To my knowledge, there hasn't been any research on what we're doing with the extra money. But the Reserve Bank of Australia has been checking out Aussies' habits.
While it found that a small portion of the borrowed money went on consumer spending - flash TV sets, holidays and the like - most of the money went on either paying off other debt or buying assets.
"Buying things has become a sign of success," I heard someone say on the radio the other day. But if you haven't got the cash to buy, is it worth looking wealthy at the price of actually becoming poorer?
If you make a habit of borrowing to spend, you repeatedly pay more than just the purchase price. You will end up with far less wealth than someone who saves before they buy.
Unless you borrow from a friend or relative, almost all non-mortgage debt comes at a higher interest rate than a mortgage. That's because a mortgage has the best security, your house.
Consider a $5,000 short-term loan at 20 per cent. If you pay it off in regular instalments over three years, you will pay about $1,650 in total interest.
But if, instead, you add the $5,000 to a 9 per cent mortgage and repay it over 25 years, you will pay $6,300 in interest - almost four times as much - simply because you have borrowed the money for so long.
The way to get around this is to pay the money off fast. If you added $5,000 to your 9 per cent mortgage but paid that off in three years, you would pay only about $700 in interest.
However, if you borrow to buy an asset that usually increases in value, such as a rental property or a share fund investment, that is sometimes a good move.
It all depends on the annual return on the asset - which on a property is price growth plus rent minus rates, insurance and maintenance, and on a share fund is price growth plus dividends minus fees.
If not, you would have been better off simply investing your deposit without borrowing. Having the loan has cost you more than it has gained for you.
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