A monsoonal trough in the aftermath of Cyclone Wanda caused around 900mm to fall in the South Eastern Queensland between the 24 and 29th of January 1974. These floods were the worst to hit Queensland since 1893.
Back in 1974, Australian’s saved for a rainy day. According to data from the Australian Bureau of Statistics, at the time Australians were putting away the average of 15.3 percent of their household disposal income in the piggy bank. This little nest egg of savings could be drawn on at time of disaster such as a flood. Debt was also manageable during this era. While RBA statistics only date back to 1977, in 1977 the average Australian household had 33.2 cents of debt for every dollar their household earned per year.
In the aftermath of this weeks flood, Queenslander’s are not only drowning in water, they, like most Australians are drowning in debt. Today, household debt levels have ballooned out to 159.2 percent of household disposal income, that is for every dollar a household earns this year, they will have $1.59 of debt or 4.7 times the debt that had during 1974. 89 percent of that debt is locked into housing and unfortunately for some, that is the asset that is underwater. Households today are extremely leveraged time bombs.
With so much debt, there is not much opportunity to save for a rainy day. Since 2002 to the start of the global financial crisis, we were spending more than we earned, i.e. we were depleting any savings we had. The GFC wacked us around to a little extent, and households are once again saving for that rainy day, but to a very small extent.
While the 2011 floods have not broken the 1974 record in terms of river levels, the devastation is likely to exceed that of 1974. Today, there is more housing and much denser housing in the same area. But what is not yet clear is the impact to household finances. With so much leverage today, is there any spare capacity in household budgets to get through the tough times?
Our hearts go out to everyone affected by flooding.