Household Finance Confidence Index – Page 7 – Digital Finance Analytics (DFA) Blog

Household Finance Confidence Falls Again In February

The February edition of the Digital Finance Analytics Household Finance Confidence Index, released today, fell from 89.24 to 88.11, and remains below a neutral setting.

A range of factors have led to this latest fall.

Savings was one area of concern, because with stronger concerns about the property sector, and volatile stock markets, more households are wanting to hold money on deposit. 11% feel more comfortable than 12 months ago, 31% less conformable, and 52% about the same. The research shows that many households are concerned about the best investment path, and some are expecting savings rates to fall further. We also saw that about one quarter of households would have difficulty in accessing savings of $2,500 in an emergency, so savings balances are highly segment specific. Deposit rates have also improved recently for some.

On the debt front, 8% of households feel more comfortable than a year back, down 2.5%, whilst 27% are less comfortable, (up 1.8%). 62% felt about the same. Mortgages remain the major burden, whilst more are looking to pay down credit card debt. Significantly a rising number of households indicated they were considering paying down debt (rather than keeping funds in a low yielding deposit account). Perhaps the era of deleveraging is starting? Whilst new borrowing for property purchase is somewhat down, refinancing to reduce existing repayments has increased. There was a significant rise in households whose loan application was refused on serviceability grounds.

Turning to real income (after inflation), only 1.2% of households said their income had risen (down 1%), whilst 44% said their real incomes had fallen in the past year (consistent with recent RBA data showing no per capita growth since 2008). More than half said they had experienced no change in real income. Those relying on investments for incomes were most concerned. The lack of income growth constrains household spending and will reduce their ability to deleverage.

Looking at costs of living, 37% said their costs had risen in the past year, 2% said costs have fallen, and 59% said there was little net change, thanks to continued lower fuel and interest costs offsetting other rising costs. School fees and childcare costs, and health insurance costs all rose.

On a positive note, more households are confident of their employment now, with 14.14% feeling more secure than 12 months ago, up from last month, whilst 20% were feeling less secure (but down 1.73%). The majority said there has been no change (62.2%).

Summing up, household net worth is now under more pressure, with 51% said it had risen (down 4%), 15% saying net worth was lower (up 2.8%), and 26% saying there was no change. The value of some share market investments are being trimmed. We are also seeing some signs of property values falling in some places. For example, property in areas of Kalgoorlie (WA) have fallen 25% in the past year, some areas around Mackay and Fitzroy (QLD) have fallen 20%, and in SA areas around Eyre dropped 6%. Not all property markets across Australia have performed equally well. These factors feed into the falls in net worth.

Finally, looking at a property segmented view of the index, we see that all segments recorded a fall this month, with property active owner occupied households more positive than property investors, and property inactive households (in rentals or other living arrangements) scoring the most negative results. Factors such as prospective tax changes in the budget, general political uncertainty, and the broader economic environment are all playing on households, feeding through into ongoing negativity. Significantly, the boost we saw following the change in PM has now dissipated completely.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 26,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

Household Finance Confidence Takes A Dive

In the latest edition of the DFA Household Finance Confidence Index, to end January 2016, we see a marked fall in overall confidence, down from 91.46 to 89.24. This reverses the improvement we saw in the last quarter of 2015. Households with investment property and stock market investments registered the strongest declines. Those in WA and SA also showed greater concerns about future job prospects compared with eastern states. Confidence continues to languish below the neutral setting of 100.

The results are derived from our household surveys, averaged across Australia. We have 26,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

Looking specifically at our property segmentation, we see a significant decline in confidence among property investors. There are two factors driving this, first rental income is constrained, and second prospective future capital growth is uncertain. In addition, concerns about potential adverse changes to negative gearing are also having an impact. Owner occupied property holders remain relatively more positive, thanks to continued low interest rates, and with little expectation of any rise in rates anytime soon.

