenged to “side with their citizens” in re-orienting their national economy towards another Europe, worthy of its values. We need a new politics of hope that will, ultimately, reaffirm that democratic European states are accountable to European citizens and serve the public good. Not simply the demands of one sector of the economy. </p>
<p>With all their limitations, it was representative democracy and welfare state capitalism that brought peace, stability and prosperity in Europe; not banks, stock exchanges and unregulated markets. Most certainly, it was the commitment that nations should not service punitive amounts of debt that destroy their social cohesion and economic development. That was the great lesson of the 1953 London Treaty that cancelled nearly half of postwar Germany’s debt. </p>
<p>The politics of debt has failed the European people. Time to heal Europe and bring back hope to the continent.</p><img src="https://counter.theconversation.com/content/42787/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Theo Papadopoulos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A continent in shock; a country on the brink; and a model for punitive debt negotiations that serves no one but the banks.Theo Papadopoulos, Lecturer, Department of Social and Policy Sciences, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/433332015-06-17T04:13:02Z2015-06-17T04:13:02ZAustralians are saving more, but are more comfortable with debt<figure><img src="https://images.theconversation.com/files/85320/original/image-20150617-23340-bqagzh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Household debt is three times what it was 20 years ago.</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>Australians know that adequate savings can help provide for a rainy day, help a family put down a deposit on a home, or ensure a comfortable retirement. </p>
<p>Debt also offers a way for households to make purchases that would otherwise be impossible and to achieve a higher current standard of living. Debt invested into an asset that will also grow in real value and is able to be serviced without placing too much financial pressure on a household, is generally considered to be good debt.</p>
<p>The key is balance. Since the 2008 financial crisis, Australians have actually decreased their propensity to take on debt and have increased their savings. But debt rates still remain uncomfortably high and there is evidence that this savings discipline is beginning to fade. Have we grown too comfortable with debt?</p>
<h2>Saving more, but more indebted</h2>
<p>Bankwest Curtin Economics Centre’s second ‘Focus on the States’ report, <a href="http://business.curtin.edu.au/local/docs/BCEC_Beyond_Our_Means_Report.pdf">Beyond our Means? Household Savings a Debt in Australia</a> finds Australians have more debt and are more comfortable with it. </p>
<p>While household savings portfolios have seen an increase of 54% in real terms since 2005, household debt has risen by 51% in the same period. Many households are able to access and service this debt, with higher debts associated with higher incomes.
On average, Australia’s estimated 9.1 million households have savings in the form of financial assets of $340,900 and debts of $148,700. </p>
<p>However, there is a gulf between those at the top of the distribution and those at the bottom. The inequality in the distributions of household savings and debt are considerably worse than the much talked about inequality in incomes. </p>
<p>The average household disposable income of the top 20% of savers is less than four times those in the lowest savings quintile. However, their savings at an average of almost $1.3 million is 200 times the bottom 20%. This top quintile may receive one-third of all income, but they own three quarters of the total value of savings in the form of financial assets. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/85216/original/image-20150616-5810-145cq3d.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/85216/original/image-20150616-5810-145cq3d.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=225&fit=crop&dpr=1 600w, https://images.theconversation.com/files/85216/original/image-20150616-5810-145cq3d.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=225&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/85216/original/image-20150616-5810-145cq3d.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=225&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/85216/original/image-20150616-5810-145cq3d.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=283&fit=crop&dpr=1 754w, https://images.theconversation.com/files/85216/original/image-20150616-5810-145cq3d.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=283&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/85216/original/image-20150616-5810-145cq3d.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=283&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Average household savings by savings quintile, Australia 2015 (mean $‘000)</span>
</figcaption>
</figure>
<p>The trifecta of debts, low (or no) savings and low incomes presents many low economic resource families with an unenviable challenge to maintain an acceptable quality of life for themselves and their families on a day-to-day basis.</p>
