Household Finances – Page 9 – Digital Finance Analytics (DFA) Blog

The Great Australian Savings Account Rip-Off!

If you have savings with a bank in Australia, it is highly likely you are being ripped off. After all, Australian Consumers depend on retail deposit products to conduct their everyday banking, to safely store over $1.4 trillion of their savings and, importantly, to earn a decent return on these funds.

However, as I have been highlighting in recent shows, changes in the cash rate (often referred to as the ‘official interest rate’) via the RBA, and which is the rate paid on lending between banks in the overnight cash market only indirectly affect the cost of funding from retail deposits and the interest rates paid on retail deposit products.

Banks are quick to lift mortgage rates on mortgages, but have been significantly less market driven in terms of deposit rates, with many savers loosing out. Yet relatively few consumers switch deposit products, despite there often being a range of alternative products offering better interest rates and conditions. This loyalty tax means consumers earn significantly less than they should, over all on deposits, which boosts bank profits significantly.

So now the ACCC just completed a report on Retail Deposit Account. They gathered information, and documents on retail deposit products supplied by 14 of the largest banks in Australia. These banks collectively hold more than 90% of household deposits in Australia. This included seeking information directly from these banks as to their retail deposit products and from APRA and RBA, as well as reviewing the information available to the public on the banks’ websites.

The ACCC findings highlights that despite the importance of transaction accounts, savings accounts and term deposits, the ongoing challenges consumers face in searching for, comparing, and switching between products means that consumer engagement with the market for retail deposit products is relatively low. This low level of engagement means many consumers miss out on earning more from their savings.

Widespread strategic and selective pricing also adds difficulty for consumers when seeking to locate key product information and compare market offerings. This lack of transparency may also damage consumer confidence in the market.

Given the range of factors that banks take into account and the strategic pricing approaches they employ when setting their retail deposit rates, the interest rates received by consumers do not automatically follow movements in the cash rate target.

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Household Financial Pressures And RBA Propaganda…

Next Tuesday I will be running my live show on Household Financial Stress, which continues to worsen. However, what constitutes “stress” is being debated widely – its a matter of definition.

The RBA has joined the debate, but I will argue in today’s show they conveniently presented a lop-sided story, which understates the true picture.

Andrea Brischetto, Head of Financial Stability gave a speech at the Sydney Banking and Financial Stability Conference, University of Sydney, titled Financial Stability and the Financial Health of Australian Mortgagors.

There has understandably been a lot of focus on this issue of late, with many households facing substantial financial pressures from high inflation and higher interest rates. Some of the households feeling these pressures most acutely are those with lower incomes, including many renters.

But the focus was on households with mortgages and how their financial health relates to financial stability.

There has been a lot said and written about the issue of household financial stress in recent times, using a multitude of data sources and reporting on many different individual experiences. Wednesday’s national accounts showed how inflation, tax and interest rates have weighed on real household disposable income. And as RBA Governor Michele Bullock said when discussing the challenge of inflation following the RBA Board meeting this week: High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality. The Governor emphasised that the effect of all of this is that many households are experiencing a painful squeeze on their finances.

So she presented an overall picture of the situation, drawing on the RBA’s extensive work in this area, which is published in detail in our regular Financial Stability Review.

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Digital Finance Analytics (DFA) Blog

Household Financial Pressures And RBA Propaganda…

00:00 / 00:32:01

Household Financial Pressures And RBA Propaganda…

Next Tuesday I will be running my live show on Household Financial Stress, which continues to worsen. However, what constitutes “stress” is being debated widely – its a matter of definition.

The RBA has joined the debate, but I will argue in today’s show they conveniently presented a lop-sided story, which understates the true picture.

But the focus was on households with mortgages and how their financial health relates to financial stability.

So she presented an overall picture of the situation, drawing on the RBA’s extensive work in this area, which is published in detail in our regular Financial Stability Review.

Households Taken To The Cleaners: With Tarric Brooker…

Another Friday afternoon chat with Tarric Brooker, as we look at the status of households, as monetary policy continues to run, and as the tax take accelerates significantly.

Via the charts we look at the trends across the country, invent a new TV game series, and also pick apart the political agenda.

Tarric’s charts are here: https://avidcom.substack.com/p/dfa-chart-pack-8th-december-2023

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Digital Finance Analytics (DFA) Blog

Households Taken To The Cleaners: With Tarric Brooker...

00:00 / 01:17:22

You What? The Use Of Cash Is Up!!

An average of more than 50 UK bank branches have closed each month since 2015 and campaigners fear some retailers could stop accepting cash if it becomes too burdensome to process. That said, under government rules, free withdrawals and deposits will need to be available within one mile for people living in urban areas. In rural areas, where there are concerns over “cash deserts”, where the maximum distance is three miles.

This is important because cash remains a necessity for millions of people, research has found, with the elderly and those with disabilities among those likely to struggle. Branches have been more likely to close in disadvantaged areas.

Of course, Banks have pointed to the large reduction in branch use – a trend accelerated by the Covid pandemic – and the popularity of managing money via smartphones, as good reason for diluting their branch network.