Looking at the moving parts which drive the index, costs of living continue to rise in real-terms, with 38% saying costs have risen in the past year, (up 3% from last month), whilst 58% said there had been no overall change (falls in fuel costs netting off other elements).

Turning to income growth, 2.3% said, in real terms (after inflation) their incomes had risen in the past year, (down 2.4% from last month), whilst 55% said there had been no net change. 41% said their income had fallen, thanks to lower investment returns, reduced overtime, and less available work. The figures varied across the states, but we won’t discuss that here.

Turning to debt levels (and household debt has never been higher), 11% of household were more comfortable than a year ago (down 2% from last month), 25% were less comfortable, and 63% were about the same. Continuing low interest rates are helping to make large loans manageable.

Next we look at savings. 13% of households were more comfortable with their savings than a year ago, (down 1% from last month), whilst 32% were less comfortable, mainly due to their inability to save, or for those who can, the low returns currently on offer.

Job security varied across the states, but at an aggregated level, 14% felt more secure than a year ago, 54% felt about the same, and 32% felt less secure (up 2.5% from last month). Those in resources, and manufacturing were on average less comfortable, compared with those in the service sectors. Continued drought conditions in some areas also had an adverse impact.

Finally, we look at net worth. Here 61% of households said their net worth was higher than a year ago (down 1% from last month), whilst 26% said there was no change, and 13% said their net worth was lower. Those with property assets are protected by the rapid rises in the past year, even if future growth is less certain. Those with stock market investments are more concerned by recent falls.

So, overall households remain concerned, and this will translate into cautious spending patterns in coming months. Given continued uncertainly on global markets, property price dynamics, and the upcoming budget in May, we do not expect much of a recovery in confidence in the short term.

Australian Housing Unaffordable – Demographia

The 2016 Demographia survey (the 12th edition) is out using data from Q3 2015. Once again Australians are shown to be exposed to highly unafforable housing, with all the downstream economic consequences which follow. Policy, regulation, and vision have all failed us. Whilst inflated prices bloat banks’ balance sheets thanks to massive lending for housing, the economic outcomes are disastrous. The resulting stagnation or even decline in household discretionary incomes is at least as much a threat to prosperity and job creation as the limited gross income gains.

” Australia had 33 severely unaffordable markets, followed by the United States with 29 and the United Kingdom with 17. New Zealand and Canada each had six severely unaffordable markets, while China’s one market (Hong Kong) was also severely unaffordable.”

The survey covers 367 metropolitan markets in nine countries (Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the United Kingdom and the United States). A total of 87 major metropolitan markets — with more than 1,000,000 population — are included, including five megacities (Tokyo-Yokohama, New York, Osaka-Kobe-Kyoto, Los Angeles, and London).

The Demographia International Housing Affordability Survey rates middle-income housing affordability using the Median Multiple.” The Median Multiple is widely used for evaluating urban markets, and has been recommended by the World Bank and the United Nations and is used by the Joint Center for Housing Studies, Harvard University. The Median Multiple and other similar price-to-income multiples (housing affordability multiples) are used to compare housing affordability between markets by the Organization for Economic Cooperation and Development, the International Monetary Fund, The Economist, and other organizations.

Demographia uses the following housing affordability ratings:

Severely Unaffordable 5.1 & Over
Seriously Unaffordable 4.1 to 5.0
Moderately Unaffordable 3.1 to 4.0
Affordable 3.0 & Under

Hong Kong’s Median Multiple of 19.0 was the highest recorded (least affordable) in the 12 years of the Demographia International Housing Affordability Survey. Sydney was the second least affordable major market, with a Median Multiple of 12.2. Sydney’s increase of 2.4 points from its 9.8 Median Multiple in 2014 is the largest year-to-year deterioration ever indicated in the 12 years of the Demographia International Housing Affordability Survey. It is also highest Median Multiple outside Hong Kong in the history of the Survey, exceeding the extremes experienced on the US West Coast during the housing bubble of the last decade. Vancouver was the third least affordable major market, with a Median Multiple of 10.8. Auckland, Melbourne and San Jose all had Median Multiples of 9.7. They were followed by San Francisco at 9.4, and London (Greater London Authority), at 8.5. Two other markets had Median Multiples of 8.0 or above, including San Diego and Los Angeles, both at 8.1.

