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Squeezed between inflation and interest rates

inflation-interest-rates — The Australian cash rate since 1998 (Reserve Bank of Australia chart)

I just happened to be reading a novel set in the Edwardian era at the same time as the media was going bonkers (again) about the Reserve Bank raising interest rates by 0.25% to 3.6%. In Louis de Bernieres’s* book, The Dust That Falls from Dreams, one of the characters is holding forth about the sudden rise in the bank rate and subsequent collapse of the share market in 1914.

Hamilton McCosh, a daring entrepreneur and investor, is at first delighted when the bank rate goes to 4% because he has ‘a few bob invested here and there’. Then the rate doubles to 8% and quickly rises to 10%.

“Just as I was gleefully rubbing my hands the blighters closed the Stock Exchange”, he tells his pals at the Atheneum, a gentlemen’s club.

This is late July 1914, you gather, a few weeks before World War I broke out. McCosh didn’t know then that the stock market would stay closed for five months. Rather than cause inflation, this financial crisis functioned like the ultimate credit squeeze. Inflation stayed low, well at least until 1915, when it rose rapidly to 12% then to 25% in 1917.

In the pre-war period, De Bernieres’s McCosh is aghast – you can’t get credit anywhere and there’s a rout on the stock market. “What’s Serbia got to do with us?” he complains.

In 2023 you could insert “Ukraine’“and immediately realise that we have seen cycles like this before. In times of war, the supply of money is tested, oil is expensive and hard to source, there is much unemployment, securities can’t be sold and supplies of necessities are dwindling.

The 1914 financial crisis in the City was a liquidity crisis of massive proportion, the likes of which was not seen again until 2007/2008. Amidst much intervention by the government and the Bank of England, the day was ultimately saved.

In De Bernieres’s novel, McCosh regroups and singles out two stocks he thinks will do well – Malacca Rubber and Shell Oil (as he calculates where money will be spent in the war effort).

Self-interest and venality arises quickly whenever a country’s financial welfare is threatened. Survival of the shiftiest is the order of the day.

At this point in time, many of Australia’s mortgage holders must be in a state of anxiety as yet again the goal posts are moved.

Not that the RBA had any option. Monetary policy is under pressure from forces beyond the Reserve Bank’s control. We are not the only country where inflation and interest rates have risen sharply. You can chart the increases in Australia back to the onset of a pandemic in March 2020, then steeply rising since Russia’s invasion of Ukraine, in February 2022.

The impact of Covid is what initially sent the cost of living index soaring. From March 2020, when it was 2.2%. Inflation rose steadily through the Covid years, driven up by stock shortages, the impact of bushfires and floods on production, disruptions to supply chains and the ever-rising cost of fuel.

Inflation reached 7.3% in the September quarter of 2022, about six months after Russia invaded Ukraine. The RBA now thinks inflation may have peaked (at 7.8% in December 2022). But as ABC business reporter Peter Ryan observed, the March quarter figure will be the one to clarify matters when released on April 23. Wherever it rests, Australia’s inflation rate is a long way north of the 2%-3% range promised in 2019.

When inflation rises, central banks almost always use monetary policy to beat it into submission. This week’s interest rate rise – the 10^th in a row, takes the official cash rate to 3.6%.

As Peter Martin observed in a timely piece for The Conversation, Tuesday’s interest rate hike was the culmination of a process that has added $1,080 to the monthly cost of payments on a $600,000 variable mortgage.

Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University, calculated this increase ($12,960 per year) by comparing payments on the National Australia Bank’s base variable mortgage rate before the Reserve Bank started its series of hikes in May 2022.

Before the Reserve Bank began raising the cash rate, the base variable rate was 2.19%. It’s about to be 5.49%, pushing up the monthly payment on a $600,000 mortgage from $2,600 to $3,680.

The Reserve Bank acknowledges it is a “painful squeeze”, but hints it might not need to squeeze much harder.

There’s more pain across the ditch. NZStats revealed that the annual inflation rate for 2022 reached 7.2%. Housing and household utilities was the largest contributor to the annual inflation rate. This was due to a 14% hike in the cost of building a house and rentals also rose.

