The latest Digital Finance Analytics Household Finance Confidence index, for July 2016 is released today. The index, which measures households’ attitudes to their finances, stands at 95.17, down a little from last month from 95.21, and below the long term average of 100. However, there are wide variations among households.
Households with savings in bank deposits were more confident, thanks to small, but significant uplifts in term deposit rates. We expect to see this continue, following the August RBA rate cut, and banks’ repricing of term deposits.
One factor of note is the ongoing fall in households who recorded real income growth in the past year. This is a drag on confidence, and spending. The small cut in mortgage interest rates will not help very much.
There are significant differences by property segment, with owner occupied households the most confident, thanks to falling interest rates and continued property price rises. Property investors also recorded a rise, thanks to rising property values, though trimmed by low rental income rises, and mortgage pricing. Property inactive households were the least confident, not least because with incomes flat many are finding it tough to make rental payments on time. They are not able to particulate in the wealth effect of holding property.
There are also variations across selected states. Households in NSW and VIC are the more confident, thanks to relatively good employment prospects, and stable living costs. Households in WA and SA are more concerned, with issues such an employment and living costs in mind.
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.