<p>Since the global financial crisis, the household savings rate have risen, with households exhibiting discipline in their expenditure at a time when the economic outlook was uncertain. In an economic downturn income can decline quickly while reining in spending can be more difficult, for both households and governments. Debts can quickly get out of hand and become unmanageable in this situation. </p>
<h2>Becoming used to debt</h2>
<p>While Australian households have decreased their propensity to take on debt and have increased their savings in the post-GFC period, household debt still remains three times higher now than what it was 20 years ago. Australians are now more comfortable with debt and currently hold debt equal to 1.5 years of income, whereas in the past they had only debt equivalent to six months of annual income.</p>
<p>The share of debt associated with investment property loans has tripled
from one-tenth to three-tenths between 1990 and 2015. </p>
<p>Unlike previous generations accustomed to more rigid financial products, current households can access a greater number of financial products, which have arguably become more complex and more flexible.</p>
<p>This flexibility delivers benefits, but with complexity comes risk and it is important to promote good financial decisions and encourage a longer term outlook. <a href="https://theconversation.com/your-home-as-an-atm-home-equity-a-risky-welfare-tool-22000">Mortgage equity withdrawal has become a popular tool</a> to derive a higher current standard of living by using the family home as collateral. </p>
<p>More households now use these schemes to smooth consumption or relieve short-term financial pressures. But this may have contributed to the average mortgage debt as a proportion of property values almost tripling over the last 25 years, rising from 10% to 28% since 1990.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/85219/original/image-20150616-5832-ijpxwv.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/85219/original/image-20150616-5832-ijpxwv.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=217&fit=crop&dpr=1 600w, https://images.theconversation.com/files/85219/original/image-20150616-5832-ijpxwv.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=217&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/85219/original/image-20150616-5832-ijpxwv.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=217&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/85219/original/image-20150616-5832-ijpxwv.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=272&fit=crop&dpr=1 754w, https://images.theconversation.com/files/85219/original/image-20150616-5832-ijpxwv.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=272&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/85219/original/image-20150616-5832-ijpxwv.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=272&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ratio of housing debt to housing assets, June 1990 to December 2014.</span>
</figcaption>
</figure>
<p>Another issue is the use of superannuation savings to pay down mortgage balances, leading retirees to rely more on the pension.</p>
<p>So are we living beyond our means? With household debt to income ratios three times higher now than a quarter of a century ago, household debt up by over 50% in real terms over the last decade and the debt of those approaching retirement (55-64 year olds) up 64% in real terms, it would seem on the face of it to be true. </p>
<p>However, the reality is more nuanced. Household savings are growing faster than income and 8.5 cents in every dollar is being saved, and there is now $2 trillion tucked away in superannuation, while riskier investments are making way for more a more conservative approach. This is far better than we were 10 years ago, but with a note of caution that savings are again on the decline.</p><img src="https://counter.theconversation.com/content/43333/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Bankwest Curtin Economics Centre is an independent economic and social research organisation located within Curtin Business School at Curtin University. The Centre was established in 2012 with support from Bankwest (a division of Commonwealth Bank of Australia) and Curtin University. The views in this article are those of the authors and do not represent the views of Curtin University and/or Bankwest or any of their affiliates.</span></em></p><p class="fine-print"><em><span> </span></em></p>We know saving is good and not all debt is bad. Where is our relationship to both?Alan Duncan, Director, Bankwest Curtin Economics Centre and Bankwest Research Chair in Economic Policy, Curtin UniversityRebecca Cassells, Adjunct Associate Professor, Bankwest Curtin Economics Centre, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/432342015-06-16T14:50:06Z2015-06-16T14:50:06ZAnother housing crisis looms as millennials struggle to find homes they can afford<figure><img src="https://images.theconversation.com/files/85059/original/image-20150615-5832-f277j9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Micro housing could be the solution to helping millennials afford a home. </span> <span class="attribution"><span class="source">Home change via www.shutterstock.com</span></span></figcaption></figure><p>I co-teach a freshman seminar at the University of Texas called “Debt: the Good, Bad and Ugly” that examines the different ways consumers borrow and spend. Do they reflect wise investments in the future (the good), unnecessary or frivolous spending that should be avoided whenever possible (the bad) or spending that can ruin your life (the ugly)? </p>
