KEY POINTS:
While most people are tightening their belts, Generation Xers are being told they have a lot to gain from getting further in debt.
Australian finance writer Bruce Brammall says people aged between 28 and 48 should be borrowing to buy "smart" investments in shares and property - that will help them buy holidays, beach houses and education for their children later in life.
His new book, Debt Man Walking, argues debt can be useful as long as it's used to buy things that grow in value.
New Zealanders are relatively poor savers and our level of debt is often cited as one of the weak points of the economy.
But Brammall said New Zealanders born in the 1960s and 1970s had learned how to save. Many were now in a position to invest.
Over a decade or more, Brammall said investments in shares and property could make Generation Xers more money than savings in cash.
Auckland personal finance writer, Herald columnist Diana Clement, agreed it made sense to borrow to buy growth assets.
"I do think that in the current market you need to be a little bit wary and not jump in boots and all into debt, because we're facing a very uncertain future. However, investing in growth assets is a very sensible long-term strategy."
Clement warned borrowing to buy shares was riskier than borrowing to buy property, because it was possible to lose the whole value of your asset.
She said it was important to think long-term with any asset, so you did not have to sell when prices were low.
Brammall, a former journalist and keen property investor said he put debts into three categories. Borrowing for things that would fall in value was "dumb" debt (which included credit cards, hire purchases and borrowing for cars or holidays). Borrowing for home loans, and tax-deductible business assets was "okay" debt. "Great" debt was anything that would appreciate in value, especially if the interest was tax deductible.
He said Generation Xers had time to take risks with their borrowed money. If they lost money in bad years (such as this year), they had time to make it back before they retired. Younger people, on the other hand, were often just starting in their careers and were still learning tosave.
Brammall said he did not believe the stereotype that Generation Xers were bad with their money.
But he said there was some truth in complaints from today's 30 and 40-year-olds that they had missed out on the financial opportunities open to baby boomers. Banks and other lenders had not helped by making credit "a little bit too easy to get" for Generation X.
A survey by credit reporting agency Dun and Bradstreet last month found one in four New Zealanders expected to use their credit cards to cover purchases they otherwise could not afford before the end of summer. Those who were younger and on lower incomes were more likely to be getting deeper in debt, while high income earners were paying debt off.
Brammall said people with large personal debts should focus on paying those first. Borrowing to invest was only suitable for people with enough income to cover the interest on an investment loan. And he said those who invested in shares and property should always keep cash aside.