As if to demonstrate its independence from the government of the day, New Zealand’s Reserve Bank pretty much ignored the impact of Cyclone Gabrielle. While all around people were shovelling silt out of their houses, the RBNZ increased the cash rate from 4.25% to 4.75% on February 22. This was a more dramatic increase than seen this week in Australia. But New Zealand is anxious to suppress the spiralling cost of housing. You’d think a country which is over-endowed with pine forests would have this covered, eh?

I guess the new UK prime minister will want to take credit for the drop in inflation recorded in January (8.8%) compared with 9.7% in December 2022. The Bank of England Governor has warned that it may need to raise rates again if inflation re-asserts itself. After 10 successive increases since December 2021, the official rate is at 4%. Meanwhile in the US, the Federal Reserve is flagging higher and faster rates rises (4.75% in February), despite inflation dropping below 7%.

Why does all this matter and who does it matter to? If you are young, working and buying your own home, yet another 0.25% increase in the cash rate wrecks your household budget. Those who borrowed their deposit (from the Bank of Mum and Dad) will be desperate for another pay rise, as inflation eats into the recent 4.5% increase in wages.

As The Guardian reported just last month, almost 25% of borrowers were at risk of mortgage stress as of December 2022. Another 800,000 borrowers face higher repayments as fixed loans end later this year and revert to the variable rate.

Tim Lawless, research director at CoreLogic, says the clear reason for mortgage stress is that interest rates increased faster and earlier than anyone was thinking. (Whatever happened to the notion of buying a modest first home then upgrading as finances permit?Ed.)

“We are expecting that the rate of mortgage stress will push higher into 2023,” Lawless told The Guardian, “partly because of higher interest rates, but also because of the cost of living.”

Theo Chambers, chief executive of Shore Financial added: “People probably borrowed more than they could have today. With borrowing capacities down almost 35% from 12 months ago, these people wouldn’t get approved today.”

As for De Bernieres’s Hamilton McCosh, how is he supposed to earn a living in Edwardian Britain, he fumes, saddled with four children, a truculent wife and two mistresses current (one retired), all of whom have children to feed?

As the Norwegian playwright Henrik Ibsen once said, “Home life ceases to be free and beautiful as soon as it is founded on borrowing and debt“.

*author of Captain Corellli’s Mandolin

Hoarding cash in a cashless society

hoarding-cash-cashless — Image by S. Hermann and F. Richter, Pixabay.com

Australians have been hoarding cash, particularly through the first year of Covid-19, despite forecasts that we will be a 98% cashless society by 2024. Even if this prediction from global payments giant FIS comes to pass, some 540,000 Australians will still prefer to use cash.

You may recall a flurry of news stories on this topic in March. The research commented on the effect of a de facto ban on cash during the first year of Covid-19. Even now, merchants are discouraging the use of cash at point of sale.

The topic was prompted when Professor Steve Worthington of Swinburne University’s business school sent me an article he prepared for the ANZ Bank publication, Blue Notes. The topic was ‘Can cash survive the digital tide?’

Prof Worthington says the key issue with the domination of electronic transactions is that it excludes people who either rely on cash or prefer to use it. He argues that physical cash should be classified as an essential service (designated as a Public Good).

It may not surprise to learn that Australia’s high cash users are likely to be older people, have lower household incomes, live in regional areas and are less likely to have access to the Internet.

As you’d know, banks offer their customers internet banking, but you need a secure internet link to do so.

The Australian Bureau of Statistics (ABS) estimates that two million Australians do not have access to the Internet. Many Australians use public internet, most commonly at public libraries – not the most secure method of conducting Internet banking.

Prof Worthington notes that there is now more cash in Australia than ever before, with record growth in 2020. But it is not showing up in the Reserve Bank of Australia’s statistics as being circulated.

A cash payments study by the RBA in June last year confirmed that Australian consumers were continuing to switch to electronic payment methods in preference to cash. The share of in-person cash payments was still substantial; at 32% by number and 19% by value in 2019, down from 43% and 30% respectively in 2016. But generally, we have taken to tapping and going.

Meanwhile, the RBA is mystified by the rising demand for cash, which does not show up in circulation data. Cash (notes issued in excess of those returned), soared 17% during 2020. The average in the decade prior was 5% a year. The Reserve Bank went to its contingency fund twice during 2020, such was the demand for $50 and $100 notes. There are now 36 $50 notes and 16 $100 notes in circulation for every person in the country.

(“Where are mine?” – She Who Keeps Coins in a Tin for Christmas).

