Australians are increasingly pessimistic about the fragile state of their finances.
About half of Australians (51%) have no spare cash at the end of each month, typically spending all their pay or more, according to ME’s latest Household Financial Comfort Report.
While overall inflation in Australia is running at less than 2%, the rising cost of necessities such as fuel, household gas and electricity is the biggest worry for more than 40% of households.
The report by industry super fund-owned bank ME shows that the relentless rise in bills combined with weak wage rises and the potential for an increase in mortgage rate are behind current financial stress.
The overall household financial comfort index rose 2% to 5.51 out of 10 in the six months to June.
However, the report shows a growing number of households expect their financial comfort to worsen, with future expectations falling for the third time in a row, down 4% over 18 months, as this chart shows:
“On the surface the financial comfort of the average Australian looks good, but it’s fragile — susceptible to housing stress and energy cost shocks,” says ME consulting economist Jeff Oughton.
“Overall financial comfort rose most notably due to 3% rises in comfort with savings, income, and investments, reflecting some improvements in the labour market, rising house values and investments.
“But the cost of necessities remains the biggest concern for Australians and when combined with stagnating or falling income for up to nearly 70% of households, expected further rises in the cost of necessities like power prices, as well as rises in mortgage rates, the future doesn’t look as bright for some.”
Almost 40% of households renting or paying off a mortgage are worried about their ability to meet payments. About 40% of these households are estimated to be paying more than 30% of their pre-tax income to a mortgage or rent.
Weak household income and underemployment are hurting the financial comfort of most households, particularly those earning less than $100,000.
A couple in NSW with older children told the survey: “Our greatest worry is the higher cost of living without
any pay rises.”
Two young parents in Queensland with small children said: “We live a frugal lifestyle now to maximise our savings in the future.”
Over a quarter of all households (27%) reported income cuts in the past year, rising to almost half of households earning less than $40,000 (45%).
Households earning more than $100,000 were least likely to report income cuts (17%), and the most likely to have seen an income rise (46%).
Underemployment is also feeding into household concerns and many are looking for more hours of work, with 27% of casual and part-time workers eager to increase paid hours and one in five (20%) wanting to change their status to full-time.
The Household Financial Comfort Report is based on a survey of 1,500 Australians. It is conducted every six months.