06-Aug-2018 • Personal Finance

With subdued and stagnant incomes, more Australians are feeling strapped for cash, and are being forced to dip into their savings to cover the rising cost of living expenses, ME’s latest Household Financial Comfort Report (HFCR) has revealed.

Consulting Economist for ME, Jeff Oughton, said more households are overspending to cover necessary living expenses and are drawing down on savings, with mortgage and rental stress remaining high.

“Comfort with short-term cash savings was the most notable component of the Household Financial Comfort Index to decline, seeing a 3% decrease to 4.93 out of 10 during the first half of 2018 – its lowest level in a couple of years.”

The report showed that households’ confidence to raise money for an emergency dropped three points below the average since the survey began, and fewer households reported they are saving. The estimated amount that Australians are saving each month decreased by just over 10% during the first half of 2018.

More Australians are also overspending – households who ‘typically spend all of their income and more’ increased 3 points to 11% during the six months to June.

“Clearly, this is a potential tipping point. At the moment, Australians generally can dip into their savings to get by. However, some households may get to a point where there’s no more savings to draw from. Currently, around a quarter of Australian households have less than $1000 in cash savings,” Oughton said.

“If we see big negative shocks in the coming year, whether they are higher loan rates or an international trade war, then a lot more families will suffer increased financial stress.”

The latest report found that the cost of necessities continues to be the major financial concern for households, with more than half of households reporting it as their ‘biggest financial worry’, up seven points to 53% in June 2018. Similarly, when asked why their financial situation worsened during 2017– 18, 44% of households said it was due to the cost of everyday items, an increase of four points since the previous report.

Consistent with ABS wage data, the latest HFCR data found nearly half of households (42%) still had the same income as a year ago, while a quarter (24%) reported income cuts and 34% received a raise. Unsurprisingly, ‘comfort with income’ declined in the past year by 2% to 5.61.

Oughton said: “Similar to strengthening in the ABS jobs data, the report revealed increased confidence in people’s ability to find a job; however, high levels of job insecurity and underemployment remain. Around 23% of casual and part-time workers said they would prefer to undertake full-time work if they could.”

In the six months to June 2018, the report’s overall Household Financial Comfort Index went sideways from 5.49 to 5.44, once again indicating that the financial comfort of Australian households is not advancing.

Mortgage and rental stress still high, despite the housing market cooling

The report revealed housing stress is still prevalent among Australian households. For those with home loans, a broadly unchanged 45% of households reported to be contributing more than 30% of their disposable income towards mortgages during the past six months – a common indicator of financial stress.

“The good news for renters is that financial stress has lessened somewhat during the past six months, thanks to the housing market cooling and rents falling. While almost three-quarters (72%) of renters were previously contributing over 30% of their disposable income towards rent, this number dropped significantly to two-thirds (67%) in the most recent survey,” Oughton said.

Of households with debt, there was an increase in the number expecting they ‘will not be able to meet their required minimum payments on their debt’ and ‘can just manage to make minimum payments on their debt’ in the next 6 –12 months – 43% combined compared to 38% in December 2017.

Oughton summarised the biggest winners and losers of the latest HFCR:


• Self-employed workers: The self-employed sector, ranging from tradies to professional freelancers, reported the highest level of comfort and the largest increase of any workforce segment (up 17% to 6.22). This is 11% higher than this group’s average of 5.58 since the survey began in 2011. The cohort experienced rises across all components that make up the Household Financial Comfort Index, notably ‘changes in household financial situation over the past year’, ‘comfort with cash savings’ and ‘confidence in the handling a financial emergency’.

Oughton said: “With about 15% of the workforce self-employed, it’s clear a number of entrepreneurial Australians are opting to be their own boss, taking control of their own finances and are feeling the positive benefits in their household finances as a result.”

• South Australia: Financial comfort in South Australia increased the most of any other state or territory (up 16% to 5.78). This can be linked to rises across all components that make up the Household Financial Comfort Index, in particular increased ‘confidence in the handling a financial emergency’, ‘comfort with long-term investments including superannuation’, and ‘comfort with income’.

South Australia was followed by Victoria (up 1% to 5.37), Western Australia (unchanged at 5.5) and Queensland and New South Wales (both down 3% to 5.24 and 5.67 respectively).
Oughton said: “South Australia’s rise in household financial comfort appears to be linked to the sustained and significant fall in unemployment, with households feeling more positive about their jobs, incomes and their financial position generally.”


• Young singles and couples under 30 years of age with no kids: Overall comfort of this cohort decreased by 11% to a record low of 5.30 out of 10. The decrease can be linked to falls across all components that make up the Household Financial Comfort Index, particularly low scores around ‘comfort with savings’ and ‘confidence in the handling a financial emergency’.

• Empty nesters (50 years old and over): A record low in financial comfort was reported by ‘empty nesters’ (down 3% to 5.22) − 7% below the average of 5.60 since the survey began.

Oughton said: “You may think that empty nesters would have fewer financial worries – most have paid off their mortgage, their kids have flown the coop, the majority are still working and some have voluntarily retired. However, many are still concerned about current finances as well as worried about their life after work, expressing an 8% drop in comfort with their expected standard of living for retirement, as well as a 7% fall in their ‘comfort with savings’. Recent changes to superannuation in the past year appear to be significantly impacting this life stage.”

• Students: Students reported a substantial decline in financial comfort of 15% to 4.18 since the last report.

Oughton said: “Students are always among those with the lowest financial comfort in each HFCR due to a lack of comfort with cash savings, investments, net wealth and their reduced ability to manage a financial emergency. However, this recording is a major negative spike and can be attributed to falls across most components that make up the Household Financial Comfort Index, in particular ‘level of debt’, ‘comfort with living expenses’ and ‘confidence in the handling a financial emergency’.

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Editor notes: The Household Financial Comfort Report is based on a survey of 1,500 Australian households conducted by DBM Consultants in June 2018. The report is produced every six months; the first survey was conducted in October 2011.
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