Tabloid newspapers and current affairs programmes go to the ‘stashed under the mattress’ cliche when reporting on this curious social trend. Given the meagre returns available on term deposits and the comparatively low cost of domestic safes, it is fair to assume some people have a stash of cash at home.

There could be many reasons for this apart from convenience; like hiding one’s income from the tax office, Centrelink or the ex.

I’m from the pounds shillings and pence era when shops would not cash a cheque unless they had previously done business with the person presenting it. Cash was definitely King then.

My Dad used to call hard currency ‘filthy lucre’ and while he took cash over the counter in the bakery shop, he always washed his hands before handling food. The term ‘filthy lucre’ does not mean that banknotes are dirty – it’s a biblical reference to ill-gotten gains. But I digress.

Australians have gravitated big time to electronic banking solutions. The biggest clue is the absence of queues at ATM machines and mass withdrawal of ATMs in city suburbs – 2,500 gone in 2020 alone.

Forecasts that Australia would be a virtual cashless society by 2024 were drawn from a new report by financial giant FIS Global. Mike Kresse, head of global payments at FIS, believes cash will be virtually retired by 2030.

“From individual consumers and small businesses to the largest clients, cash can’t compete with rising expectations for fast, safe and easy payments,” he said when launching FIS Global’s annual report.

“The smartphone was already transforming payments, and the pandemic brought the future faster, accelerating the trends.”

FIS forecast that by 2024, Australia will be the fourth most cash-averse economy in the world after Sweden, Denmark and Hong Kong.

Prof Worthington says Australian authorities need to work on establishing a way to include people who still want to use cash, hence his plea to consider cash as an essential service.

“We are using less cash as a payment system, but today people still need access to cash. That may be because of a desire for privacy, convenience or as a backup payment option when all else fails.”

Cash is still the preferred payment option of many small traders and sub contractors. The Australian Taxation Office (ATO ) occasionally has a blitz on companies thought to be under-reporting income, one year targeting 45,000 small businesses.

“We use a range of tools to identify and take action against people and businesses that may not be correctly meeting their obligations,” the ATO says.

“Through data matching, we can identify businesses that don’t have electronic payment facilities.

“These businesses often advertise as ‘cash only’ or mainly deal in cash transactions. When businesses do this, they are more likely to make mistakes or don’t keep thorough records.”

It’s comforting to know that the ATO differentiates between the cash economy, the ‘shadow’ economy and the ‘black’ economy, the latter run by organised crime groups dealing in drugs, prostitution and people smuggling.

This topic got me thinking about the day in 1984 when I was locked in a secure room with a million dollars. Our chief of staff had been asked to send a reporter and photographer to a bank branch in Toowoomba. The occasion was the arrival of Australia’s first $100 note – in this instance 10,000 notes delivered in a square block. The cash was transported by train from the Reserve Bank mint at Craigieburn in Victoria. Secrecy was paramount and we were not told when the photo opportunity would happen until half an hour prior.

I have to tell you, a million dollars in $100 notes takes up a lot of space in a room. Our photographer fitted a wide angle lens to best capture the great block of notes and obligatory men in suits.

These days, I almost always carry cash in my wallet and feel naked if I run out. Despite having a debit card and a credit card, it somehow just isn’t the same. Even during Covid in 2020, when retailers looked askance at people tendering banknotes, I slipped the odd five or ten across the counter. Cash will always be an attractive option for some people because (a) it is anonymous and (b) does not leave an electronic trail.

After all, until the day when marijuana is decriminalised, regular users will turn up at the usual location with $300 or so in cash. There are many such occasions when consumers are unlikely to use buy now-pay later options.

No sooner had I written that, an ad for Safepay popped up on my screen! How do they do that?

Taking An Interest In Recessionary Economics

interest-rates-inflation-consumtion — Australia’s savings rate, spending and disposable income on a downward trend

The end of financial year meeting of the Basil and Sybil Cheeseparer Superannuation Fund was going well until the Trustees (a) found that their investment strategy was out of sync with reality and (b) failed to find a fixed interest investment that would return more than 2.50% over five years.

“We should stick it under the mattress,” said Sybil.

“Your side or mine?” quipped Basil.