<p>Virtually every person in this country will end up in debt at one point or another, and understanding the ins and outs is essential for all of us. It’s also the reason I focus my seminar and research on the topic of consumer debt. </p>
<p>In the months to come, my new column will explore the same themes I teach freshmen at UT, such as the psychology of spending, the ways debt affects millennials and people of color, and how both individual knowledge and structural factors can help consumers avoid the traps of ugly debt. </p>
<p>This inaugural column expands on themes I <a href="https://theconversation.com/homeownership-losing-role-as-lynchpin-of-the-american-dream-42397">explored</a> in an article several weeks ago on National Homeownership Month, held every June since 2003, and how the housing industry has little to celebrate this year.</p>
<p>Homeownership rates have been <a href="http://blogs.wsj.com/economics/2015/04/28/the-homeownership-rate-is-now-the-lowest-since-1989-but-theres-a-silver-lining/">falling</a> since 2005 and are now at a 26-year low of 64%. And millennials are especially feeling the pinch, with the rate down 7.3% in the last decade for people aged 18 to 34.</p>
<p>Results of a <a href="http://www.macfound.org/press/press-releases/prolonged-housing-crisis-diminishes-confidence-american-dream-2015-housing-matters-survey-finds">survey</a> released last week by the MacArthur Foundation provide even more somber news for the housing industry. Also, demographic and other trends suggest that the US may be headed for another housing crisis and that home prices may plunge in the not too distant future. </p>
<p>While the looming housing crisis won’t be as serious as the recent subprime mortgage-fueled collapse that triggered a global financial crisis, it will be a major setback for the US economy, which is still struggling to escape the lingering effects of the Great Recession. </p>
<p>A temporary solution, however, may be available. This solution will work only if real estate developers and elected officials are willing to think outside the box and consider new and innovative ways to make housing affordable for millennials and others.</p>
<p>But first, on to the survey. </p>
<h2>Worst is yet to come?</h2>
<p>MacArthur’s 2015 How Housing Matters survey <a href="http://www.macfound.org/press/press-releases/prolonged-housing-crisis-diminishes-confidence-american-dream-2015-housing-matters-survey-finds">reveals</a> that three in five Americans either believe that the country is still in the midst of the 2007 housing crisis or think the worst is yet to come. More than half view housing affordability as a fairly or very serious problem.</p>
<p>Escalating rents and housing prices have forced the majority of Americans to make <a href="http://www.macfound.org/press/press-releases/prolonged-housing-crisis-diminishes-confidence-american-dream-2015-housing-matters-survey-finds/">tradeoffs</a> or sacrifices in order to pay their monthly housing expenses. Approximately 20% have been forced to hold a second job or find other ways to increase their income, 17% have stopped saving for retirement and 14% made ends meet by borrowing on their credit cards.</p>
<p>Millennials are particularly vulnerable. Americans across all generations believe that it is hard for millennials to find stable and affordable housing, and the MacArthur survey indicates that 67% are being forced to sacrifice in order to pay for housing.</p>
<p>Despite their views and aspirations (most still see homeownership as an excellent long-term investment and want to own one day), 80% of young adults reported that that it is hard for them to find affordable housing to purchase. </p>
<h2>A looming crisis</h2>
<p>And that bodes ill for the housing market because, by the end of this year, millennials <a href="http://www.pewresearch.org/fact-tank/2015/05/11/millennials-surpass-gen-xers-as-the-largest-generation-in-u-s-labor-force/">likely</a> will be the largest living generation. They are already the <a href="http://www.pewresearch.org/fact-tank/2015/05/11/millennials-surpass-gen-xers-as-the-largest-generation-in-u-s-labor-force/">biggest</a> group in the workforce. Their inability or unwillingness to buy the homes baby boomers own and will need to sell, or to buy the homes developers are building, foreshadows a looming housing crisis.</p>
<p>It is possible, though, that millennials are rejecting the homes boomers are selling (or the homes developers are building) because of a size mismatch, which bleeds into the affordability issue. Houses keep growing larger at the same time that US households are getting smaller. </p>
<p>For example, the <a href="https://www.census.gov/construction/chars/pdf/squarefeet.pdf">average size</a> of newly constructed single-family homes in 1980 was 1,740 square feet. By 2007, the <a href="http://www.nber.org/cycles.html">first year</a> of the recent recession, the average home had reached 2,521 square feet, a 45% increase. Home size began to come down for a few years after the crisis but hit a new record in 2014 at 2,657 square feet.</p>
<p>At the same time, the number of people who live in households <a href="https://www.census.gov/hhes/families/files/graphics/HH-6.pdf">continues to shrink</a>. The number of married households <a href="https://www.census.gov/hhes/families/files/graphics/HH-1.pdf">has dropped</a> from about 60% in the ‘80s to less than half of all households by 2014. Those consisting of only one person <a href="https://www.census.gov/hhes/families/files/graphics/HH-4.pdf">have climbed</a> to about 27% from less than 20% three decades ago. </p>
