What implications does having the highest household debt to disposable income ratio have on Australia?
Stock market Tends to follow the DJIA and FTSE, so unlikely to see an Australia-only crash, especially while resources are doing so well. If China's growth slows before other ailing sectors improve, a downturn becomes more likely and the potential severity of the downturn increases. Economy A huge question to which I would refer you to Steve Keen: http://www.debtdeflation.com/blogs/ See A Fork in the Road. Housing Market It's a bubble, stupid! Seriously, it's as though the Aussies waited for the US to get done and then simply borrowed the copy book. There are a multitude of articles out there about likely outcomes from where the housing market is and where it's going. See this for a sample of what's out there: http://blogs.forbes.com/greatspeculations/2010/07/26/aussie-housing-bubble-gets-popped-with-chinese-credit-crash/ Note: All three of the areas you raise - economy, stock mkt, housing - are so intertwined that it's tricky separating them out. A lot of reading on Steve Keen's site can help. "I'd like to see a credible source for ""the highest"", but it's certainly fairly high. Household debt could be broadly categorized as debt for housing and debt for consumption. Housing prices seem very high compared to equivalent rental income.  This is generating a great deal of debt.  Keynes(?) said that ""if something cannot go on forever, it will stop.""  Just when it will stop, and whether it will stop suddenly or gradually is a matter of great interest.  Obviously there are huge vested interests, including the large fraction of the population who already own property and do not wish to see it fall.  Nobody really knows; my guess would be on a very-long-term plateau in nominal prices and decline in real prices. The Australian stock market is unlike the US: since it's a small country, a lot of the big companies are export-driven, either by directly exporting physical goods (miners, agriculture) or by FDI (property trusts, banks).  So a local recession will hurt the stock market, but not across the board.  A decline in the value of the Australian dollar would be very good news for some of these companies. Debt for consumption I think is the smaller fraction.  Arguably it's driven by a wealth effect of Australia having had a reasonably good crisis with low unemployment and increasing international purchasing power.  If this tops out, you'd expect to see reduced earnings for consumer discretionary companies." It is basically the same situation what US was when the crash happened. People took on debt without the means to pay, even with awful credit records. But the problem isn't the debt people take on themselves, but with the limited disposable income they have how efficiently can their debts be serviced. And how do banks who lend out money can recover their money. When banks lend money to all and sundry, they have to take care of defaults and that is when financial wizardry comes into play. In US people have the option to default on their debt and refinance it, so banks assumed default and tried to hedge their risks. If this is an option in Australia, be ready for a crash else not to worry about much. If banks continue lending expect higher inflation rates, higher interest rates and maybe a downgrade of bonds issued by the Australian government. Higher import costs and a boom in exports because of devalued Australian dollar.
You don't understand government financing at all.  Gov'ts earn revenue, aka, taxes.  They also spend money.  The different between the money they spend and they money they earn is the deficit.  If you run a deficit for a long period of time, you incur a very large national debt.  Now, you can finance (aka, pay for) a deficit by borrowing money.  This means you can sell bonds, and instead of pay off the debt each year, you just pay the interest.  If your spending balloons out of control, your the likely hood of you paying your debt decreases.  If you are very unlikely to payback your debt, people won't buy any more of your bonds, and you no longer have the income (from borrowing) to pay off your interest from other debt you owe, or what ever other obligations you own (think mortgage payments, or teachers salaries, etc).  Here's were Europe and USA differ: European nations can't just print money.  They can issue more debt, but they can't just create more euros.  IF you can print money, you can pay off your debt with money you literally created out of thin air (at the expense of your people, this is called inflation).  But this is a form of cheating, eventually people won't trust you, and won't buy your debt either.  So where do the banks come in?  if the government is SOUND and the banks are NOT, the government can backstop the banks.  This is what the US and UK did.  Greece, Spain, Ireland all had to back stop their banks also.  However, Greece, Spain, and Irelany ( and Italy, and Portugal) also have   1)  A lot of debt  2)  Structurally high deficits  3)  Extremely high borrowing costs (high interest rates...because people don't trust them...because...)  