Borrowing stress rising a living costs climb

by Rebecca Pike06 Aug 2018

A new report has shown more Australians are being forced to dip into their savings to cover the rising cost of living expenses.

According to ME Bank’s latest Household Financial Comfort Report (HFCR) Australians are feeling strapped for cash with subdued and stagnant incomes.

Consulting economist for ME, Jeff Oughton, said more households are overspending to cover necessary living expenses and are drawing down on savings, with mortgage and rental stress remaining high.

For those with home loans, 45% of households reported to be contributing more than 30% of their disposable income towards mortgages during the past six months, a common indicator of financial stress. 

Oughton said, “The good news for renters is that financial stress has lessened somewhat during the past six months, thanks to the housing market cooling and rents falling.

“While 72% of renters were previously contributing more than 30% of their disposable income towards rent, this number dropped significantly to 67% in the most recent survey.”

 “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.”

The report showed that confidence and ability to raise money for an emergency had dropped three points below the average since the survey began, and fewer households reported they are saving.

The estimated amount that Australians are saving each month decreased by just over 10% during the first half of 2018.

Households who ‘typically spend all of their income and more’ increased three points to 11% during the six months to June.  

Oughton said, “Clearly, this is 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 are no more savings to draw from. Currently, around a quarter of Australian households have less than $1,000 in cash savings.

“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 of households reporting it as their ‘biggest financial worry’, up seven points to 53% in June 2018.

Similarly, 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. 

Consistent with ABS wage data, the latest HFCR data found nearly half of households (42%)  still had the same income as a year ago, while a quarter (24%) reported income cuts and 34% received a raise. ‘Comfort with income’ declined in the past year by 2% to 5.61.

Oughton said, “Similar to strengthening in the ABS jobs data, the report revealed increased confidence in people’s ability to find a job; however, high levels of job insecurity and underemployment remain. Around 23% of casual and part-time workers said they would prefer to undertake full-time work if they could.”

Of households with debt, there was an increase in the number expecting they ‘will not be able to meet their required minimum payments on their debt’ and ‘can just manage to make minimum payments on their debt’ in the next six to 12 months, 43% combined compared to 38% in December 2017. 

 

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