RICH people are getting themselves into trouble. Severe mortgage stress is cropping up in some of Australia’s richest suburbs, revealing that wealthy Australians have been guzzling at the debt fountain.

Thousands of households in suburbs like Mosman, Brighton and Nedlands are in mortgage stress, with some at risk of mortgage default in the next 12 months, according to new data from Digital Financial Analytics.

Digital Finance Analytics principal Martin North says more and more affluent households are in dangerous territory, and it is often because of the amount of debt they have taken on.

“Those with larger mortgages are more impacted by rate rises if and when they occur,” he says.

Of course, deep reserves of wealth can insulate people from interest rate rises, but it can be hard to tell who is truly wealthy.

Wealth is impossible to see if the person doesn’t want to flaunt it, and easy enough to fake. You can mortgage yourself to buy a grand home and the car to match, and have the trappings of wealth while actually being so far in debt you’re in financial hell.

Looking rich and being rich are not the same thing at all, but when times are good, it’s difficult to tell the difference. As the saying goes, ‘When the tide goes out, you see who’s not wearing any swimmers’.

It’s only if interest rates go up that we’ll be able to spot the differences between debt-fuelled consumption and the consumption of those who can truly afford it.

For instance: The guy with a $400,000 line of credit can “afford” a $4000,000 car. But the guy with $4 million can actually afford it. You just can’t tell them apart when they’re stopped at the traffic lights.

Lots of people want to pretend they’ve got more than they do. Australia’s wages haven’t been rising much in recent years, but there are signs of some heavy spending on conspicuous consumption.

Between 2012 and 2017, sales of Toyotas rose less than 3 per cent. In the same period, sales of Lamborghinis, Ferraris and Rolls Royces more than doubled. Maserati sales are more than four times higher than they were in 2012.

Those beautiful machines might have been sold to high income earners, but not all of them have gone to the truly wealthy.

When you examine the data, you find plenty of people from the top of the income distribution are actually at the bottom of the wealth distribution. They have lots of money coming in but they don’t seem to be able to accumulate it. You might know people like this, who always spend more than they earn, following Micawber’s recipe for misery perfectly.

At the other end of the scale, the data show some people with quite modest incomes sit at the top of the wealth scale.

We think about wealth in some funny ways. People obsess over income inequality, but wealth is far more unequal, and it may well matter more. Millions of dollars in your back pocket gives you not just consumption choices, but also the option to make your money work for you and accumulate even more through investing.

RICH PEOPLE BUY INVISIBLE THINGS

While all sorts of people are buying luxury cars, a few types of expenditure mark the truly wealthy. One of them is spending a lot on medical care.

The following graph shows how spending differs in a range of categories. Rich people spend not much more on housing, partly because they’ve paid off their mortgages. They spend less on tobacco and — partly because the wealthy tend to be older — much, much more on medical care.

Eventually, interest rates will rise. The governor of Australia’s central bank has said so. We don’t know if it will be next year or the one after. But we know that some of the people who seem rich now will look very different if the repayments on their debts go up by a few per cent. It could be a great time to buy a bargain Ferrari at a debtor’s auction.