<p>The <a href="http://www.statista.com/statistics/183648/average-size-of-households-in-the-us/">average household size</a>, which was 3.33 in <a href="https://www.census.gov/prod/cen2010/briefs/c2010br-14.pdf">1960</a>, dropped to 2.76 in 1980 and reached a low of 2.54 last year. Millennials are especially likely to live in a single-person household because they are delaying both marriage and child rearing.</p>
<h2>Micro-housing may provide a Band-Aid</h2>
<p>A promising housing solution for people who are willing to trade square feet for lower costs is smaller (mini, minim, micro, tiny) houses or apartments that generally are less than 500 square feet – something much more common in major cities. </p>
<p><a href="http://www.npr.org/2015/02/26/389263274/living-small-in-the-city-with-more-singles-micro-housing-gets-big">Micro-housing</a> is generally associated with sustainable or environmentally conscious housing movements because the smaller size of the housing reduces the occupants’ carbon footprint. </p>
<p>But <a href="http://uli.org/wp-content/uploads/ULI-Documents/MicroUnit_full_rev_2015.pdf">micro-rental units</a> can also provide affordable housing for the growing number of renters who cannot find affordable rental housing, or who still cannot afford to buy a homes. </p>
<p>Smaller and less expensive rental housing can help millennials who want to become homeowners save enough money for a down payment. And, micro-homes may be appealing to single millennials who want to become homeowners but cannot afford or are not interested in buying homes that are suited for married couples who have children. </p>
<p>Unfortunately, zoning ordinances and building codes often make it <a href="http://www.bloomberg.com/news/articles/2014-07-09/tiny-houses-big-with-u-s-owners-seeking-economic-freedom">hard</a> for developers to place micro-housing in neighborhoods because of minimum square foot requirements and because of regulations that prevent builders from placing more than one structure on a single lot. </p>
<p>In addition, lenders often refuse to finance tiny houses that are smaller than 500 square feet. And existing homeowners routinely <a href="http://www.austinchronicle.com/news/2014-06-20/then-theres-this-split-views-on-adus/">oppose</a> having micro-housing in their neighborhoods.</p>
<h2>Making affordability a priority</h2>
<p>The real estate industry must do a better of job of ensuring that available housing meets the needs and desires of millennials, and US political leaders must ensure that housing policies are flexible enough to encourage and subsidize a broader range of housing types that can attract them. </p>
<p>While most Americans <a href="http://www.macfound.org/press/press-releases/prolonged-housing-crisis-diminishes-confidence-american-dream-2015-housing-matters-survey-finds/">surveyed</a> in the MacArthur poll wanted their state and local elected officials to treat housing affordability as a priority, only 14% felt they are doing so.</p>
<p>Given stagnant wages for most American workers, micro-housing will not completely solve the housing affordability problem. But smaller dwellings at lower costs will help financially struggling renters, should bring millennials one step closer to becoming homeowners, and potentially can avert another housing crisis.</p><img src="https://counter.theconversation.com/content/43234/count.gif" alt="The Conversation" width="1" height="1" />
I co-teach a freshman seminar at the University of Texas called “Debt: the Good, Bad and Ugly” that examines the different ways consumers borrow and spend. Do they reflect wise investments in the future…Mechele Dickerson, Professor of Law, The University of Texas at AustinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/298432014-07-29T20:29:22Z2014-07-29T20:29:22ZInfographic: Australia’s heavy housing debt<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/55198/original/h3p45kff-1406675366.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/55198/original/h3p45kff-1406675366.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=3234&fit=crop&dpr=1 600w, https://images.theconversation.com/files/55198/original/h3p45kff-1406675366.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=3234&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/55198/original/h3p45kff-1406675366.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=3234&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/55198/original/h3p45kff-1406675366.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=4063&fit=crop&dpr=1 754w, https://images.theconversation.com/files/55198/original/h3p45kff-1406675366.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=4063&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/55198/original/h3p45kff-1406675366.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=4063&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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</figure><img src="https://counter.theconversation.com/content/29843/count.gif" alt="The Conversation" width="1" height="1" />
Charis Palmer, Deputy Editor/Chief of StaffEmil Jeyaratnam, Data + Interactives Editor, The ConversationLicensed as Creative Commons – attribution, no derivatives.