A quarter of households have less than $1,000 in cash savings

Low and stagnant incomes are making more Australians feeling strapped for cash, forcing them to dip into their savings to cover the high cost of living, according to ME bank’s 14th annual Household Financial Comfort Report.

According to the report, more households overspend to cover necessary living expenses and are exhausting their savings, while mortgage and rental stress remains high. For those with home loans, an unchanged 45% say they contributed more than 30% of their disposable income towards their mortgages in the last six months— a common indicator of financial stress

“Comfort with short-term cash savings was the most notable component of the Household Financial Comfort Index to decline, seeing a 3% decrease to 4.93 out of 10 during the first half of 2018 – its lowest level in a couple of years,” ME consulting economist Jeff Oughton said in a statement.

The report was based on a survey of 1,500 households carried out by DBM Consultants in June 2018.

Data revealed that household confidence to raise money for emergencies dropped three points below average since the survey commenced, and fewer households said they’re saving. The estimated amount that Australians save each month fell by over 10% during the first half of this year.

More Australians also spend more than they should, as those who “typically spend all of their income and more” rose three points to 11% in the six months to June.

Oughton sees the situation as a potential tipping point. “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,” he said. “Currently, around a quarter of Australian households have less than $1,000 in cash savings.” 

If negative shocks arise in the coming years, whether they’re higher loan rates or an international trade war, the economist predicts more families will experience greater financial stress.

The report found “that the cost of necessities continues to be the major financial concern for households, with more than half of households reporting it as their ‘biggest financial worry’, up seven points to 53% in June 2018.” Similarly, 44% of households blame the cost of everyday items as the reason their financial situation got worse in 2017-18.

The HFCR data complements ABS wage data. The former found out that 42% of households still earned the same income as last year, while 24% reported income cuts and 34% got a raise. Those who felt comfortable with their income in the past year dropped from 5.61% to 2%.

The ABS jobs data revealed high levels of job insecurity and underemployment remains, and around 23% of casual and part-time workers prefer to take on full-time work if possible, Oughton said.   

 

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