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According to a recent household financial comfort report, the number of Australian households predicting debt difficulties has doubled.
Bank lender ME’s 10th biannual Household Financial Comfort Report found that of the 65 per cent of households with outstanding debt, 10 per cent expect that they won’t be able to meet minimum debt repayments in the next six to 12 months.
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According to ME, this is a twofold increase since December 2015 and the highest since the survey began in late 2011.
Further, the ME overall Household Financial Comfort Index dropped significantly by 4 per cent to 5.37 out of 10 in the six months to June 2016, bringing overall comfort to slightly below the Index’s average.
The survey revealed that during this period, more households ‘paying off or owning a home’ reported to be drawing on their home equity to ‘pay off a debt’ (up 4 percentage points to 11 per cent) and ‘to make ends meet’ (up 4 percentage points to 10 per cent).
The survey also showed that baby boomers’ financial comfort declined the most out of all the generations — their perceived comfort with ‘income’, ‘cash savings’ and ‘net wealth’ fell by 7 per cent, dropping to the lowest level of the past two years (5.42 out of 10).
Meanwhile, Gen Y’s comfort declined by 2 per cent to 5.46.
The financial comfort of Gen X remained steady at 5.18.
Jeff Oughton, ME’s consulting economist and report co-author, commented that there is a notable increase in the number of households feeling vulnerable to income shocks associated with wage cuts, fewer hours worked and a lack of suitable jobs.
“With a lack of cash savings or equity buffer in their home, there’s a marked increase in households expecting to be unable to service their debts, despite record low borrowing costs,” Mr Oughton said.
“The findings clearly indicate heightened concerns around the adequacy of income, the cost of necessities, lack of job availability and security as well as deterioration in expectations about meeting minimum debt payments and maintaining a standard of living in retirement,” he said.
[Related: Younger generations face major money hurdles]
