The recently released ING DIRECT Financial Wellbeing Index shows Australians plan to keep a lid on debt and build a substantial savings buffer over the coming year.
Households’ comfort with mortgage debt has hit a record high with 64% of Australians ‘very comfortable’ with their mortgage. It comes as one third prioritise building cash savings over the year ahead.
Key findings for Q4 2012 (surveyed in January 2013):
32% are aiming to build savings – rising to 39% of Gen Y households (aged 18-34)
Among those who plan to save more in 2013:
- 51% are aiming to build a financial buffer
- The average savings target is at least three months’ worth of wages – around $15,200.
- 93%of Australian home owners are ‘comfortable’ with their mortgage – 64% are ‘very’ comfortable.
- 49% of households with a mortgage are ahead with repayments – the highest proportion since tracking began.
- 34% of households are better off than a year ago while less than 1 in 4 (24%) are worse off.
Savings and debt reduction key goals for 2013
Paying down or avoiding debt is the primary financial goal for 37% of Australians – a figure that rises to 46% among Gen X households (aged 35-49).
One in three households (32%) plan to save more in 2013. Younger Australians are the nation’s keenest savers with 39% of Gen Y (18-34) households aiming to build savings.
Why we’re saving
51% of households want to build a buffer of spare cash. Other reasons for saving more include:
- 21% can now afford to save more now
- 18% are able to save now because they have paid down debt
- 16% are worried about job security
- 10% say the global financial crisis (GFC) was a wake-up call
How we’ll save
Among households planning to save:
- 41% will follow a stricter budget
- 39% will cut discretionary spending
- 29% plan to save on a regular basis
- 15% will take fewer holidays away.
John Arnott, Executive Director Customer, ING DIRECT says, “Australians have focused on debt reduction for much of 2012 and while this remains a priority a growing number of households are now turning to savings.”
“A target of $15,200 is a lot of money but it represents 3 months of average income and to have that sort of buffer in cash savings is a good thing for peace of mind,” Mr Arnott says
Prior to the GFC Australians became complacent with debt and many used their homes as an ATM.
In fact banks encouraged this lending 90%, 95% and sometimes more than 100% of the value of your property, just to “sell”mortgages. I saw this as a worrying trend – we could have easily ended up in the same trouble as the US and some European countries.
The GFC changed all this and now we’re balancing our household budgets and stashing our cash.
Yet despite all the global economic worries over the last few years recently released ABS figures show that Australian household wealth climbed 18.4 per cent in the past year to $69,422 per person. This makes us the wealthiest we’ve been in 5 years.
Rather than spending Australians have been stashing their cash. Many have reduced their credit card debts, while others have been saving and yet others have taken advantage of low interest rates to pay off the principal in their home mortgage.
There has also been a strong wealth effect for households from rising stock prices on the ASX.
But I feel as the average Australian starts to feel comfortable again, especially with job security and in particular as they realise there is a lot to be positive about in 2013, their robust balance sheets will allow many Australians to ramp up borrowings and get into the property market this year.