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Household financial comfort at a record high

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Household financial comfort is at a record high according to ME Bank’s seventh biannual Household Financial Comfort Report.

Improvements in job availability and job security, a partial reversal in concerns with the 2014 Federal Budget, and rising cash savings and investments have boosted Australian households’ overall level of financial comfort to a record high, as measured by ME Bank’s seventh biannual Household Financial Comfort Report.

Key points:

  •  ME Bank’s Household Financial Comfort Index rose 8% to 5.78 out of 10: its highest in the Index’s 3-year history
  • Improved job factors were key contributors: a net 22 point rise in job availability, a net 12 point rise in job security
  • Elevated concern with the negative impact of the 2014 Federal Budget fell 15 points to 52% of households
  • Continued asset appreciation saw comfort with investments rise 10% and expectations for retirement rise 12%
  • The proportion of households saving each month is relatively high at 47% of all households
  • Improved employment factors closed the gap in financial comfort between retirees and all other households

More details:

In the six months to December 2014 the Household Financial Comfort Index (which provides an overall measure of household financial comfort across 11 measures), rose 8% to 5.78 out of 10, its highest level as measured by the survey over its lifespan of three years.img-couple_house

Jeff Oughton, ME Bank consulting economist and Report co-author explained:

“Back in June 2014 overall household financial comfort had fallen 3% to 5.33 out of 10.

At that time, financial comfort had taken a negative hit from elevated concerns with the 2014 Federal Budget and its proposed tightening of government assistance, as well as from rising negativity around the job market, low wage growth and falls in savings.

Fast-forward to December 201
4 and the financial psychology of Australian households has changed dramatically for the better.”

Oughton said a big contributor to the overall rise was a 22 point net increase in job availability during the six months to December 2014, with those stating it would be easy getting a job within two months if unemployed rising from 36% to 48% and those reporting it would be difficult falling 10 points to 47%.

“This is the first time in the survey’s history that more people have reported it would be easy getting a job within two months if unemployed, than those reporting it would be difficult.”

A 12 point net increase in job security was also a contributor to the overall rise, with those persons feeling secure in employment rising 6 points to 72% during the six months to December and those insecure falling 6 points to 26%.Property Update

Oughton said the role played by improving employment factors has meant the rise in financial comfort is broad-based.

“Financial comfort rose across all households except, tellingly, retirees who self-evidently no longer work.

Financial comfort also rose across most regions, most age groups (except those over 65 for the reasons above) and all labour force segments (full-time, part-time etc.), as well as across all 11 individual components that constitute the Index.

This broad-based improvement in financial comfort for households engaged in the labour force has also helped close the gap that had appeared between older households and younger households, especially working GEN Ys.”

3 Key Factors:

Oughton pointed to three other key factors influencing the overall rise in household financial comfort.

1. Easing concerns over Federal Budget:budget

There was a lessening in concern with the impact of the 2014 Federal Budget with a 15 point fall in the number expecting the Budget will have a negative impact on their financial situation, from 67% to 52% in the six months to December 2014.

Concerns with the impact of the Budget remain higher among households dependent on government assistance – single parents, pensioners and the unemployed.

 2. Asset value appreciation:

Further growth in asset values has contributed to a further rise in confidence in investments and the ability to maintain lifestyle in retirement.

Housing markets and share markets to a lesser degree helped improve comfort around ‘investments’ – up 10% – and ‘ability to maintain lifestyle in retirement’ – up 12%.

piggy bank calculator saving team3. Slight improvement in savings:

In December 2014 there were 47% of households saving each month.

Also, households saving reported saving more each month (up 5% to $770 per month), while households overspending reported overspending less each month (down 4% to $480 per month).

Other findings include:

In terms of households:

house price increase

Retired Australians’ financial comfort remained steady in this latest survey but at levels higher than all other households at 6.46 out of 10 (including self-funded retirees at 7.18), largely due to continued comfort in ‘income’, ‘ability to cope with a financial emergency’ and ‘expected standard of living in retirement’.

‘Single parents working full or part-time’ benefited more than any other household from employment factors and easing Federal Budget concerns, recording a 27% rise in overall financial comfort to 6.07.

Single parents dependent on government assistance continued to have the lowest level of financial comfort despite rising 5% to 3.59.

In terms of regions:

Household financial comfort increased across all states and territories except for Tasmania (down 3% to 5.66). New South Wales (5.93) and Victoria (5.84) continue to report the highest financial comfort of any region, while the Australian Capital Territory (5.48) and South Australia (5.55) reported the lowest household financial comfort, with Western Australia (5.74) a bit below the average for Australia as a whole (5.78).

The overall difference in financial comfort between states shrank from 1.5 to 0.5.

In terms of the labour-force:

house moneyThere were increases in financial comfort across all segments engaged in work – especially ‘full-time self-employed persons’ (up 24% to 6.93).

On the other hand, despite a big rise in the past six months due to improvements in the labour market, by far the lowest financial comfort understandably remains unemployed people (up 33% to 4.71).

In terms of households’ biggest worries:

The cost of necessities is Australian household’s biggest financial worry, reported by 47% of households, followed by level of savings (34%), ability to maintain lifestyle in retirement (30%) and being able to make ends meet (29%).

 



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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