As you should know, even if economics is not your forte, the Reserve Bank of Australia this week cut official rates for the second month in a row to a new low of 1.0%. They could have heeded this warning from Sydney’s University of Technology Professor Warren Hogan, but the RBA is not often swayed by commentary.

The RBA continues to be driven by persistently low inflation (1.3% in the March 2019 quarter). The theory is that if the RBA cuts rates low enough, business and consumer confidence will return and inflation will resume its normal trajectory (2% to 3%). This in itself should build a case to raise interest rates, albeit gradually.

This current cycle of record low economic growth, inflation and interest rates is best explained by the graph ‘household consumption’.

It clearly shows consumption/spending falling off, concurrent with a decline in disposable income. Note the 10-year decline in our savings habit. Not much point saving if you are only going to get 2% or less in a bank and then pay a fee for the privilege, eh? (a nod to Canada Day).

An official interest rate of 0.1% is not as dire as that of Japan, Switzerland, Sweden or Denmark which have negative interest rates. Actually, since the onset of the Global Financial Crisis in 2007, many countries drastically cut interest rates in an attempt to stimulate growth (production and jobs). A blog by the International Monetary Fund (IMF) reasoned that while, the global economy has been recovering, and future downturns are inevitable:

“Severe recessions have historically required 3–6 percentage points cut in policy rates,” authors Ruchir Agarwal and Signe Krogstrup observe.

“If another crisis happens, few countries would have that kind of room for monetary policy to respond.”

IMF staffers periodically write blogs where they test models and theories (the IMF disclaimer says they do not represent the IMF’s views).

In this context, Agarawai and Krogstrup construct an argument for countries to survive financial crises by using negative interest.

The authors posit that, in a cashless world, there would be no lower bound on interest rates.

“A central bank could reduce the policy rate from, say, 2% to minus 4% to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds.”

“Depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy.”

Yes, but how do retirees like Basil and Sybil, who have surplus cash to invest, fit into this system? When the B&S Cheeseparer Superannuation Fund was formed, the cash rate was still climbing to its peak of 7.25% in 2009. That made it possible to invest cash in term deposits paying 5% or more, an attractive option for older people who wanted a safe haven.

Now, the return for risk-averse investors barely covers the cost of self-managed super fund administration. And to think that Labor were talking about taking away much-needed dividend credit refunds! (The fact that this would only affect a small number of wealthy individuals was a fact not well explained by Labor and gleefully misinterpreted by the government).

Continuing low inflation is the main reason Australia’s central bank keeps cutting interest rates. Inflation dropped to 1.3% in March – the cost of living as represented by the Consumer Price Index (CPI) minus ‘volatile items’ like home purchase costs. However, Commonwealth Bank senior economist Gareth Aird argues that adding housing costs could add 0.55 percentage points to the CPI, giving the RBA less reason to lower interest rates.

Warren Hogan writes that ‘Australia is in a new environment where tinkering with interest rates may not be as relevant as it once was.’ Inflation is subdued around the world, he notes, yet the global economy is growing and unemployment is low.

Likewise in Australia, unemployment is low, although wages growth has stalled. As Hogan says, it isn’t at all clear that even lower interest rates would have a meaningful effect on inflation.

Australia has not plunged into a recession for 28 years, yet some commentators have used the R word when talking about the latest round of retail closures. (I should point out that uttering the R word is regarded in some circles as akin to walking under a ladder, breaking a mirror, toppling a salt shaker or seeing a priest in the street).

Retail closures included Maggie, T, Roger David, The Gap, Esprit and Laura Ashley. National retailers planning to downsize include Big W, Target, Myer and David Jones.

While some retail closures involved inevitable job losses, there will be more jobs to go as the big national chains roll out their smaller formats.

For the benefit of those aged under 28, an ‘R’ sets in after two consecutive quarters of negative GDP growth.

As we can see, the GDP result over nine months (+0.3%, +0.4% and +0.4%), means we are in dangerous territory.

The Gross Domestic Product (GDP) number is the one that measures whether the economy is growing or retracting. Safe to say at this point that a 0.4% increase in the March 2019 quarter (published this week) is not what the market or the government was looking for. The annualised GDP is 1.8% − the lowest since the GFC. Some pundits are calling it a GDP-per-capita-R, that is, population growth is overtaking economic growth.

