How personal finance has changed since 1987

I'm a Noel Whittaker fan having read his books umpteen years ago, interesting to look back to 1987

How personal finance has changed since 1987

It's fascinating to look back 30 years and think about what Australia was like at that time.

Inflation was running at 8 per cent, the cash rate was 11 per cent, and the standard variable rate on a housing loan was 15.5 per cent. That sounds astronomical today, but remember in 1987 the average Brisbane house cost $62,000, which was 2.6 times the average income of $24,000 a year. Today, at $500,000, the average house is equivalent to approximately six times the average full-time income of $80,000 a year.

In the book I pointed out that both shares and property, if carefully chosen, had potential for good capital gain: that certainly proved to be correct. Thirty years ago the Australian All Ordinaries Index was 1765 – despite a series of crashes since then the index has increased three-fold today to almost 6000. But that does not take income into account. If you had invested $50,000 in January 1987 in a fund which matched that index, and reinvested dividends, your portfolio would now be worth $625,000, a return of 9 per cent a year compounded.

 

The major one for me is the fact that Lo doc/No doc was abolished. this was simply the icing on the cake, as long as you had equity you just road those boom cycles, no need to service debt, my mortgage broker advised on what income was required...... Damn its all gone to hell now

 

I think it skews the numbers to look at average income per person. A lot of the time it is a household buying a house (dual income). It would be interesting to see average household income to average house price in 1987 vs now.

 

500,000/2.6 gives you a sum of the 192k, so a dual income home would have to earn 96k each to match the 1987 ratio.

 

A very interesting observation. My grandfather gave me the Noel Whittaker books when I was a teenager (early 2000s). I managed to save money but also made many mistakes, all of which has led me to where I am now, about to settle on my first IP.
I think there is a huge lack in basic financial literacy out there.
Not pointing fingers, but a line of thought I had was that parents don't share their finances with children, besides the 'too broke at the moment' or 'won on a scratchie/lotto so now I can afford ...'
I know my parents have a fixed way of thinking in regards to investing and owner occupier housing. It is much different to mine, and the knowledge I seek to gain financial freedom.
I also think there is a lot more choice to spend your money on, phones and entertainment etc.
Income is a factor, but money mangement is the key.

 

Far fewer dual income families in 1987.
Marg

 

Yes, that is my point. I think when there were mostly single income families, houses were relatively cheaper. Now there are far more dual income families, houses are relatively more expensive. It's not the only factor but I believe this is a contributing factor to rising house prices.

 

Pretty soon well have the Grandparents and Parents buying in also (quadruple income).

DINK's I know are enjoying the freedom

 

The problem with that is even a decade after these loans ceased, there's still people coming out of the woodwork complaining about loans they can't afford which ruined their lives.

They make statements like, "I didn't declare I make $150k per year".

Clearly it's all the greedy mortgage brokers fault. People take no responsibility, yet even today I'm still asked the question of how much income they need to qualify and then they manipulate the documentation to suit.

Certainly these loans were useful to some and utilised well. For many however, they were heavily abused.

Personally I'm glad that no doc loans are dead and lo doc loans are heavily restricted. It means I'm less likely to be held responsible for others greed and stupidity.

 

1987, that was my first experience with a market crash. Should be more of them. I even owned a few unlisted property Trusts back then (what was I thinking) and from memory two of those froze redemptions for some time. Interesting times and good for character building. Property is evil and should never be trusted.

 

Would you believe there will always be stupid, greedy investors ..

 

.. and owner occupiers too.

 

Incidentally 1987 was the year of my birth.

Hopefully I didnt cause the crash!?

 

We signed up for our first home in August 1987, with settlement due in November 1987. In accordance with professional advice we had our deposit invested in shares. Suffice to say October 1987 was a very dark time!

We were approved for what was then called a "cocktail" home loan; part as a mortgage and part as a personal loan. The bank were very gracious in extending the personal loan. At the peak we had a home loan at 18.5%, a personal loan at 23%.

Theoretically we were a double income home, but I in addition to my day job I also had a job doing deliveries at nights and another job running mobile slot cars at fetes on weekends. I'd suggest that payments as a proportion of take home income were significantly higher than now, even allowing for the basic home in the outer burbs being a higher multiple of average salary.

 

... and even if they had dual income the banks wouldn't take it into account.

In the 1980's, the bank wouldn't count my wife's salary as she was of child bearing age. We were trying to buy a PPOR, we had 60% deposit and the banks would only lend us 20% and only as a personal loan. WTF. We had to borrow the other 20% from my parents.

Yep, we had it easy in the 1980's .

 

The Banks local branch managers had so much power back in the early 1980,s ,one of the first large land based blocks I bought as properties would stay on the market for over 6-12 months ,went in three times to apply for a 65k loan had about 30 cash with the Bank every time come back in a few months ..They had ways to insult you and look down on blue collar business people back then even when it use to take me a few days to work out the insults,in the end the only place that would lend me money was a company called Costom Credit maybe linked to a Bank and that was at over 18% p/I loans ..

 

Yes, if the bank manager did not like you, you would never get a loan.

AND our bank had a monthly lending limit. Best chance was to apply at the beginning of the month.....
Marg

 

Interest rates were crazy high back then. My father loaned me part of the financing on my first home. I purchased the block paid that down somewhat then later had the house built on it. In the burbs and couldn't afford to do in underneath and concrete the driveway etc for quite some time. Couldn't afford curtains, lounge chair was a couple of bean bags and bed an old mattress on the floor from my previous panel van with wheel arc cut-outs. When who was to be my future wife met me she was adamant she wasn't going to be sleeping on the floor. And vehicle was second hand.

But life was fantastic. I wouldn't have changed a thing. Those were the days.

 

I agree.

Doing it tough in them days makes life feel easy today. The '80s were a good training ground.

 

But the weird thing is I didn't feel like I was doing it tough. I just thought that was how things were and happily accepted it. I worked in a full time office job during the day and played drums in bands at gigs a number of nights per week. Sleep was optional, alcohol was mandatory.

Within reason sometimes I think enjoying life is a state of mind.