Financial insecurity is the main reason more than one in five Australians are significantly vulnerable to economic shocks, according to the Australian Resilience Index released by Zurich Financial Services Australia.
The index was built with Mandala Partners, the RedBridge Group, and Accent Research. It draws on two million data points to score nearly 2,500 local areas, defined at the Australian Bureau of Statistics' Statistical Area Level 2, across financial, health, social, and environmental resilience.
Of the four, financial wellbeing had the strongest link to overall resilience, according to the Zurich media release launching the Australian Resilience Index.
The Australian Capital Territory ranked highest for financial resilience and Queensland lowest. On overall resilience, only 1% of ACT residents scored low or very low, against 37% in the Northern Territory. Half of the country's ten least resilient areas are in the NT, with the Tiwi Islands ranked last.
Cottesloe in Western Australia topped the national rankings, overall and on financial measures. Its average superannuation balances were seven times higher, and its dividend income was 16 times the national average. The Torres Strait Islands in Queensland scored weakest financially.
Financial strength rises sharply with age and is markedly stronger among men. Men aged 35–49 are the most resilient demographic: 81% earn above the median, compared with 60% of women the same age.
The index was released on the same day the Reserve Bank lifted the cash rate target by 25 basis points to 4.6%. The board's decision was unanimous, and it said it may raise rates further if needed to bring inflation back to target.
Borrowers were already stretched before the move. Roy Morgan's July mortgage stress research estimated 32.5% of mortgage holders were at risk of mortgage stress, an 18-year high.
Against that backdrop, Adam Triggs (pictured left), partner at Mandala Partners, said the index can answer questions such as: "Which communities will be impacted most by interest rate rises?"
Kos Samaras (pictured center), director of strategy and analytics at the RedBridge Group, said households without financial reserves absorb setbacks such as higher repayments far less easily.
"This index shows us where Australians have run out of buffer," he said.
For brokers, these are the same reserves clients weigh against borrowing capacity and the risk of a job loss or illness.
Zurich measured financial resilience through savings, insurance coverage, and superannuation balances. Insurance emerged as a major lever: communities where cover reached 50% or more were five times as likely to rate highly financially and four times as likely to rate highly on health.
"Insurance sits at the intersection of these four dimensions of resilience," said Justin Delaney (pictured right), chief executive officer of Zurich.
More on the index is available on the Zurich Australian Resilience Index results page.
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