Virtually all governments consider household economic issues as a top priority, especially increasing the standard of living and reducing or eradicating poverty. Yet economic growth has been laggard, and discretionary income trends are even more concerning. Housing costs, which represent the largest household expenditure category, have been rising much faster than incomes. The resulting stagnation or even decline in household discretionary incomes is at least as much a threat to prosperity and job creation as the limited gross income gains.

The largest losses in housing affordability have been associated with urban containment policy. Severely unaffordable housing (Median Multiple of 5.1 or higher) has occurred only in major metropolitan areas that have strong land use policy, especially urban containment boundaries and variations thereof. Corrective measures that could halt or reverse losses in housing affordability from urban containment policy have either been absent or not been implemented. As a result, urban containment policy has been a profound policy failure, as house prices have doubled and tripled relative to incomes in many metropolitan areas.

In the introduction, Senator Bob Day says:

For more than 100 years the average Australian family was able to buy its first home on one wage. The median house price was around three times the median income allowing young home buyers easy entry into the housing market As can be seen from the graph below (“ Real Home Price Index”), the median house price has increased, in real terms, by more than 300% – from an average index of 100 between 1900 and 2000 to an index over 300 by the year 2008.

Relative to incomes, house prices have increased from three times median income to more than nine times income. That’s $600,000 they are not able to spend on other things – clothes, cars, furniture, appliances, travel, movies, restaurants, the theatre, children’s education, charities and many other discretionary purchase options.

It is a similar story in the UK, US, Canada, New Zealand, Ireland and Japan.

The economic consequences of this change have been devastating. The capital structure of these countries’ economies have been distorted to the tune of hundreds of billions of dollars and for those on middle and low incomes the prospect of ever becoming homeowners has now all but vanished. Housing starts are below what they should be and so have all the jobs associated with them – civil construction, house construction, transport, appliances, soft furnishings, you name it. Not to mention billions of dollars in lost taxes and other housing-related revenue to the nation state.

The distortion in the housing market, this misallocation of resources resulting from the supply-demand imbalance is enormous by any measure and affects every other area of a country’s economy. New home owners pay a much higher percentage of their income on house payments than they should. Similarly, renters are paying increased rental costs reflective of the higher capital and financing costs in turn paid by landlords.

Economies have been distorted and getting them back into alignment is going to take some time. But it is a realignment that is necessary. A terrible mistake was made and it needs to be corrected.

DFA Household Finance Security Index Lifts – For Some

The latest edition of the DFA Household Finance Confidence Index (FCI) is released today, using data from our household surveys up to the end of November 2015. The index moved up a little, from 90.73 to 91.46, but still below the neutral setting of 100. So overall households remain cautious about their financial state in the run up to Christmas.

To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

One of the more interesting aspects of the research highlights that households who are property investors continue to have their overall confidence eroded, driven by the higher costs of finance and doubts about the prospect of future capital growth. This echoes the fall-off in investment lending we have been tracking in recent weeks. The downturn in investor confidence is most marked in NSW. On the other hand, owner occupied property owners have become relatively more confident, thanks to continued low interest rates. Those households who are property inactive (renting, or seeking to buy) remain the least confident sector.

Looking at the elements which drive the index, we find that 35.5% of households say their costs have increased in the past year, up by 0.6% from last month, whilst 5% say their costs have fallen. 59% say there has been no net change, thanks to lower mortgage interest costs over the year, helping to offset other rising costs. Low inflation levels are helping.

Income growth remains under pressure, with 5% saying their income has rising in the part year (after inflation), and 37% saying their real incomes have fallen, whilst 57% said there was no change. Many have not received any rise in pay over the past year, and are relying on more overtime to lift take-home wages. One respondent said ” we are simply running harder, just to stand still”.