But a recent survey by Age UK suggested that, among those who were uncomfortable about digital banking, the key concerns were fraud and scams, a lack of trust in online banking services, and a lack of computer skills.

And now, The British Retail Consortium says cash use has grown for the first time in 10 years as shoppers keep a close eye on their budgets while prices rise, retailers have said. They said 19% of purchases were made with notes and coins last year, echoing a report by banks showing a slight rebound. That’s up from 15% the previous year. Until 2015, notes and coins were used in more than half of transactions and, while card use now dominated, cash still had its benefits. Consumers made smaller but more frequent payments, the survey found.

The consortium said consumers were budgeting carefully to try to cope with cost of living pressures, and there was also a “natural return” for cash after it slumped during the pandemic.

It is essential use of cash is protected, you cannot leave it to the market, where banks are making a killing from extra fees on card transaction costs as a result of removing access to cash.

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Digital Finance Analytics (DFA) Blog

You What? The Use Of Cash Is Up!!

00:00 / 00:08:38

Paying Tax And Interest Through The Nose In A Deep Per Capita Recession!

The Australian Bureau of Statistics (ABS) has released the June quarter National Accounts, which were an unmitigated disaster and confirmed that Australia is in a deep per capita recession.

The economy as measured by real GDP grew by only 0.2% in the September quarter, driven by increased government consumption and capital investment over the quarter and badly missing economists’ expectations of a 0.4% print: Growth over the year was 2.1%, less than population growth over the same period. While the population surge earlier in the year has supported demand overall, it is now rolling over and will not provide the same support in 2024. Or as Luci Ellis, at Westpac put it The Australian economy limped along in the September quarter.

Real per capita GDP has fallen for three of the past five quarters, with the March quarter revised up to flat. Accordingly, GDP per capita fell 0.3% over the year. Expenditure by households was dead flat over the September quarter and would have fallen by around 0.7% per capita. By contrast, growth in both household consumption and GDP over 2023 slowed due to sustained cost of living pressures and higher interest rates. Household consumption would have fallen even further had the savings rate not fallen to just 1.1%, which is the lowest level since December 2007.

The savings rate is now well below the ‘par’ of 6.5% and notionally implies a draw-down on the ‘additional savings’ accumulated during the pandemic – estimated at around $260bn – running at about $12bn a quarter. In total, about $43bn, or 16.5% of this reserve now looks to have been drawn down. Of course these are not equally spread across households, with many now having no buffers at all.

As Westpac put it. the policy drag on Australian households is clearly biting.

Digital Finance Analytics (DFA) Blog

Paying Tax And Interest Through The Nose In A Deep Per Capita Recession!

00:00 / 00:08:31

Youngsters Thrown Under The Bus [Again]

The massive hike in interest rates imposed by the RBA in its attempt to squeeze out inflation is not hitting all household cohorts’ to the same extent. Indeed, some older households with savings and no mortgages are enjoying their wealth boost, after years of low rates eroded their incomes. It is worth noting that the rate of rate increases is the sharpest lift in mortgage rates on record.

Overall mortgage stress, defined in negative cash flow terms has never been higher, as we discussed in our recent live show.

Within that, the consequences are perhaps most profound for younger, often more leveraged households. Indeed, the 2023 Risk Radar Report from credit bureau Experian shows that recent first home buyers that purchased in 2019 or later are suffering the highest rates of mortgage stress, as well as missed payments.

A decline in living standards will most acutely be felt by younger cohorts, as well as those with big mortgages held into retirement and beyond.

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Today’s post is brought to you by Ribbon Property Consultants.

Digital Finance Analytics (DFA) Blog

Youngsters Thrown Under The Bus [Again]

00:00 / 00:09:16

More Kiwis Are Selling For A Loss!

Recent property purchasers in New Zealand are more likely now to sell at a loss, according to property data company CoreLogic’s latest Pain and Gain Report.

The report found 7.4% of the residential properties sold across the entire country in the September quarter were sold for less than their owners paid for them. But in Auckland, where 11.3% of sales fetched prices below what owners had paid for them. Those least likely to make a loss were in Christchurch where the loss making rate was just 4.7% of total sales.

The proportion of loss making sales has increased rapidly since the beginning of 2021 and is now at its highest point since 2015.

The median size of the loss on properties sold for less than their purchase price was $45,000. However that would likely balloon out to $70,000 or more once selling expenses such as agent’s fees and legal expenses are added.

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Digital Finance Analytics (DFA) Blog

More Kiwis Are Selling For A Loss!

00:00 / 00:04:50

Spend More, To Buy Less!

The ugly truth about inflation is households are having to pay more, to buy less.

We have seen this in a number of data points, the most recent is from the UK, where the Office of National Statistics just released their latest data for October. It revealed that UK retail sales fell unexpectedly, adding to the impression that a string of interest-rate hikes designed to beat down inflation is beginning to stymie economic activity.

This is an early indication that overall economic output will probably be weak in the fourth quarter.

Economists were expecting a rise of 0.4% for October. Instead, sales fell to their lowest since February 2021 when Covid restrictions were in place, with retailers citing the cost-of-living crisis and bad weather for the poor performance. It bodes ill for the “golden quarter,” the run-up to Christmas when stores can make a majority of their yearly profits.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.