The low interest rate scenario (and the data implies more cuts to come), is good for young people buying houses, but has a detrimental impact on retirees. Most people in retirement mode take a conservative view, preserving their remaining capital as long as possible. Bucket-list advocates would say what the hell and head off to Antarctica while there are still icebergs, glaciers and penguins.

Retirees typically have 60% to 70% of their super fund/savings in fixed interest products, with the balance in income-producing shares. But when faced with returns of 2.45% and less, it is difficult to stick to this formula. Shares or investment housing offer riskier but more attractive returns, though not as risky as spending all your cash on travel adventures or stashing it under her side of the mattress.

What to do? I have no answers, nor, I suspect, does the central bank, or the government, which is seemingly obsessed with the notion of stimulating the economy via $158 billion in tax cuts over 10 years.

Everyone under 30 needs to be across this subject because, as Herbert Hoover once said: “Blessed are the young, for they will inherit the national debt.”

We’ll leave you with some insights from Clarke & Dawe about banks, the debt crisis and interest.

PS- I’m offering a choice of home-made, gluten free cake to whomever can explain to me why inflation is a ‘good thing’ – Ed..

Skip the small change

A week ago a patient teller at our local bank dealt with one of my occasional visits to deposit a bag of small change. Yes, I raided the piggy-bank again, and in case you don’t believe me, there it is (left), handed out free by Macquarie Goodman at the grand opening of the Metroplex on Gateway industrial estate at Murarrie in 1998.

Once I had a Bundaberg rum bottle filled to the lip with one cent coins. The label was signed by WA blues musician Matt Taylor, after Taylor’s band Chain performed at a venue managed by me and a team of volunteers. Matt signed “To (as yet-un-named son) – you ain’t even born yet.”

Later, when we were moving house, the rum bottle was accidently kicked over, smashing on the terracotta tiles, spilling 789 one cent coins across the floor. By this time the Reserve Bank had scrapped one cent coins and was working on ridding the country of two cent coins as well. The Royal Australian Mint removed one and two cent coins from circulation in 1991-1992. The Reserve Bank decided in 1990 that 1c and 2c coins had to go as inflation had rendered them worthless. Or to be more precise, the cost of minting them far outweighed their face value.

The Royal Australian Mint, however, has produced mint sets of one and two-cent coins for collectors in 1991, 2006 and 2010. I was surprised to read that one can still present one and two cent coins as legal tender and they can be banked. They can also be sold as collectables.

Trivia alert: Some of the small change was melted down to make the bronze medals presented to athletes at the 2000 Sydney Olympics.

Other countries abandoned their one and two cent coins around the same time, citing inflation and the increasing cost of bronze (an alloy of copper with minor amounts of tin and zinc). Ireland ditched its small coins last year, in line with six other Eurozone countries

The end result of axing 1c and 2c coins is a process called ‘rounding’ which means if something is priced at $1.98, you pay $2. If it costs $1.93, you pay $1.95. Who knows what the rounders will do when they scrap the five cent coin – and trust me – it is not far away.

One of the main arguments for doing away with five cent coins is the increasing use of pay wave for small transactions.

What can you buy with five cents anyway? The Northern Star newspaper based out of Lismore asked its readers just that. The answers included ‘lollies at some shops’, ‘20 five cent coins from the tooth fairy’, ‘lemons or limes at the fruit stall’ and my personal favourite – ‘the best things ever to scratch a scratchie’.

In 2014, a Senate Estimates Committee hearing was told the five cent coin cost 6c to manufacture (it’s now closer to 7c). The cost is partly due to the combination of copper and nickel, but also the labour involved in handling and distribution. Yet the 5c coin, with an echidna on one side and Queen Elizabeth on the other, it is still with us, weighing down pockets and purses, wearing holes in the lining of jackets and trousers, disappearing down the sides of sofas and car seats.

One way you can find creative uses for those pesky five cent coins is to donate them to charity. Agencies have been hoarding 1c and 2c coins for years, using the money collected for people in third-world countries. For the past 25 years they have been focusing on 5c coins.

The Sydney Morning Herald reported last December that Australian charity Y-GAP, Y-Generation Against Poverty organised a fundraising campaign which collected 10.9 million individual 5 cent coins.

