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 that 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 three per cent 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 per cent during the first half of 2018.
“More Australians are also overspending – households who ‘typically spend all of their income and more’ increased three points to 11 per cent during the six months to June,” the report noted.
“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 $1,000 in cash savings.”
The 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 per cent in June 2018.
Similarly, when asked why their financial situation worsened during 2017, 18.44 per cent 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 per cent) still had the same income as a year ago, while a quarter (24 per cent) reported income cuts and 34 per cent received a raise.
Unsurprisingly, “comfort with income” declined in the past year by two per cent to 5.61.
In the six months to June 2018, the report’s overall Household Financial Comfort Index went sideways from 5.49 to 5.44, indicating that the financial comfort of Australian households is not advancing.
Comfort is worsening for households with low financial comfort
Households with a “low” comfort index between zero to four out of 10 reported a five per cent decline in overall comfort to 3.13 in June 2018. This is the lowest ever score for this cohort and six per cent lower than the average of 3.32 out of 10 since the survey began.
"In contrast, the overall comfort of households with a ‘mid’ comfort index of five to seven remained unchanged at 6.38 out of 10 and households with a ‘high’ comfort index of eight to 10 increased by one per cent to 8.61 out of 10, with both cohorts’ comfort levels around their historical average," the report said.
"Put another way, overall comfort is getting worse for households with low levels of comfort, but is largely unchanged for households with medium and high levels of comfort."
Rising living costs are worrying Australians
In addition to subdued income gains, the rising cost of living was cited by respondents as the main reason for households currently feeling worse oﬀ.
One of the 11 measures of the Household Financial Comfort Index — “comfort with the overall current financial situation of the household” — fell by one per cent to a record low of 5.93 out of 10 during the six months to June 2018 to be three per cent below the average of 6.12 since the survey began.
“Households were asked if their ‘financial situation improved, worsened or remained unchanged over the last year’ and ‘why’.
“Of the 32 per cent of households that reported their financial situation had ‘worsened’, 44 per cent said ‘living expenses/costs of necessities’ was the key reason, and to a lesser extent ‘job security’ (20 per cent), ‘income’ (17 per cent), ‘debt levels’ (16 per cent) and ‘changes to government support’ (14 per cent),” the report revealed.
On the other hand, 34 per cent of respondents said that their financial situation had ‘improved during 2017–18’.
“Of those, 30 per cent cited changes to ‘income’, followed by changes to ‘employment/job security’ (12 per cent) and ‘debt levels’ (11 per cent) as the key reasons why.”
Similarly, “expected change to households’ future financial situation” also fell by one per cent to 5.32 during the six months to June. This is two per cent below the average since the survey began.
The ME Household Financial Comfort Report is based on a survey of 1,500 Australian households.