A lack of cash savings has emerged as one of the biggest areas of concern among Australian households, according to ME Bank’s biannual 'Household Financial Comfort' survey, conducted in June 2014.
In June, only 46 per cent of households reported the ability to save each month, the lowest level since the bank's first survey in October 2011 (and a fall of 3 per cent from December 2013); 12 per cent were overspending by drawing on savings, loans or home equity, while 42 per cent were breaking even.
Of those saving, the amount saved per month fell 12 per cent to $735 per month, and of those overspending, the amount overspent rose 13 per cent to $501 per month. About one third of households (35 per cent) also reported having less than $1000 in cash on hand, a rise of 7 per cent during the past six months, while 24 per cent said they could not raise $3000 in an emergency, a rise of 6 per cent.Unsurprisingly ‘level of cash savings on hand’ appeared as a major concern, reported by 36 per cent of respondents.
Overall household financial comfort falls – and is expected to continue falling Concern about cash savings was a key factor that contributed to an overall 3 per cent fall in ME Bank’s Index to 5.33 out of 10, largely reversing previous gains in 2013. Other factors contributing to the fall in the overall index were a marked drop in ‘expectations for financial comfort over the next year’ and, to a lesser extent, falls in comfort with ‘household income’ and the ‘anticipated standard of living in retirement’.
Federal Budget fuelling discomfort Expectations for the next year fell sharply by more than 10 per cent from December 2013 to an index of 5.1 (out of 10) in June, the lowest since the survey began. There is a strong link between a fall in future expectations and the 2014-15 Federal Budget, with 67 per cent of households expecting their financial situation to worsen over the next year as a result of the proposed tightening of government assistance in the Federal Budget.
The survey clearly identifies the Federal Budget as a factor negatively affecting many households, with the ‘impact of legislative change on my financial situation’ now appearing as a top concern for households for the first time – 29 per cent of households identified it as their biggest worry, a rise of 12 per cent since December 2013.
The Budget had a greater negative impact on those groups dependent to some extent on government assistance, with overall financial comfort falling significantly in the six months to June 2014 for unemployed people (down 22 per cent), tertiary students (down 8 per cent), government-assisted single parents (down 12 per cent), couples with primary and teenage children (down 7 and 13 per cent, respectively), and government-assisted retirees (down 15 per cent).
Falls in household income and anticipated standard of living in retirement Comfort with ‘household income it fell 5 per cent (to 5.55 out of 10). Accoring to Jeff Oughton, ME Bank consulting economist: “Household income has been negatively impacted by relatively low average wage growth, moderate job gains, rising unemployment and corresponding falls in job security over the period, as well as an anticipated tightening in government income assistance and tax benefits announced in the Federal Budget. About the same proportion of Australians (30 per cent) reported income gains as income falls during 2013/14, compared with the corresponding outcomes of 39 and 28 per cent respectively during the previous financial year.”
Anticipated standard of living in retirement fell 4 per cent (to 4.88 out of 10), largely affected by legislative changes announced in the Federal Budget. ‘Ability to maintain lifestyle in retirement’ emerged as a top three concern among households for the first time, increasing by 5 per cent to 35 per cent of households.
Growing inequality between asset rich households and others The survey indicates a growing disparity in financial comfort between asset-rich households and other households, and between age groups. Asset-rich households (including self-funded retirees and home owners) have benefited from a sustained rise in global and local equity prices as well as significant gains in residential prices, especially in Sydney, Melbourne and Perth. In contrast, limited household income gains and rising concerns about cash savings among most other households have seen their financial comfort falling.
For example, over the six months to June 2014, the financial comfort of ‘builders’ (people aged 65+ years) increased markedly by 9 per cent (to an index of 6.5), the highest level of comfort since the survey commenced, while all other broad life stage groups fell significantly, especially Gen X (down 4 per cent to 4.9 out of 10 – its lowest level since the survey commenced).
Across households, ‘retirees’ had the highest level of financial comfort (6.5), an increase of 6 per cent from December 2013. However there is a marked dichotomy, with very high comfort among ‘self-funded retirees’ (up 8 per cent to 7.8), the highest level since the survey commenced, while the financial comfort of ‘government-funded retirees’ fell (by 15 per cent to 4.7).
All the other main household groups experienced falling comfort in the six months to June 2014. ‘Single parents’ continued to have the lowest level of financial comfort (4.3), falling more than 8 per cent from December 2013; however, within single parent households, ‘single parents’ who mainly rely on government assistance had a very low comfort level of 3.4 (down 12 pert cent), while ‘single parents’ with full-time work had a much higher level of comfort at 4.8 (down 3 per cent).
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 Report includes but is not limited to, the Household Financial Comfort Index, which measures ongoing changes to households’ perceptions of their own financial comfort, by asking respondents to estimate their financial comfort as well as their expectations and confidence across 11 measures. The survey is conducted biannually. ME Bank is 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.
Evatt, 'Budget fuels financial discomfort', Evatt Journal, Vol. 13, No. 6, September 2014.<https://evatt.org.au/budget-fuels-financial-discomfort>