Australian household finances are in a good shape with assets growing faster than their debts according to a central bank official.
Ric Battelino, assistant governor of financial markets with the Reserve Bank of Australia said that while popular depiction suggests that Australian households are struggling with mounting debt problems, there are grounds for believing this is not the case.
"While debt levels amounted to around 150% of Australia's annual disposable income, their financial assets grew to more than 300%. As a result, even though household debt has increased, the net financial position of households has improved noticeably," he said.
"In saying this, I don't want to give the impression that the rate of increase in debt doesn't really matter. Clearly it does, as a households can become over-exuberant in their use of debt," said Battelino. "Rather, the point I am making is that in judging the health of household finances, we should not look at trends in debt in isolation - we need to look at the overall financial position of households."
Battelino also noted that intense competition in the loans market has made it easier for borrowers to access cheaper and more diversified loans. However, he warned borrowers and lenders about taking excessive risks.
"In circumstances where loans are readily available at relatively low cost, borrowers need to take care that they are not tempted into over-extending themselves. Similarly, lenders need to be alert to the possibility that attempts to gain, even maintain, market share can lead to their taking on unintended risk," said Battelino.