The ages of debt

Robin Bowerman, Head of Retail at Vanguard Investments Australia.
Robin Bowerman, Head of Retail at Vanguard Investments Australia.

DEBT can be very much a matter of age.

The National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra recently published a report, Saving Tomorrow, which shows how the type of debt and the degree of indebtedness tends to vary considerably with age.

For instance, 54 percent of the population aged 15-24 carry debt that is unrelated to home mortgages or education. This category of debt – presumably much of it accumulated using credit cards – gradually reduces as a person ages.

And by age 55-64, the percentage of the population with non-mortgage or non-business debt begins to rapidly decrease.

Mortgage debt, on the other hand, reaches a peak at ages 35-44 with 60 percent of the population in that age group having a home loan. And again, mortgage debt reduces with age.

By age 55-64, a little more than a quarter of the people in that age group have mortgages, reducing to fewer than 7 percent by age 65-74.

These statistics clearly underline once again that those of greatest vulnerability to consumer debt are young people. This would not surprise most of us.

But a perhaps unexpected factor is the high percentage of the population in middle age with debts that are unconnected to mortgages or businesses. NATSEM reports that more than 43 percent of those aged 45-54 hold such debts.

One positive interpretation of these statistics is that there appears to be a determination by many people to significantly reduce or clear their debts by retirement.

However, this particular report does not examine the amount of superannuation savings that are used to clear debt in early retirement rather than to help fund retirement lifestyles. This is a controversial issue.

Smart Investing referred to the NATSEM report, Saving Tomorrow, on May 7 in relation to its findings about savings - Who are Australia's best and worst savers?.

Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.

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