Then there’s those foreign coins one inevitably brings home from abroad. My cache of foreign shrapnel includes $5.90 in New Zealand coins, a Kiwi $5 note and a one euro coin. If you’ve noticed, some airlines encourage you to deposit foreign coins in an envelope and leave it in the seat pocket of the aircraft as you disembark. Several charities collect these coins and use the proceeds for impoverished children. UNICEF, assisted by the Commonwealth Bank and BankWest, has amassed more than $260,000 in small change since 2009. Small amounts of First World cash go a long way in Africa or India. One UK penny will provide a child with clean drinking water for a day; two Canadian dollars (Loonies) can provide a malnourished child with enough therapeutic super food for one day; in India, 220 rupees (about $4) can buy someone a mosquito net.

The subject of money was being raised at one end of a long table in the local pub on Sunday where members of our community choir had adjourned after a performance. I was at one end of the table and two of the women at the other end were talking about the design of the new $5 note. I set my hearing aids to ‘noisy room’ but still their lips moved and no words came out.

“I’m sure it will make an excellent FOMM,” I shouted, “Once I figure out what you are talking about.”

It transpired they were adding to the dissent and disappointment over the design of the new $5 note. The anti-royalists jumped on to social media posting hastily photo-shopped memes. There are many versions of the $5 polymer note where the Queen’s image has been variously replaced with Tony Abbott eating an onion, Tony Abbott wearing cyclist’s sunnies, Dame Edna looking dashing, Kathy Freeman looking like an Olympic legend and a few odd ones like Pluck-a-Duck, Shane Warne, Delta Goodrem and a jar of Vegemite.

Why did we need a new $5 note at all, you might ask? This one has enhanced security, we’re told.

We have an international track record for that, did you know? Australia was the first country to produce polymer banknotes (in 1988), largely as a response to an increase in counterfeiting. Prior to the launch of polymer notes (created by the CSIRO, the Reserve Bank and Melbourne University), a group of enterprising lads from Melbourne made pretty good copies of the (paper) $10 note. The forgeries were so good some were still in circulation when polymer notes were first introduced.

The new $5 note has a clear plastic strip down the middle, apparently un-forgeable. It also has tactile features to help the vision impaired differentiate between a fifty and a five. The new note is the first of five denominations to be rolled out by Reserve Bank of Australia (at a total cost of $29 million) over the next few years.

Curious, I went to the bank yesterday, ready to trade 100 five cent coins for one of the new notes. Alas, our local teller said she had not spied one in our town and the local supermarket told me the same story. Apparently there’s still 34 million $5 notes in circulation. You will be relieved to know that I have extracted the only necessary fact from this Reserve Bank of Australia technical article about the life-cycle of banknotes: the median life of a $5 note is 2-3 years.

Good luck finding a new one, then.

Deeper in debt

books-and-window resized — Freeimages.com/Johanna Llungblom

You’d think that after 42 years’ experience handling credit cards Australians would have wised up to over-using their high interest card/s and getting into debt.

Research by comparison website finder.com.au shows that Aussies are up to their eyebrows in credit card debt.

Finder’s analysis of Reserve Bank of Australia data shows that we have $18 billion more credit card debt than we did a decade ago and we have 16.3 million credit card accounts – equivalent to 90% of the adult population.

Bessie Hassan, finder.com.au’s Consumer Advocate, says Australians amassed $32 billion in credit card debt by December 31, 2015. Crikey, that makes my $188 balance payable by March 31 look kind of paltry.

Notwithstanding, one of my better later-life decisions was to keep my credit card with its modest limit, as it allows me to pay for concert tickets, annual subscriptions, overseas airfares and travel and thus defer payments to hopefully co-ordinate with monthly pay days. But even at that rate, it is alarming how quickly one comes to owe $1,450 and there’s only $1,369 in the bank account. And as we all know, if you don’t pay the balance off by the due date, you incur interest as high as 23%. I’m aware that folks who are living beyond their means commonly go card-shopping and pay off one balance by incurring a debt on the second card.

Enter Bankcard, 1974

The great expansion in borrowing goes back to 1974 with the introduction of Bankcard; long before many of you who are having panic attacks right now were even born. Bankcard was the first credit card, but within 18 months it was broadly accepted, with 1.054 million users and 49,000 merchants on board.

Of course my parents’ generation were aghast, they of the ‘never a borrower or a lender be’ class. They saved up for stuff, or put it on lay-by. What – you’ve never heard of lay-by? Let’s say you are in (leading department store), when a fabulous crystal chandelier catches your eye.

