The household finances of Australians are at a tipping point

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  • More Australians are being forced to use their savings to cover rising costs.
  • ME Bank’s biannual Household Financial Comfort Report shows the cost of necessities is the biggest financial worry.
  • And about a quarter of Australian households have less than $1,000 in cash savings.

Australians are increasingly dipping into savings, as their wages stagnate, to cover the rising cost of living.

The 14th edition of ME Bank’s biannual Household Financial Comfort Report shows the biggest financial worry of 53% of households is the cost of necessities including fuel and utilities.

More Australians are also overspending. Households who “typically spend all of their income and more” increased three percentage points to 11% during the six months to June.

And about a quarter of Australian households have less than $1,000 in cash savings.

“Clearly, this is a potential tipping point,” says Jeff Oughton, Consulting Economist for ME.

“At the moment, Australians generally can dip into their savings to get by. However, some households may get to a point where there’s no more savings to draw from.

“If we see big negative shocks in the coming year, whether they are higher loan rates or an international trade war, then a lot more families will suffer increased financial stress.”

The latest report found that the cost of necessities continues to be the major financial concern for households, with more than half reporting it as their “biggest financial worry,” up seven percentage points to 53%.

When asked why their financial situation worsened during 2017-18, 44% of households said it was due to the cost of everyday items, an increase of four points since the previous report.

Nearly half (42%) still had the same income as a year ago, while a quarter (24%) reported income cuts and only a third (34%) got a pay raise.

In the six months to June, the overall Household Financial Comfort Index went sideways to 5.44 from 5.49, indicating that the financial comfort of Australian households is still not advancing.

The report showed housing stress is still common.

For those with home loans, a broadly unchanged 45% reported to be contributing more than 30% of their disposable income to mortgages, a common indicator of financial stress.

Financial stress for renters lessened over the past six months, thanks to a cooling housing market and falling rents.

Almost three-quarters (72%) of renters were previously contributing more than 30% of their disposable income to the landlord. Now this has dropped significantly to two-thirds (67%).

Of households with debt, there was an increase in the number expecting they “will not be able to meet their required minimum payments” and “can just manage to make minimum payments on their debt” in the next six to 12 months, at 43% combined compared to 38% in December last year.

The reasons why finances have either worsened or improved over the past year:

Source: ME Household Financial Comfort Report

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