New research has shown that Australians who have a loan of more than $200,000 are happier than people who have no debt at all.
The latest findings from the Australian Unity Wellbeing Index have revealed that substantial debt is often beneficial for wellbeing, whereas people with smaller debts of less than $50,000 have low wellbeing.
Ross Johnston, Australian Unity's Head of Financial Planning, says that this is likely because larger loans are often directed towards an investment.
"People with large loans are probably financing income-generating investments such as property, so the loan repayments are not a source of anxiety because the investment can be sold and the appreciating value of the investment bolsters future security," Mr Johnston says.
"On the other hand, people with small amounts of debt have low wellbeing because it is likely that their loan is driven by financial necessity and involves goods that aren't investments."
The research has also shown that satisfaction with the economic situation has fallen by 3.9 points since the previous survey conducted in April 2008 and that it has fallen by 12.4 points during the past year.
These findings come from the latest the Australian Unity Wellbeing Index survey and include comparisons from previous surveys conducted in November 2003 and May 2004, which also looked at the relationship between wellbeing and debt.
Professor Bob Cummins from Deakin University, author of the Index, says that the comparison has shown that people are in a worse financial situation in late 2008 than they were in 2003 and 2004.
"Australians have much larger loans relative to income, and almost twice as many people are experiencing more difficulty paying off their loans than they were five years ago. The percentage of people who find it very difficult to pay off their loans has increased from 15.7 percent to 27.5 percent," Professor Cummins says.
Although the Wellbeing Index has shown that Australians are in more debt now than they were in 2003, it has also shown that the number of people with a net worth less than $100,000 has fallen by about 3 percent while the number of people with a net worth of more than $500,000 has risen by about 4.5 percent, indicating that more people have become wealthier.
"This is interesting because even assuming a 5 percent per annum wage rise from 2003 to 2008, this increase in wealth cannot be accounted for by increased wages. This means that the increased net worth that people are reporting must have come from paper assets in shares and other investments," Mr Johnston says.
"Just prior to this survey, the share market had fallen from its peak at around 6,500 to plateau at about 5,000 where it remained from about July to October, so at the time of the survey people may have been thinking optimistically, that the worst was over and that their paper investments were fairly intact."
Professor Cummins says that life quality is not affected by debt as long as there is very little difficulty in making loan repayments.
"Even a slight difficulty, however, is associated with reduced personal wellbeing. The degree of risk is reduced by high household income and is negated if loan repayments can be made without any difficulty," Professor Cummins says.
Wellbeing is measured using the Personal Wellbeing Index. The Personal Wellbeing Index measures peoples overall feeling of wellbeing through satisfaction with their health, personal relationships, personal safety, standard of living, achieving in life, community connection, future security and spirituality/religion.
