At some stage this year another economic milestone will be passed. For the first time the average person will have run up debts which exceed their annual disposable income. Anyone who has bought a house in the last decade may have long passed this threshold, but hitherto, on average, we have been prudent enough by international standards when taking on personal debts.
The economic prosperity of recent years seems to have put paid to this caution. Consumer credit has grown by 20 per cent a year on average over the last five years, outstripping growth in wages. Home-buyers borrowing larger and larger sums to chase spiralling house prices have been the main driver of this, with mortgage lending accounting for around 80 per cent of consumer borrowing. But other borrowing for cars, holidays and the like has also grown strongly, as has credit-card spending.
The main beneficiaries of this credit boom have been the financial institutions, which have seen their profits grow strongly. And all the signs are that they will keep on lending, with most analysts believing that Irish consumers can take on still more debt without undue cause for concern. This is despite almost one-third of the average worker's take-home pay currently being consumed by debt-serving cost. Just six years ago this figure was under 20 per cent.
Many analysts argue that we have some way to go yet before we match our counterparts in the rest of Europe and the US in terms of household debt. They also point out that as a nation we tend to be bigger savers than our equivalents in the UK and the US. This may be the case but already there is anecdotal evidence that those at the margins are having trouble coping. Davy Stockbrokers pointed out this week that although the "average person" may not be under undue financial pressure some sectors may be starting to feel the pinch. For example, some borrowers who lost their job in the recent economic downturn are now likely to be in difficulty. Meanwhile the softening rental market is likely to be causing problems for those relying on income from this source to pay off a mortgage.
Ultimately it is up to the individual to decide how much debt they want to take on - and can sustain when interest rates eventually start to rise. However, there is an onus on the Government to provide them with the information to make informed decisions. In that context the publication this week by the Irish Financial Services Regulatory Authority of a comparative breakdown of credit-card charges for the first time is both timely and welcome.