Rising job insecurity and continued financial caution add to the case to ‘wait and see’ on rates

Monday 3 February, 2014

Findings from ME Bank’s latest Household Financial Comfort Report, including:

 

•    Job security a top three concern for Australian households

•    Households remain financially cautious with investments and debt

•    Half of Australian households still struggling to save

 

Download the report here (PDF 980kb).

 

ME Bank’s latest Household Financial Comfort Report shows the RBA has time to ‘wait and see’ on rates, with rising job insecurity and continuing financial caution by households among the key findings.

 

According to the Report, job insecurity is now a ‘top three’ concern among households, rising 5% to 31% of households in the past six months to December 2013, while concern about ‘finding a new job within two months if unemployed’ also rose 1% to 55% of the working population, over the same period.

 

Jamie McPhee, ME Bank CEO, said: “The rise in job insecurity, a result of increasing unemployed persons and increasing casual/part-time jobs, is exacerbated by a relatively low level of household comfort with emergency cash buffers and more generally, current savings and investments.

 

“The Report also identified the number of households struggling to save each month increased 2% to 51% in the past six months, while 46% have less than $5000 in savings for an emergency.  Only 26% are building up ‘rainy day’ savings, 11% are spending more than they earn and 5% are using equity in their own home to make ends meet month to month,” McPhee added.

 

Households are still relatively cautious when it comes to their finances and, in particular, are avoiding risks with their investments, with overall risk-avoiders outnumbering risk-takers 37% to 18%. Self-funded retirees had the highest number of risk-takers to risk-avoiders (32% to 19%, with 45% neutral), compared to Gen Y (21% to 37%) and Gen X (21% to 33%), Baby Boomers (17% to 37%) and government-funded retirees (10% to 58%).

 

In another sign of caution, of those households with savings, 34% continue to pay off their debts as fast as they can.

 

“Notwithstanding low interest rates and rising share prices and to a lesser extent rising house prices, the findings support the case for the RBA to continue to ‘wait and see’ on official cash rates, as it looks for increased household spending and investment as the economy as a whole passes the peak in the mining investment boom,” McPhee said.

 

Overall, household financial comfort was 5.52 out of 10 in December 2013, a moderate level of comfort and largely unchanged in the past six months, although at its highest level since the Index was established in October 2011.

 

“In terms of households, significant rises in financial comfort among retirees (up 5% to 5.4 out of 10), especially self-funded retirees (to 7.2), as well as couples with older children (up 6% to 5.7), were offset by a sharp fall in financial comfort among single parents (down 5% to 4.7), notably single parents dependent on government payments (to 3.4)”, McPhee said.

 

“While retirees and couples with older children are benefitting from rising equity and to a lesser extent housing markets, single parent households are concerned by the announcement to tighten government assistance and parenting payments from 1 January 2014.

 

“At a state level, there are also disparate and rebalancing trends, with household financial comfort down significantly in the mining and energy resource intensive states, including Western Australia (to 5.7 out of 10), Queensland (5.2), and Northern Territory (4.4) as well as South Australia (5.2), while comfort has improved in New South Wales (5.7) and Victoria (5.6).”

Other key findings:

Areas of lowest overall household financial comfort

  • Households are least comfortable with: a) ability to maintain lifestyle if no income for three months (4.52 out of 10); b) level of investments (4.90); c) cash savings (4.97); d) anticipated standard of living in retirement (5.06).

Household financial comfort across states

  • ACT had the highest comfort (up 9% to 6.7 out of 10), then NSW (up 2% to 5.71), WA (down 2% to 5.71), VIC (up 3% to 5.56), TAS (up 6% to 5.32), SA (down 9% to 5.2), and QLD (down 2% to 5.19). NT has the lowest comfort at 4.43 (down 13%).

Household financial comfort across labour force

  • Full-time workers had the highest comfort (self-employed at 6.02 out of 10, up 11%, and paid employed at 5.83). Part-time had the next highest comfort (self-employed at 5.45, and paid-employed at 5.33). Casuals had the lowest comfort of paid workers at 4.59 (down 11%), compared to all unemployed people at 4.53, down 8%.

Income

  • Overall comfort with level of income was 5.86 out of 10. ‘Retirees’ (6.32) and ‘couples with older children’ (6.30) had the highest levels of comfort with income. Both experienced the biggest rises in comfort from June 2013: 9% and 8% respectively. 

Job security

  • Job insecurity is widespread across the population with 31% reportedly insecure in their job in the last month. About 25% of Gen Y, 31% of Gen X and 33% of Baby Boomers were insecure about their job in the last month.

Savings

  • Overall comfort with level of savings was 4.97 out of 10. ‘Retirees’ (5.61) and couples with children (5.43) enjoyed the highest levels of comfort with savings and both enjoyed the biggest increases in comfort from June 2013 – 3% and 8% respectively. ‘Single parents’ (4.02) had the lowest level of comfort with savings and had the largest fall with a drop of 12% from June 2013. About 5% of Australians are using equity in their home to purchase larger discretionary items like a car or fund a holiday.

Debt

  • Overall comfort with debt was about 6.01 out of 10. ‘Retirees’ (7.64), ‘empty nesters’ (6.49) and ‘couples with older children’ (6.37) are the most comfortable with debt, while ‘single parents’ (5.21) are the least comfortable.

Monthly expenses and budgeting

  • Overall comfort with ability to pay regular expenses was 6.49 out of 10. ‘Retirees’ (7.22) and ‘couples with older children’ (6.92) are the most comfortable with their ability to pay for regular expenses. ‘Single parents’ (5.47) reported the least comfort. About 5% of Australians are currently using equity in their homes to make ends meet from month to month, including 15% of ‘young singles/couples no children’ compared to only 2% of ‘empty nesters’. 

Investments

  • Overall level of comfort in investments was 4.92 out of 10. ‘Empty nesters’ (5.50) and ‘couples with older children’ (5.36) were the most comfortable with investments. ‘Couples with older children’ reported the biggest jump in comfort with investments of any household type, by 10%. ‘Single parents’ at 4.10 are the least comfortable.

Retirement and superannuation

  • Comfort with ability to maintain lifestyle in retirement was static at 5.06. About 16% contribute more to super often/always, more men than women (19% to 12%), while 11% don’t have superannuation. About 14% of couples with older children have a self-managed super fund, the largest group to do so.

Wealth

  • Overall comfort with overall level of (net) wealth was 5.67 out of 10. ‘Retirees’ (6.52) – especially self-funded retirees (7.20) – and ‘empty nesters’ (6.28) are the most comfortable with overall level of wealth. ‘Single parents’ (4.68) are the least comfortable. 18% of Australians reported a decrease in overall wealth in dollar terms, while 46% reported an increase.

Managing a financial emergency

  • Across all households, 18% do not think they could raise $3000 in an emergency including ‘single parents’ (29%) and particularly ‘single parents’ receiving government assistance (51%), government funded retirees (45%) and to a lesser extent casual employees (30%).

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. The survey is conducted biannually.