24-Feb-2022 • Personal Finance

Key Highlights:

  • Financial comfort remains at an all-time high
  • One in three predict long-term negative impacts to their financial situation due to COVID-19
  • Despite record savings, one in five households can only maintain lifestyle for up to one month if they lost their job
  • The cost of necessities troubling Australian households more than any other factor
  • Highest level of rent stress recorded

After tracking the financial comfort of Australian households for a decade, the latest edition of ME’s Household Financial Comfort Report shows the average household has never felt better about their finances, but concerns about COVID-19 and cost of living pressures are creeping in.

Despite financial comfort remaining at an all-time high, the Report found many households have a gloomy outlook, with one in three predicting negative long-term impacts to their financial situation due to COVID-19.

There are also immediate worries faced by households impacted by record rental stress, and the climbing cost of living expenses, which skyrocketed to all-time highs and are especially weighing on households with no, or low savings and/or have low fixed incomes.

Financial comfort is sitting at 6.04 out of 10 in December 2021, which is an increase of 3% from a year ago and 8% higher than December 2019 – pre-pandemic. However, there are some substantial disparities in financial comfort across life stages, regions, workforce, and housing tenure.

ME’s Consulting Economist, Jeff Oughton, said: “Following the phasing out of COVID-19 related Government assistance as well as the easing of restrictions, most households have maintained record financial comfort - largely reflecting rising residential property and investment markets, job gains driven by the economic recovery, high precautionary savings and record confidence in their ability to cope with a financial emergency.

“On the surface, the financial comfort of the average Australian looks better than ever, but it’s fragile – and has begun to fall for many households – especially those with low comfort. The rising cost of necessities (such as rent, food, fuel etc) combined with fixed or stalling income gains and the long-term impacts of COVID-19 is causing financial worry among many households,” said Oughton.

ME’s General Manager, John Powell adds, “ We can see people’s confidence in their financial situation translate into investing for their futures and at ME Bank loan applications continue to show strong growth.

“Contributing to record comfort is the extra cash many households have stashed away during COVID-19. It will be interesting to see if this level of comfort is sustainable and whether savings habits are maintained or eroded as we emerge from the pandemic restrictions.

“It’s a good time to make sure you have good money habits established, such as sticking to a savings plan whilst also utilising a dedicated high-interest savings account to give your savings the benefit of a healthy return,” said Powell.

The Report shows four key areas of concern for Australian households:

1. Record comfort may be short-lived as many households worry about long-term impacts of COVID

  • Despite the pandemic entering its third year, the ongoing impacts of COVID-19 is one of the greatest worries faced by households (26%).
  • Currently, 25% of households reported COVID-19 worsened their financial comfort, slightly less than those who reported the pandemic’s impact had been positive (27%).
  • Many households remain pessimistic about the future, with one in three households expecting negative impacts to their financial situation due to the long-term effects of COVID.
  • In attempt to take cover from the financial impacts of the pandemic, there has been a record reduction in discretionary spending by 44% of households while 15% used emergency savings.

2. Comfort with savings is at record high, but households are starting to cautiously unwind savings, and others are beginning to overspend

  • On average, comfort with savings is at its peak, around 16% higher than pre-pandemic in December 2019. However, as restrictions ease, some households have already begun to unwind high precautionary savings; additionally, the number of households that typically spend more than their income is rising, and the amount of overspending has risen to levels higher than anything seen since 2012. “We are approaching an important juncture for households – some may choose a path of retaining their high level of savings, and others will revert to old habits,” said Mr Oughton.
  • Not all households have responded to the pandemic by saving more. Despite the record savings comfort, one in five households could only maintain lifestyle for up to one month if they lost their job, and 11% for less than two weeks – or the equivalent of a short COVID-19 lockdown.
  • Additionally, over one in five households (22%) reported less than $1,000 in cash savings, including 12% with less than $100.