Looking at debt levels, 61% said they had more debt than last year, 23% said there was no change, and just 15% said their debt was lower (up by 1.6% last month). Mortgages continue to be the main burden, and some households (those generally more affluent) are continuing to reduce their credit card and loan debt. We did also note a continued rise in small loans, from households under financial stress.

Many households have little money in the bank for a rainy day, but of those who are saving, 14% said they were more comfortable with their savings than a year ago which is down 1.5%, and linked directly to continued low rates of return available on many bank deposit accounts. Around 30% were less comfortable, because they had to dip into their savings to pay the bills, and in the run up to Christmas, down a little from last month. Several commented on recent stock market falls, and the risks to their investments running into 2016.

Job security was quite varied, depending on region and industry. Those employment in (lower paid) service industry jobs – for example in healthcare in NSW, were the most confident, whilst those in mining, agribusiness and construction, especially in WA and SA were more concerned. 17% felt more secure than a year ago, 62% felt about the same, and 20% felt less secure. Younger households felt less secure than more mature households.

Finally, 60% of households said their net worth was higher than a year ago, down a little from last month, thanks to recent stock market adjustments, and property coming off in several locations. 15% said their net worth was lower (a rise of 1.6% compared with last month), and 23% said there was no change.

We think it quite likely we will see continued improvement in coming months, although if house prices start to tumble, or interest rates were to rise, this would have an immediate negative impact. We would also observe that households remain cautious, and whilst we expect something of a spending boom over Christmas, it looks like it will be tempered by limited increases in personal credit, and lack of available savings.

Household Financial Confidence On The Up

The latest edition of the DFA Household Finance Confidence Index for October 2015 is released today, and shows a noticeable uptick compared with last month. The current index stands at 90.7 compared with 87.7 in September, still below the long-term neutral position, but on the improve. Taken with the stronger employment dat a, released today by the ABS, we think there a potential drop in the cash rate is off the table, unless there is an external shock. Should the US lift rates in December this would be another nail in the rate cut coffin.

Looking at the segmentation of the index, property inactive and owner occupied households improved compared to property investors who were more concerned about rising mortgage rates, and lower property price growth. They are also being hit by lower rental returns. This shows the importance of the property sector on overall confidence.

Overall, at a national level, 61% of households said their net worth had improved, up 1.1% from last month, and still being supported by rising property prices in the eastern states. 13% of households said their net worth was lower, and these were impacted by lower stock market prices, and some property price falls in WA and SA.

Looking at cost of living, there was a fall in those who said their costs were higher at 35%, compared with 40% last month, mainly due to lower prices for some foods, fuel, and low interest rates. 60% said there was no real change.

Looking at real income, 5% said they were better off, a slight rise from last month, whilst 55% said their real incomes had stayed the same over the past year (this is after inflation), very similar to last month. 38.7% said their incomes, in real terms, had fallen.

Next we turn to debt. Here 13% were more comfortable (up 1.8% from last month) with their levels of debt, whilst 26% were less comfortable, and 58% about the same, close to last months results. The small hikes in mortgage rates have yet to hit, so we will see if the score changes next month. However, absolute low rates are helping, and future expectations for interest rises appear more subdued.

The status of savings showed that 15% were more comfortable, up 2.4% on last month, thanks to deposit returns stabilising, and dividends holding up.

Finally, job security improved, with 17% saying they felt more secure (up 0.7%), and 63% saying they felt as secure as last year, similar to last month. However, there was a more negative note in WA, and on an aggregated national basis, 20% of households were less secure, up 1% on last month. Better employment prospects showed through in NSW and VIC.

So, we think there is a change of momentum in the index, and unless there is some external shock, the index is likely to climb as we enter the summer months. One factor which came though in the data was a more positive expectation about our political leaders, and this is flowing though to improved confidence.