4)  Weak underlying economies  The fourth point gets you in real trouble.  if you have high entitlements, lots of poeple out of work, who the hell is paying taxes and what are they going to?  You have no revenue!  Remember, a govt works just like a household.  It is easy for a good household to support one member, but it is difficult for a member to support an irresponsible household. "I am going to assume your location is the US. From what I am seeing it is unlikely you will get a loan other than some government backed thing.  You are a poor risk. At 7k/month, you have above average household income.  The fact that all of your income ""is being washed off somewhere"" is a behavior problem, not a mathematical one.  For example, why do you have a car payment?  You should purchase a car for cash. Failing that, given reasonable rent (1100), reasonable car payment (400), insurances (300), other expenses (1000), you should clear at least 4000 per month in cash flow.  Where is that money going?  Here tracking spending and budgeting is your friend.  Figure out the leaks in your budget and fix them. By cutting back, and perhaps working a second job or somehow earning more you could have a down payment for a home in as little as 10 months.  That is not a very long time.   Similarly we can discuss the grocery store.  Had you prepared for this moment three years ago you could have bought the store for cash.  This would have eliminated a bunch of risk and increase the likelihood of this venture's success.  If you had started this one year ago, you could have gone in with a significant down payment.  The bank would see this as a good risk if you wanted to borrow the remainder. Instead the bank sees you as a person as a poor risk.  You spend every dime you make without much concern for the future or possible negative events (by implication of your question).  If you cannot handle the cash flows of regular employment well, how can you handle the cash flows of a grocery business?  It is far more complex, and there is far less room for error.   So how do you get a loan?  I would start with learning on how to manage your personal finance well prior to delving into the world of business." When researchers analyze welfare participation and costs, their dataset of choice has traditionally been the Annual Social and Economic Supplement (ASEC) of the Current Population Survey. While the ASEC is certainly useful — CIS uses it frequently — it substantially undercounts welfare participation. For that reason, CIS turned to the Survey of Income and Program Participation (SIPP), a more complex dataset developed by the Census Bureau specifically to analyze welfare use. CIS's analysis of the SIPP has now generated two major studies. The first study, published in September 2015, measured welfare participation rates. It showed that 51 percent of immigrant-headed households used some form of welfare, compared to 30 percent of native households.17 This second study extends the SIPP analysis by moving from rates to costs. It finds that immigrant-headed households consume an average of $6,234 in welfare spending, compared to $4,431 for native households. The highest-cost immigrant households tend to be those headed by a person from Latin America, while the lowest-cost households are headed by people from Europe and Asia.  https://cis.org/Report/Cost-Welfare-Use-Immigrant-and-Native-Households None of your options seem mutually exclusive.  Ordinarily nothing stops you from participating in your 401(k), opening an IRA, qualifying for your company's pension, and paying off your debts except your ability to pay for all this stuff.  Moreover, you can open an IRA anywhere (scottrade, vanguard, etrade, etc.) and freely invest in vanguard mutual funds as well as those of other companies...you aren't normally locked in to the funds of your IRA provider. Consider a traditional IRA.  To me your marginal tax rate of 25% doesn't seem that great.  If I were in your shoes I would be more likely to contribute to a traditional IRA instead of a Roth.  This will save you taxes today and you can put the extra 25% of $5,500 toward your loans.  Yes, you will be taxed on that money when you retire, but I think it's likely your rate will be lower than 25%.  Moreover, when you are retired you will already own a house and have paid off all your debt, hopefully.  You kind of need money now.  Between your current tax rate and your need for money now, I'd say a traditional makes good sense.  Buy whatever funds you want.  If you want a single, cheap, whole-market fund just buy VTSAX.  You will need a minimum of $10K to get in, so until then you can buy the ETF version, VTI.  Personally I would contribute enough to your 401(k) to get the match and anything else to an IRA (usually they have more and better investment options).  If you max that out, go back to the 401(k). Your investment mix isn't that important.  