3. Cost of necessities is the top worry for Australian households, as costs rise and incomes stall

  • The cost of necessities has surged to be the biggest worry by far for Australian households – rising 9 percentage points since June 2021 to a near record 43% of households, as many households have been increasingly confronted by a sustained increase in living costs, compounded by relatively subdued incomes.
  • Heightened worry about the cost of living is widespread among single parents (53%) and empty nesters (51%), households with incomes below $40k (50%) and households with less than $1,000 in cash savings (59%).
  • Among households whose financial situation worsened in the past six months, 20% claimed the cost of necessities as a primary reason.

4. Rent stress is at record levels

  • Two out of three renters (67%) experience rent stress, as they paid out more than 30% of their household disposable income to cover rental payments. Almost one in five renters (19%) report extreme rental stress with more than 60% of their household income going towards paying rent, compared to 12% a year ago when rent moratoriums were still prevalent and recent large rent increases hadn’t yet come into’ place.
  • Rents continued to rise faster than disposable incomes, with the average proportion of disposable income spent on rent increasing by a further 2% to about 42%, over the past six months.
  • In contrast, mortgage stress is substantially lower than rental stress with 35% of mortgagees paying more than 30% of their household disposable incomes on repayments, compared to 42% in June 2021 and 37% a year ago.

Key ‘winners and losers’ were identified by life stage as well as across the workforce, locations and generations:

Comfort Winners

Comfort Losers

  • Retirees continue to report the highest comfort across life stages (down 2% to an index of 6.70) – up 9% on its historical average of the past decade
  • Couples with young children have reported 4% increase in comfort, taking them to a new record index of 6.30 – the biggest gain since the onset of COVID-19 (+10%) and historical average (up 13%)
  • White collar worker comfort is up 2% to a record index of 6.47 – substantially above pre-COVID levels (12%) and compared to its historical average (10%)
  • Most states remained around record levels in December 2021, with the highest comfort in Victoria (up 2% to 6.20), NSW (mostly unchanged at 6.15) and WA (mostly unchanged at 6.02) – with the latter reporting the biggest rise of mainland states since the onset of COVID (11%) and 9% above its historical average of the past decade.
  • Melbournians comfort continued to record the highest comfort amongst major capitals (up 3% to index of 6.45) – slightly ahead of Sydney (6.3) and Perth (6.16)
  • Builders (aged 75+) continued to report the highest comfort across generations (up 3% to 7.07) andGens Z (18-24), andGen Y (25-40) as well as Baby Boomers (57-74) remaining mostly unchanged at about an index of 6.2
  • Households with a mortgage or who own their house outright are both at near record comfort levels of 5.96 and 6.91 respectively, with gains of 9% compared to pre-COVID in December 2019 for mortgagees, up 7% for those who own their home outright.
  • Single parent comfort is down 9% to only 4.64 to be slightly above pre-COVID levels. Further, comfort among single parents’ dependent on Government assistance is down 8% to only 2.82 – 6% lower than pre-COVID levels.
  • Blue collar workers who were largely unable to work from home during the pandemic – slipped 5% to 5.57. This is substantially lower than pre-COVID levels (5%) and similar to the level of the past decade.
  • Comfort among the unemployed fell 10% to 4.8 during the last six months – by far, the lowest across the labour force, with very big falls in their comfort with savings and their ability to cope with an emergency - albeit comfort is still substantially higher than both pre-COVID and historical the average of about 3.99 and 4.38, respectively.
  • South Australia and Adelaide are the only mainland state and major capital to report substantially lower comfort (down 6% to 5.68 and 5.7, respectively), due to lower comfort across all key drivers (except for debt).
  • Gen X (41-56) continued to have the lowest comfort across the generations (index of 5.62) and the smallest gain since the onset of COVID (up 5%).
  • Renters have been hit hardest by rising rents and other living costs, resulting in a 9% drop to 4.78 in December 2021– similar to pre-COVID and its historical average for the past decade.

The full copy of ME’s 21st Household Financial Comfort Report can be found at mebank.com.au/hfcr.



Editor notes: The ME Household Financial Comfort Report provides in-depth insights into the financial situation of Australians based on a survey of 1,500 households. The survey is designed, developed and produced biannually by ME with assistance from DBM Consultants and Economics & Beyond. This edition presents the findings of the 21st survey conducted in late November/early December 2021, published in February 2022.

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