Many Eastern States Investment Properties Are Underwater

We have had the opportunity to do a deep dive on investment property loans, using data from our household surveys. We have looked at gross rental returns, net rental returns (after the costs of mortgage servicing are included) and net equity held (current property value minus mortgage outstanding). The results are in, and they make fascinating reading, especially in the context of up to 40% of all residential property loans being for investment purposes, according to the RBA. Whilst we will not be sharing the full results here, one chart tells the story quite well.

We show the average gross rental yield on houses by state, (the blue bar), net rental yields before tax (the orange bar) and the net gross average capital gain (the yellow line). Gross yield is annualised rental over current value, assuming full occupancy; net rental is annual rental less annual mortgage repayments; and capital value is the current marked to market price less current outstanding mortgage. The first two are shown as a percentage, the last as a dollar value. The chart below only covers houses, we have separate data on other property types but won’t show that here.

We found that investment property which were houses in VIC were on average losing money at the net rental level (and this is before any maintenance or other costs on the property). Those in NSW were a little better, but still in negative territory. The other states were in positive ground – some only just – and of course this is at current interest rates, before the latest uplifts were applied by the banks. We accept that the pre-tax position does not tell the full story, but as a stand-alone investment, many property investors are from a cash flow perspective underwater. Indeed, they are banking on prospective capital gains, and at the moment, they do have a cushion, but if prices were to slip, many would find this eroded quickly.

Our take is that the property investment sector contains considerable risks for banks, and investors, and these are not well understood at the moment. The more detailed analysis we did also showed that some specific customer segments, regions and postcodes were more at risk. Running scenarios on small interest rate rises shows that things get worse very quickly, especially for higher LVR loans.

We concur with analysis from Ireland and New Zealand, that the risks in the investment loan portfolios, despite the apparent historic low rates of default, are higher, and under Basel IV we expect investment loans to carry a higher capital rating, meaning that interest rates on investment loans are likely to rise more in the future, relative the the cash rate.

DFA Video Blog On Latest Household Finance Confidence Results

Today we published the latest DFA Household Finance Confidence index (FCI), which showed a further fall. This video blog discusses some of the findings, and considers some of the issues which explains the results, and what may change them.

You can read about how we assemble the index here, and past results here.

Latest DFA Survey Shows Household Finance Confidence Falls

The latest edition of DFA’s Household Finance Confidence Index to end August is released today, and it shows a significant fall. With a score of 87.69 (down from 91.1 in July), it is the lowest since the index started, and is well below its neutral setting, which was crossed in April 2014. Recent stock market volatility, concerns about employment prospects, rising living costs and slowing income growth all combine to drive the index lower.

Looking at the drivers of the index, this month, 40% of households are concerned about rising costs of living (up 1.8% on last month), whilst 52% said their costs had not changed (down 3.3%). In the surveys, recent council charges and school fees were mentioned specifically.

Turning to real income (after inflation), about 4% of households saw their income rise in real terms (up 0.3% on last month), whilst 39.6% said their incomes had fallen (down 0.5%) and 55% said there had been no change. Income from bank deposits continued to drop, thanks to lower rates, and dividends from some shares were lower than expected. A significant proportion did not expect to see any rise in wages in the next six months.

Looking at debt, 11.4% of households were more comfortable with their current levels of borrowing, (down 1.2% on last month), whilst 59% were about the same (up 1.85%), thanks to the expectation that interest rates were unlikely to rise any time soon. There was a rise of 0.5% in those feeling less comfortable about their level of debt, (27%), this was directly linked with concerns about future employment prospects.

Turning to savings, 13.5% of households were more comfortable with their level of savings (down 0.4% compared with last month), whilst 30.2% were less comfortable (a fall of 1.1%). 54% of households were feeling about the same as last month, up 1%.