Recent research into target date funds puts them in a poor light. Since there isn't a good benchmark for a target date fund, the managers tend to buy whatever they feel like and it may not be what you would prefer if you were choosing.  However, the fund you mention has a pretty low expense ratio and the difference between that and your own allocation to an equity index fund or a blend of equity and bond funds is small in expectation.  Plus, you can change your allocation whenever you want. You are not locked in. The investment options you mention are reasonable enough that the difference between portfolios is not critical.  More important is optimizing your taxes and paying off your debt in the right order. Your interest rates matter more than term does. Paying off debt with more debt will help you if the new debt has a lower interest rate and it won't if it has a higher interest rate.  Normally speaking, longer term debt has a higher interest rate.  For that reason shorter term debt, if you can afford it, is generally better.  Be cold and calculating with your debt.  Always pay off highest interest rate debt first and never pay off cheap debt with expensive debt. If the 25 year debt option is lower than all your other interest rates and will allow you to pay off higher interest rate debt faster, it's a good idea.  Otherwise it most likely is not.  Do not make debt decisions for psychological reasons (e.g., simplicity).  Instead, always chose the option that maximizes your ultimate wealth. "When trying to understand accounting, it's always helpful to reference the balance sheet identity, thus , and debits and credits must balance. In this case, one would So that ""Cash"" is subtracted (credited) from assets, and ""Loans to family members"" is added (debited) to assets. The income identity is treated differently as So, unless if the ""Cash"" and ""Loans to family members"" did not start imbalanced, there was no revenue or expense.  A revenue will be any interest paid.  The expenses will be any costs related to loaning the money such as drafting a contract or any amount defaulted. Assets are not liabilities A liability on the balance sheet is a liability owed by the entity measured, such as a person or a company. The family members in this case are the borrowers, so they are the ones who must increase their liability accounts like so: The lender to family members would not increase liabilities in this case because the lender is not borrowing from the borrower. Debits, credits, and the balance sheet Debits & credits must be equal, or an identity is violated. Debits add to assets and subtract from liabilities (and equity) while credits subtract from assets and add to liabilities (and equity). If a lender were to try to simultaneously subtract cash from assets and add loans to liabilities to book a loan, the operation would look like this This would cause an immediate imbalance because there are no offsetting debits, but more importantly, crediting Loans to family members as a liability would actually mean that the lender owes Loans to family members." One big factor that no one has mentioned yet is whether you believe in a deflationary or inflationary future. Right now, we are leaning towards a deflationary environment so it makes sense to pay off more of the debt. (If you make just one extra payment a year, you will have paid off your house 7 years early). However, should this change (depending on government and central bank policy) you may be better off putting down the very minimum.  In a year or three from now, you should have a clearer picture. In the meanwhile, here is a recent Business Week article discussing both sides of the argument. http://www.businessweek.com/magazine/content/10_28/b4186004424615.htm "This is the best tl;dr I could make, [original](https://www.theguardian.com/commentisfree/2017/sep/04/britain-addicted-debt-crash-2007-sub-prime-mortgages-personal-credit) reduced by 93%. (I'm a bot) ***** &gt; This is, of course, what determined the depth of the last crash, the wheeze of the collateralised debt obligation, which left no one able to distinguish between a good debt and a bad one.  &gt; Alex Brazier, executive director of financial stability at the Bank of England, warned last month that consumer loans had gone up by 10% in the past year, with average household debt having already eclipsed 2008 levels.  &gt; Student loan debt is counted separately from consumer loans, and stands at &amp;pound;13bn a year.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6y43cq/we_are_addicted_to_debt_and_headed_for_a_crash_it/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~204396 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **debt**^#1 **know**^#2 **year**^#3 **much**^#4 **loan**^#5" If you mess with the interest deduction, you take away one of the main reason for home ownership.  So without the deduction we will become a nation of renters.  This will only hurt communities because renters have less at stake when it comes to community prosperity.