Australian households comfortable about their finances

According to ME’s 18th edition of its Household Financial Comfort Report, which provides insights into the financial situations of 1,500 Australians surveyed in June 2020, the flood of government stimulus combined with financial actions of households in response to the COVID-19 pandemic has pushed the nation’s household financial comfort to a near record high.

Contrary to expectations, financial comfort has jumped the most among typically struggling cohorts – such as casual workers, the unemployed, low-income households and single-parent households.

While these groups might be benefiting from greater government stimulus measures, the report highlighted that their comfort level remains much lower than the average household and higher-income earners.

ME Bank’s consulting economist, Jeff Oughton, attributed the high financial comfort to a combination of prudent financial actions by households in response to both the health and economic crisis and unprecedented government support.

“Fear of COVID-19 and a very weak labour market triggered many households to increase precautionary savings, reduce spending, draw on long-term savings such as superannuation, and delay bills or loan repayments,” he said.

The impact on mortgagors

Financial comfort among households paying off their mortgage has also increased, according to the report. 

The survey found that comfort levels of mortgagors rose by 3 per cent to 5.61 per cent. However, this sentiment may be bolstered by lenders offering loan repayment deferrals and increased loan refinancing at lower borrowing rates.

Overall financial comfort of households who own their home outright increased by 2 per cent to 6.59.

While quantitative indicators of mortgage stress (measured by those households paying mortgage payments of more than 30 per cent of their disposable income) increased by 1 percentage point to 42 per cent during the past six months, ME Bank noted that this remains “significantly lower by 4 points compared with when ME first began this survey series”.

Again, record-low interest rates and the deferral of loan repayments by some households have helped to contain mortgage stress, the report suggested, while most households also continue to meet at least minimum commitments and are well ahead of the minimum repayments required on home loans with significant net equity (or savings) in their homes.

“There remains much higher rent stress than mortgage stress among households,” the report noted.

“Across Australia, there are about one in four households paying rent to landlords, with rental payment stress – as measured by the proportion of renters paying more than 30 per cent of their disposable income towards accommodation − unchanged at 65 per cent during the six months to June – albeit still higher than a year ago (62 per cent) – despite a significant fall in rents across Australia as a whole.”

Dangling at the end of a cliff

Despite some Australians finding themselves in a more comfortable financial position, the report warned of a false sense of security due to the government assistance on offer at the moment.

Many households were already under pressure before COVID-19, particularly with low household income growth and cost of living concerns, and the report notes that only 32 per cent of households indicated in June that they could “maintain their lifestyle for more than three months if they lost their income”.

“Financial comfort levels are up for now, but many households are on the cliff’s edge,” Mr Oughton said.

“They’ve lost income, their jobs and entire livelihoods. Their wafer-thin savings buffer is dwindling, and government support is the main action stopping them from falling over.”

Not only are Australians finding it harder to make ends meet, many could not change their position if they wanted to, the research found.

A record number of workers reported that it would be “difficult to find a new job in two months if they become unemployed” − up 10 points to a new survey record of 59 per cent. Notably, almost 30 per cent indicated it would be “very difficult”.

Furthermore, the proportion of part-time or casual workers seeking more hours jumped to 39 per cent, compared with 27 per cent six months ago. On average, these workers would like an extra 18 hours per week, compared with 17 in December 2019.

“This survey shows that the financial consequences for households of this pandemic remain critical. Many eyes will be on what governments do in the final months of 2020 and into next year,” Mr Oughton noted.

Key winners and losers in ME’s Household Financial Comfort Report

Winners:

• Single parents – greatest increase in financial comfort across households (up 13 per cent to 5.04)
• Households with low comfort – record-high comfort (up 9 per cent to a still very low 3.49)
• Households with low savings (<$1,000) or low annual income (<$40,000) – comfort increased by 19 per cent to 4.19 and 18 per cent to 5.15, respectively
• Unemployed – comfort increased by 30 per cent to 5.17
• South Australian households – comfort hit a new high and sits above the largest states (up 13 per cent to 5.90)
• Baby Boomers, Gen Z and Gen Y – largest rises in comfort across generations.

Losers:

• Households with average ($75,000 to $100,000) and high (>$100,000) annual incomes – comfort decreased by 4 per cent and 2 per cent to 5.67 and 6.37, respectively
• Gen X – the lowest level of financial comfort of the generations, unchanged at 5.35
• Victorian households – comfort fell by 3 per cent to 5.64
• Part-time employed – comfort fell by 6 per cent to 5.56.

[Related: FHBs more likely to buy in the regions]