Looking at job security, 13.8% of households felt more secure about their job prospects (down by 1.9% on last month), whilst 22% felt less secure (up 2.5%) and 61.5% felt as secure as last month (down 0.5%). There were significant state and industry variations, with those employed in mining and construction more concerned, especially in WA, along with those in manufacturing in VIC and SA, and those in QLD and NSW in resources. Those in the service sectors, such as healthcare and finance were more confident. Younger workers and those aged over 50 years were more concerned, whilst females were less concerned than males.

Finally, looking at net household worth, 60% of households thought their net worth had risen (down 2.2% on last month), thanks mainly to rising home values in the eastern states. 24.6% saw no change (up 1.5%) and 13.6% saw a fall. The main drivers of those with concerns can be traced to the volatility on the stock markets, and falling property values in WA. We also note that the one third of households who are not property active are significantly more represented in the falling category, because they do not benefit from the wealth effect of rising property prices.

Overall then household financial confidence continues to languish, despite record low interest rates. Because of this we believe many households will continue to spend carefully, and be careful not to extend their high personal debt further. We did also note though a strong interest in property as the most secure investment option, and as a result, we expect to see ongoing high demand. We will cover this in more detail in a future post.

DFA Household Finance Confidence Index For July 2015 Shows Investors Have It

We released the latest DFA Household Finance Confidence today, incorporating results from our household surveys to end July. The overall index recovered a little from its all time low last month, rising to 91. This is still below a neutral setting. The index has been below water since April 2014.

This month we pulled out data from the 26,000 survey responses, segmented by our master property categories. We found that households who are property inactive (those renting, living with parents or friends, or homeless) consistently registered a lower score, at 87 this month, and we see a falling rating since we started this analysis in 2012. On the other hand, those households with investment property consistently rated higher, because of the wealth effects of rising property values, and because their incomes were more stable. Owner occupied households fell between the two extremes, though we noted a kick-up this month, thanks to the prospect of potentially cheaper loans ahead. We also see a subtle fall in the confidence of property investors, who are reacting to recent hikes in interest rates for investment properties. Could this be the first sign of an investment sector slow-down?

Now turning to the All Australia aggregate data, we see that costs of living continue to worry households, with 38% of households saying their costs were rising, up 3% on last month, and a similar fall in those who said there was no change to their costs. Households identified costs relating to council rates, food, fuel and overseas purchases as the main reasons for the rise. Those families burdened with child care costs and health related expenditure also suffered significant increases.

Turning to income, 4% more households this month said their income was falling in real terms, and 40% of households fall into this category. As well as wages being static or falling, households also saw falls in the interest paid on bank deposits. Only 4% said their incomes had risen, these tended to be households receiving dividend income from stocks. Just over 55% of households said their incomes had not changes (though as highlighted above, their costs had), so many are feeling the pinch.

Next, looking at job security, those households who felt more secure in their jobs fell by nearly 1%, to 16% of households. More than 62% of households felt no difference in their level of job security. There were significant state and industry variations however, with those in WA and SA the most concerned, and registering a fall in security, whilst NSW and VIC both registered higher rates of job security.

Looking at household debt (which is very high at the moment), 13% of households were more comfortable at their levels of debt, whilst 26% were less comfortable, and 60% were as comfortable as last time. Low interest rates are allowing households to manage high debt, but of course they are highly leveraged, and would be impacted if interest rates were to rise. Most households expect rates to remain low for the next couple of years.

Turning to savings, 14% of households were more comfortable with the savings they had, little changed from last month, whilst 54% were as comfortable as last month. Households commented on the difficulty of finding a good home for their savings, in the current low interest rate environment, and were concerned that adjusted returns were worth next to nothing. We also noted an increase in those households unable to get access to $2,000 within a week in an emergency. Around 15% of households are in this category, and the majority are those who are property inactive.

Finally, we look at net worth. Those households in the eastern states with property are feeling better off thanks to continued rises in property prices. Those with investment properties were feeling particularly smug. However, those in WA, NT and QLD were more more concerned about the trajectory of house prices, and saw their net worth falling – 62% of households saw their net worth rise, up 2%, whilst 14% saw it fall.

