The link between high cost of living and the rise in debt

00:00:00:02 - 00:00:25:08
David Koch
All right. Let's take a look at the sort of something related to all of this. A look at the impaired credit market now where companies servicing retail debt have grown their portfolios considerably amid the cost of living crisis here in Australia. Keith John Pioneer Credit MD joins me now to discuss why Aussies are getting into financial trouble and what they can do to address it.

00:00:25:10 - 00:00:33:08
David Koch
Thanks for joining us. So what are you seeing in the market at the moment in terms of these impairments?

00:00:33:10 - 00:01:04:18
Keith John
Thanks, David. I mean, clearly, everyone's fully across the cost of living crisis. And the rising costs that the consumers are facing. And I think we're seeing that flow through now or starting to flow through quite strongly to consumers. I mean, they've got jobs, which is a great thing, but a confluence of factors are now coming into play where people just are struggling to meet their commitments at a rate that we haven't seen for some time.

00:01:04:19 - 00:01:26:19
Keith John
And it's quite concerning that we continue to have a discussion about cost of living, but there's actually nothing or precious little being done about it and needs to start with the government clamping down on spending and starting to try and bring down that cost in a very real sense for the people that we deal with.

00:01:26:21 - 00:01:46:09
David Koch
Yeah, but Keith. Everyone's got a job at the moment. Unemployment so low and God only knows what would the situation be if unemployment was back at soft economic trends that we've seen in the past?

00:01:46:11 - 00:02:13:05
Keith John
That's very true, David. They do have a job and that's a great thing. Of course, we need people to be employed, but the cost of living for the average person on the street has risen much more significantly than just what CPI, which is a discrete basket of goods or services that are measured in a way that suits, you know, our statisticians.

00:02:13:07 - 00:02:37:06
Keith John
The cost of beef has risen dramatically. The cost of petrol has been very much in focus over the last few days. And these things affect, you know, the younger parts of our population and our workforce much more dramatically than they affect people working in Martin Place or in the CBD of Perth, where I am.

00:02:37:08 - 00:03:01:08
David Koch
Yeah, and, and also everyone talks about wage rises. But you know, when you look at the cash in hand from a wage rise paper, don't understand that bracket creep takes more of that wage rise away from them and helps Jim Chalmers budget surplus more than their household budget. It's just not compensating them at the moment.

00:03:01:10 - 00:03:07:01
David Koch
Are you seeing particular demographics being hit harder than others?

00:03:07:03 - 00:03:36:24
Keith John
So across our business, I mean, we deal with the we have a portfolio of about 250,000 consumers that owe us about $2 billion and that's right across the banking sector. So we deal predominantly across the major banks and most of our consumers don't own property. So it's really affecting everyone equally, to be quite honest. It's impacting people in different ways.

00:03:37:01 - 00:04:00:11
Keith John
The really challenging part for my people that work with these customers is hearing stories about changing people, changing the way they're living. You know, they can no longer afford to buy steak for dinner. They can no longer afford to turn the heating on when it's cold because it's so expensive on the East Coast from an electrics, you know, the price of electricity.

00:04:00:13 - 00:04:21:12
Keith John
And these things are having a real impact. I think, you know, Australians are incredibly resilient people and they're meeting or they're trying to meet their financial commitments, but it is at the expense of other parts of their lives. And that's a very difficult thing for people to face with. But it is across the board.

00:04:21:12 - 00:04:23:23
Keith John
There's no, no ones left untouched.

00:04:23:23 - 00:04:50:19
David Koch
And the ripple effect gets magnified in the retail, softer retail sales figures we saw this morning then everyone actually expends. Debt, too obviously, the big issue here, what are some of the products that people can use to avoid getting in harm's way when they come off the mortgage cliff? and the like?

00:04:50:21 - 00:05:35:17
Keith John
Yeah, look, I think, you know, one of the great things about the structure of Australia is the way that our banks work. They're very good at knowing and understanding precisely how much money someone can afford to borrow and what their capacity is to service that when things change. And I think whilst there's obviously plenty of pain that's being felt through, through the markets because of the mortgage cliff, it's nowhere near as significant as what I think a lot of people expected it to be that said, you know, products like buy now, pay later are really troublesome for consumers.

00:05:35:19 - 00:06:02:13
Keith John
You know, the days of where it came from, the old layby where you went and paid something off over time and then got it and the quick fast fix of consumerism now made that product quite challenging for so many people. So my advice would be stick to the major banks or to the credible lenders that are trying to understand your capacity first.

00:06:02:13 - 00:06:17:04
Keith John
And if they can understand your capacity, you know, these people are in the business of lending money and getting it paid back. And that means sometimes telling people things they don't want to hear like that's too much for you or we think do this a little bit differently.

00:06:17:06 - 00:06:43:16
David Koch
And also negotiate work with your bank to get a better deal. I had a lady who contacted me the other week came off the mortgage cliff home loan rate went up 2%, rang the bank for a discount and got two and a half percent discount. So she's ended up with an interest rate less than her fixed rate.

00:06:43:18 - 00:07:10:11
Keith John
And I think, David, I mean that's and I've heard you talk about that before, about talking to the banks and asking them. And I think very many, too many of us think that probably won't happen to me or we don't bother making the phone call. But to your point, it is as simple as that. The banks don't want to lose your business, so give them a reason not to or give them a reason to and they'll work hard to make it better for you.

00:07:10:11 - 00:07:20:07
Keith John
If you have kept up with your payments, particularly all of this time, you know they're going to work hard to keep your business and if that means them paying away some of their margin, they will do that.