Financial stress expected to rise in 2014

Consumer financial stress is forecast to rise during 2014 to its highest level in more than a year, with the financial position of consumers expected to weaken and personal debts to increase according to a recent report.

Dun & Bradstreet's Consumer Financial Stress Index, which measures demand and capacity for credit, eased from a high of 24.9 to 14.6 across 2013 but is projected to rise again during the first half of the year to reach 23.4 points by June.

An increase in unmanageable consumer debts during the first quarter of this year, as a consequence of increased spending in the Christmas period, presents a risk to financial stress levels. In Q1 2013, the volume of consumer debts referred to D&B for collection increased by 17 per cent on the previous quarter, while during Q1 2012 there was a 33 per cent jump.

With the Australian National Retailers Association expecting consumers to have spent nearly one billion dollars a day during December, an increase of five per cent on 2012, D&B anticipates that the Q1 debt trend to continue.

For consumers struggling with outstanding debt in the new year, financial products like 0% balance transfers credit cards and personal loans are being relied upon to ease the financial pressure.

"Despite an encouraging fall in consumer financial stress across last year, the near-term forecast shows a return to the higher levels seen in 2013," said Gareth Jones, CEO of Dun & Bradstreet.

"Unfortunately we often see a jump in the volume of debt referrals during the first quarter of a year, which is reflective of the financial strain many find themselves experiencing in the months following Christmas.

"With the additional worry of rising unemployment and the potential for inflation, the first half of the year will test the manner in which consumers manage their finances," Mr Jones added.

"Given that new credit reporting laws come into effect in March, including the reporting of late bill payments, consumers will need to stay-on-top of their repayment obligations."

On 14 March, a comprehensive credit reporting system commences in Australia, which allows banks and other financial institutions to record additional information about the repayment behaviour of consumers with credit accounts, which includes the listing of bills that are paid at five-or-more days late.

However, financial comparison site advises consumers to proceed with caution.

Consumers in heavy amounts of personal debt and wishing to avoid a crisis should make sure that the products they engage with are the most competitive in the market and that any measures taken to relieve the pressure from outstanding debt be turned to renewed efforts to get out of it.

The prospect of higher unemployment levels and inflation are additional areas of concern for consumer financial stress levels this year.

Official figures for December show that, while the unemployment rate was unchanged, the total number of jobs in Australia fell by 22,600, with the participation rate also declining. Unemployment edged up from 5.4 per cent to 5.8 per cent across 2013, while the IMF has forecast unemployment to rise to six per cent this year.

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