So overall, slowing wage growth and rising costs of living are counterpointed by rises in property prices, and low interest rates. However, bearing in mind that rates are unusually low and house price growth unusually high (for some), we do not see the fundamentals in place for a significant boost to household financial confidence any time soon. Therefore we expect households to spend conservatively, continue to save, and seek higher investment returns from higher risk asset classes.

Households Feeling Financial Strain

Household confidence in coping with a financial emergency (loss of income) fell 11% in the six months to June 2015, largely contributing to a 6% fall in overall household financial comfort, according to ME’s latest Household Financial Comfort Report. The findings are similar to DFA’s Household Finance Confidence Index, which fell to a new low in June.

Linked to the fall in financial emergency-preparedness are big falls in comfort with cash savings(down 9%) and income (down 6%) in the six months to June 2015. A lack of comfort about cash savings and the ability to cope with a financial emergency is particularly evident among single parents whose overall financial comfort fell 20% to 4.46 out of 10 during the first half of 2015. Decreased comfort with cash savings is likely to be caused by weak income growth – with only a third of respondents reporting household income gains in the past year – together with increased concerns about the job market. While job-security has remained steady at 71%, job availability fell 9 points with 56% of the workforce indicating it would be difficult finding another job within two months if they became unemployed, compared to 47% six months ago. Concern about savings and incomes has also resulted in a rise in the number of households citing ‘the cost of necessities’ as their biggest worry, up 3 points to 50% of households. Other major worries for households were ‘having enough cash on hand’, rising 3 points to 37% and ‘being able to make ends meet’ rising 5 points to 34% of households.

Renters feeling the financial pinch. Overall financial comfort is down 12% among renters to 4.35 out of 10, to remain well below the comfort of home-owners (down5% to 6.52) and households paying off mortgages (down 3% to 5.28). The fall in comfort among renters may be a reflection of the financial difficulty first home buyers are experiencing getting into the property market, coupled with a continued rise in rents across many states, particularly in some major capital cities.

A tale of two generations. The latest data also tells a tale of two generations, with Gen Ys (aged 18-34) and pre-retirees (aged 50-59) reporting the biggest falls in overall financial comfort (both down 10%), but for very different reasons. While Gen Ys (and single parents) are more concerned about their available cash savings, at the other end of the age spectrum, pre-retirees are most concerned about their expected standard of living in retirement as well as their investments. Falling financial comfort for older generations is also linked to falls in comfort with investments (down 9% on average, with the largest fall of 13% for Builders (aged 75+)) and increased risk aversion in the current low interest environment. A corollary of this is a fall in financial comfort in anticipated standard of living in retirement, down across all households by 8% to 5 out of 10, but by 16% to 4.5 among pre-retirees, with very high levels of comfort expected by self-funded retirees (7.14 out of 10) and significantly lower comfort levels reported among those totally/partly dependent on government pensions (3.38 and 5.15 out of 10 respectively).

Other findings include:

The labour-force: Self-employed workers reported the biggest fall in financial comfort (more than 20%) to the lowest level seen for this group since the survey commenced in late 2011, compared to a drop of 7% among full-time employees.

Regional variations: Comfort across all mainland states fell with relatively bigger falls in SA (down 10%), WA (down 9%) and NSW (down 8%). After a relatively small fall of 4%, comfort in Victoria was highest of the mainland states reflecting relatively higher levels of comfort across a range of drivers and in particular the ability to handle a financial emergency and comfort with cash savings.

Metro vs regional: After a fall of 9%, those living in regional areas continue to report significantly lower comfort (index of 5.18 out of 10), than city households (down 5% to an index of 5.52), with the highest comfort households located in Melbourne and Sydney.

Risk adverse: There has been a significant increase in financial risk aversion – with those people avoiding risk (39%) exceeding those willing to take risk (17%) by 22 percentage points – equal to its previous highest level in recorded in December 2012.