ME’s tenth biannual Household Financial Comfort Report shows
marked deterioration in Australian households’ confidence in their
‘ability to manage debt over the next six to 12 months’, doubling from
about 5% over the past few years to 10% as at June 2016.
‘Single parents’ reported the highest levels of concern in their ‘ability to meet minimum debt repayments over the next six to 12 months’ (19%), followed by ‘couples with young children’ (15%) and ‘young singles/couples’ (12%). Consistent with an expected rise in debt stress, more households ‘paying off or owning a home’ reported to be drawing on their home equity to ‘pay off debt’ (up 4 points to 11%) and ‘to make ends meet’ (also up 4 points to 10%) during the first half of 2016.
There is a marked increase in households feeling vulnerable to income shocks associated with wage cuts, fewer hours worked and a lack of suitable jobs as well as lower dwelling prices in some parts of Australia, all of which increases debt stress. With a lack of cash savings or equity buffer in their home, there’s a notable increase in households expecting to be unable to service their debts, despite record low borrowing costs.
As for the overall finding, ME’s overall Household Financial Comfort Index – a measure of households’ perceptions of their financial comfort − dropped significantly by 4% to 5.37 out of 10 in the six months to June 2016.
This result means about 90% of Australian households reported low-to-mid financial comfort, with only 10% reporting high comfort. The result reverses the increase in comfort reported in December 2015, and is the fourth lowest financial comfort level since ME commenced the survey in late 2011.
All 11 index components deteriorated, with the largest falls seen in ‘net wealth’, ‘income’, ‘cash savings’ and ‘investments’ as well as households’ ‘ability to handle short-term income loss’ and ‘anticipated standard of living in retirement’. The Report identified a number of factors contributing to the significant deterioration in perceived financial comfort.
South Australia was the most financially comfortable mainland state in Australia, rising 2% to a historical high of 5.74 out of 10, while all other mainland states experienced a fall. Comfort levels in Western Australia fell 2% to a record low of 5.02 out of 10. While financial comfort in Victoria as a whole experienced a 6% drop to 5.52, Melbourne reported the highest comfort level of any city at 5.80 out of 10 – down only 2%, and still well ahead of Sydney, which reported a 4% drop to 5.58 out of 10.
The findings clearly indicate heightened concerns around the adequacy of income, the cost of necessities, lack of job availability and security as well as deterioration in expectations about meeting minimum debt payments and maintaining a standard of living in retirement.
In terms of generations1, the comfort of ‘baby boomers’ fell the most of any generation (down 7%) to the lowest level reported for that age cohort in the past couple of years (5.42 out of 10) – lower than ‘Gen Y’ (down only 2% to 5.46), but still above ‘Gen X’ (steady at 5.18).
‘Baby boomers’ reported greater perceived stress with ‘income’, ‘cash savings’ and ‘net wealth’ in the past six months to June 2016, despite continued gains in actual income and net wealth across households on average. ‘Baby boomers’ also reported greater worries with the ‘cost of necessities’ and the ‘ability to maintain lifestyle in retirement’ as well as the ‘level of government assistance available’ and ‘impact of legislative change on their financial situation’.
The findings add to a number of recent policy debates such as changes to superannuation. As many as 45% of ‘baby boomers’ said they ‘expect to be worse off after the recent Federal Budget’. Furthermore, ‘retirees’ reported their lowest levels of comfort since the survey began, although they’re still the most financially comfortable of any household life stage.
