Even with falling property prices in many areas around the country, ME’s report shows more Australians felt comfortable financially, were saving money and were in less financial stress.
Details of the key findings for the February 2019 report* are as follows:
1. Overall financial comfort has increased
Despite residential property prices being in decline, particularly in Sydney and Melbourne but also in some regional areas, the report found this had no notable impact on Australian households’ financial comfort overall.
In fact, overall financial comfort is up by 2% to 5.56 out of 10, higher than the past five surveys and above the historical average. Most drivers improved significantly, with the two biggest contributors being income gains and an improved ability to pay expenses.
In the six months to December 2018, 38% of households reported income increases (up 4 points), as the strengthening labour market generates improved pay conditions. While the ‘cost of necessities’ remains the ‘biggest worry’ in terms of household finances, the ‘ability to pay regular expenses’ increased by 3% to 6.6 out of 10.
Regional households in particular reported higher levels of financial comfort, up 6% to 5.43 out of 10, the highest level in four years. Metropolitan households, on the other hand, averaged a 1% increase.
2. Financial inequality has reduced
Over the seven-year period ME Bank has conducted the biannual survey, there has been a widening gap in financial comfort between the ‘haves’ and the ‘have nots’. In this survey, for the first time we saw improved financial equality.
As shown in graph 2, the financial comfort of renters was up 8% to 4.78 out of 10, the highest in four years. In comparison, the financial comfort of households who own a home mortgage-free fell by 3% to 6.27 out of 10, the lowest figure seen in seven years.
The gap in financial comfort between high-income earners and lower or middle-income households also closed, as revealed in graph 3. Those earning over $200,000 p.a. felt less financial comfort, down by 6% to 6.79, while all other income brackets reported improved financial comfort.
3. Australians are being more frugal – saving more and spending less
The report showed householders are tightening their belts. They are saving more, are more comfortable with their short-term cash savings, and overspending less. This frugality could be a result of the property downturn, and economic and political uncertainty.
As shown in graph 4, the number of households saving each month increased by three points to 51%. This is the equal highest level in seven years. And these savers are saving more; the average amount saved was up 7% to $862 per month.
Overspending has also reduced. The number of overspenders was down by two points to 9% of households. The amount overspenders either drew from their savings or put on credit fell by a massive 28%, down to $453 per month.
4. Housing and credit stress has reduced
Financial stress is often defined as having to contribute over 30% of income towards housing costs.
The number of households in financial stress decreased by 9 points to 47% in December. This was largely driven by renters, where we saw a 16-point drop in households in financial stress, down to 51%. The number of mortgage holders in financial stress remained at 44%, but only 7% actually missed a mortgage payment due to lack of funds.
There was also a drop in the number of people unable to meet their debt-servicing commitments, with just 12% of households unable to meet a personal loan or credit card repayment.
Overall, this is a promising result for Australian households. Whether it is despite – or because of – the lower property prices seen in many areas, Australians appear to be adapting well and feeling more comfortable in the current economic conditions.
*Household Financial Comfort Report based on the 15th survey of 1500 Australian households by ME Bank, published February 2018.