You go to the lay-by counter and enter into what the ACCC defines as an agreement to pay for the goods in at least two instalments. You do not receive the goods until the full price has been paid.

The beauty of lay-by is that you get a cooling off period, so if you get home and show the wife pictures of the fabulous chandelier on your IPhone and she spits the dummy, you can cancel the lay-by agreement and the business will refund your deposit and all other amounts (except for the termination fee).

The Australian Payments Clearing Association (APCA) has an intriguing timeline which shows the development of finance and credit in this country. Notable is the emergence of international credit cards in the 1980s (visa, MasterCard) which ushered in a new era of competition. Along with nifty initiatives like awarding frequent flyer points on credit card use, rival credit card providers enticed people away with tempting (introductory) low or no-interest periods. In those days hardly anyone charged annual fees, so some people used their cards to buy groceries.

Hassan says the data shows that 90% of people aged 18 and over have one credit card (on average), an increase of 79% from 2004. In warning that the market appears to be reaching saturation level, Hassan says that while a credit card is a convenient, short-term way to borrow money, you can quickly reach dangerous levels of debt.

Someone is spending my share

Total balances on credit cards hit $52 billion at December 31. The total balance per card is currently $3,192, $1,971 of which is accruing interest.”

There are a range of comparison websites like where you can find a snapshot of credit card provider terms. Consider this a moving target, but a quick perusal of Infochoice showed interest charges ranging from 10.99% to 23.50%. Most providers charge an annual fee ranging from $30 to $399. Virtually all offer an interest-free period of 55 days.

Taking the Extreme case, if your $20,000 limit card is ‘maxed out’ and you are paying 15% interest and an annual fee of $165 (due tomorrow), and you’ve just lost your job, it could be time to sit down with your credit card provider and come to an arrangement.

“Look, I can give you $10 a week, every week. Or I can declare myself bankrupt. Your choice.”

There’s a fair chance after a year or so Mr Extreme’s circumstances will have improved and he can afford to pay back the minimum on a debt which over a year has become much larger, but he’s not bankrupt. He may even have sought advice from a personal finance counsellor.

Bessie Hassan lists a few things credit card users can do if they think their card usage is getting out of control:

Don’t get into the trap of using it as a cash advance when income runs low;
Don’t accept a higher credit limit just because a lender offers it to you;
Clean up your credit card accounts by paying more than the minimum monthly payment, reducing credit limits and practise responsible spending;
Transfer all your debt to a new provider (one offering 0% interest for a limited time) and only pay interest on new card purchases.

Changes to consumer credit laws in March 2014 means it does not take much to get a black mark on your credit rating. Before, it would take a string of missed payments before a default notice appeared on your credit report. Now, a payment missed by 14 days can trigger a default. As anyone who’s been oversea on holidays and thought the payment could wait now realises, it can’t wait.

According to the Australian Retail Credit Association, 59% of Australian consumers do not know credit reporting works and are not aware of these changes.

But what about the third-world?

Ah, but this what we middle-class Aussies call a “first-world problem”. Time for a seemingly unrelated segue. You’ll hear a lot this weekend about asylum seekers being detained offshore at the behest of the government we elected (unhappily, a position supported to by the Federal Opposition).

Asylum seeker and refugee advocacy groups will be holding rallies and marches on Palm Sunday, once again trying to make this a major election issue.

So even if your housekeeping has revealed it will take until Easter next year to pay off those three credit cards that seemed so alluring at the time, what’s one more book, bought new and donated to those poor buggers detained without charge on Manus Island, Nauru, Christmas Island or in mainland detention centres?

As Amnesty International found, there is an insatiable appetite for multi-lingual dictionaries in Australia’s detention centres. Donors have so far given Amnesty 4,200 dictionaries in Farsi, Tamil, Vietnamese and other languages. Each dictionary will be hand-delivered or individually mailed to someone who’s asked for one, along with a message from the donor.

However tempting it might be to buy the Arabic translation of Noam Chomsky’s World Orders – Old and New (yes, there is such a thing), a Hindi dictionary or a set of Beatrix Potter books for the little detainees would be a better choice. Get your card out and start looking at ways to help. #LetThemStay.

Darwin Asylum Seeker Support and Advocacy Network, Asylum Seeker Resource Centre; Amnesty International.