Household Financial Comfort Report - July 2013

Despite rising financial comfort, households remain cautious with savings and investments, supporting the case for further RBA rate cuts

New financial data from ME Bank shows that while Australians’ financial comfort levels have improved over the last six months, households remain cautious with savings and investments.

The latest ME Bank Household Financial Comfort Report shows overall household financial comfort has increased by 4% to an index of 5.5 out of 10 during the first half of 2013, its highest level since the Report was first established in October 2011.

Jeff Oughton, ME Bank’s Consulting Economist, said, “in the last six months Australian households have significantly reduced their overspending and increased their savings.

“There’s been a 4% fall in the proportion of households struggling to save each month to 49% of households, with 51% of households now saving each month, the first time we’ve seen savers outnumber spenders.

“And for those families spending more than they earn, the average amount spent above income each month fell from $701 to $395 in the six months to June 2013, with the largest contribution coming from households with children.

“But despite their improved financial comfort, most households remain cautious with savings and investments.

“Households have preferred to pay back debt, with the number of households putting extra money into loan repayments increasing 6% to 56% in the six months to June, while investing in direct shares and bonds remained unchanged at 22% of households.”

“Overall, households’ are most worried about the cost of necessities (52% of households), level of savings and cash on hand (40%), their ability to maintain standard of living in retirement (32%), and the impact of the global economy on Australia (31%).”

“As the Reserve Bank has continued to cut rates to stimulate the economy, Australians have continued to build a savings buffer and they remain financially cautious.”

“We also found that household risk appetites have increased over the past six months, with complete financial risk avoidance falling by 7% to 16% of households, households willing to take average financial risks increasing 3% to 44% and willing to take above average financial risks increasing 2% to 18%. However, risk avoiders continued to exceed risk lovers by 12% of households overall.”

“Household behaviour as identified in the ME Bank Report certainly supports the case for further rate cuts by the RBA.”

Oughton said “the increase in overall household financial comfort had been driven by the rise in share markets and to a lesser extent the housing market, as well as lower interest rates, which have reduced debt repayments and boosted savings.”

“Not everyone is feeling more comfortable, however, with lower deposit rates taking a significant toll on the financial comfort of retirees, whose financial comfort fell 5% in the six months to June 2013.”

“The fall in retirees’ financial comfort was in stark contrast to households overall, mainly because retirees have higher exposure to bank deposits than growth assets and have experienced little if any benefit from lower borrowing rates.”

In other key findings:

  • Households are increasingly optimistic about their financial future, only 20% expecting their financial situation to worsen in the next year, while 48% expect it to improve. ‘Retirees’ were the only group with more pessimists than optimists.
  • Household financial comfort improved in most states, including a very significant gain in South Australia. Comfort levels remained the lowest in Tasmania and highest in the ACT and Western Australia.
  • Casual workers continued to experience significantly lower financial comfort than other workers, recording the lowest levels of comfort for people with jobs (unchanged at an index of 5.15 during the six months to June 2013), compared to relatively high comfort levels for people in  ‘Full-time paid employment’  (up 6% to an Index of 5.78).

About the Report

The ME Bank Household Financial Comfort Report provides in-depth and critical insights into the financial situation of Australians based on a survey of more than 1,500 households.

 

MATTHEW READ, MEDIA AND COMMUNICATION MANAGER

P 03 9708 3334 M 0432 130 338 Email

ME Bank is the only bank which is 100 per cent owned by Australia’s leading industry super funds. ME Bank provides industry super fund, union and employer association members with a genuinely fairer banking alternative.