Pre-Christmas debt risk warning: Dun & Bradstreet index

Post-election confidence, low interest rates and increased savings have combined to boost consumer demand for credit, in turn stabilising financial stress at a two-year low.

A report by Dun & Bradstreet shows that the financial position of Australians has settled in the past two months. The consumer credit bureau’s Consumer Financial Stress Index moved to 11.8 points for September, up from 11.5 points in August.

A six-month decline in financial stress this year has been supported by falling interest rates, while consumers have also built healthier levels of savings, the report said.

However, while financial stress may have stabilised in recent months, the index is at a significantly higher level than it was between 2009 and mid-2011.

In New South Wales, the Consumer Financial Stress Index was still high, at 21.6 points in September, down from a high of 32.2 in January.

In Victoria, the index fell from January to August this year, stabilising at 16.6 points in September.

Dun & Bradstreet has highlighted the risk of financial stress rising in the lead-up to Christmas and the summer holiday period, as consumers are likely to borrow and spend with more confidence. 

The report warned that pre-Christmas is a key time for accruing debt, with credit repayment issues becoming prevalent in the New Year period.

For example in January this year, debt referrals to Dun & Bradstreet increased by 15% on the previous quarter.  The Consumer Financial Stress Index reached 24.9 points, which was the highest ever recorded in the three-and-a-half years of the index.

Dun & Bradstreet director of corporate affairs Danielle Woods said in a statement that the economy’s slow improvement has “forced consumers to rethink the way they manage their finances”.

“With negative economic news circulating for the majority of 2013, particularly about job cuts, consumers have focused on saving more money, and getting on top of their debts,” she said.

“While this behaviour has had a detrimental impact on sections of the economy such as household credit growth and retail sales activity, the flipside has been an improvement in consumers’ credit position.”

Economic adviser to Dun & Bradstreet Stephen Koukoulas told SmartCompany this morning that while the index has improved for six months, a subdued growth in wages and soft labour markets mean that businesses shouldn’t expect a sudden surge in consumer spending.

“While consumer sentiment is quite good … it depends how they action this in terms of spending,” he says.

Koukoulas mentioned that credit debt has been declining this year as there are “cautious consumers all round, even though there is a bit more optimism”.

He says that retirees with shares may be experiencing less financial stress than in recent years due to a general uptick in share values. However younger people with mortgages, flat wages and less job security are unlikely to be out of the woods.

The Dun & Bradstreet Consumer Financial Stress Index is an indicative measure of consumer financial stress in Australia, with the scores calculated from a series of data variables derived from millions of Australians on the company’s databases.