Financial stress on the rise

Wangaratta Chronicle - North East Regional Extra - - NEWS -

RISING costs of ne­ces­si­ties, com­bined with weak in­come gains and the po­ten­tial for mort­gage rate rises are caus­ing financial stress among house­holds, ac­cord­ing to ME’s lat­est House­hold Financial Com­fort Re­port.

The re­port shows a grow­ing num­ber of house­holds ex­pect their financial com­fort to worsen.

ME Con­sult­ing econ­o­mist and Re­port coau­thor, Jeff Oughton, said “on the sur­face the financial com­fort of the av­er­age Aus­tralian looks good, but it’s frag­ile – sus­cep­ti­ble to hous­ing stress and en­ergy cost shocks.

“Over­all financial com­fort rose most no­tably due to 3 per cent rises in com­fort with sav­ings, in­come, and in­vest­ments, re­flect­ing some im­prove­ments in the labour mar­ket, rising house val­ues and in­vest­ments.

“But the cost of ne­ces­si­ties re­mains the big­gest con­cern for Aus­tralians and when com­bined with stag­nat­ing or fall­ing in­come for up to nearly 70 per cent of house­holds, ex­pected fur­ther rises in the cost of ne­ces­si­ties like power prices, as well as rises in mort­gage rates, the fu­ture doesn’t look as bright for some.”

The re­port shows three key ar­eas of con­cern for Aus­tralian house­holds:

1. Cost of ne­ces­si­ties is the top worry for Aus­tralian house­holds

Ac­cord­ing to the Re­port, the in­creas­ingly high cost of ne­ces­si­ties in­clud­ing en­ergy, fuel and even gro­ceries – is a ma­jor pain point among Aus­tralians.

The Re­port found about half of Aus­tralians have no spare cash at the end of each month (51 per cent typ­i­cally spend all their in­come or more), while in the past 12 months only 32 per cent of house­holds re­ported higher in­comes.

Of house­holds whose financial sit­u­a­tion wors­ened in the six months to June 2017, al­most 40 per cent claimed the cost of ne­ces­si­ties as the pri­mary rea­son.

2. Fore­cast in­ter­est rate rises caus­ing ma­jor concerns

With mort­gage in­ter­est rates up sig­nif­i­cantly over the past six months, ap­pre­hen­sion about fu­ture in­ter­est rate rises is adding to house­holds’ fu­ture pes­simism – es­pe­cially those with mort­gages.

A third (31%) of house­holds ex­pect to be worse off fi­nan­cially if the RBA raises the of­fi­cial cash rate by 1 per cent from its record low of 1.5 per cent, in­clud­ing half (47 per cent) of those with a mort­gage, while only seven per cent with high com­fort lev­els (typ­i­cally high in­come and/ or wealthy Aus­tralians) ex­pect to be worse off.

On av­er­age, mort­gaged house­holds are pay­ing over a third of their post-tax in­come on their re­pay­ments, in­clud­ing 15 per cent pay­ing more than a half and 48 per cent pay­ing more than 30 per cent of their post-tax in­come.

3. In­come woes and un­der­em­ploy­ment ex­ac­er­bat­ing the prob­lem

While there have been some re­cent im­prove­ments in the labour mar­ket, weak house­hold in­come and un­der­em­ploy­ment are hurt­ing the financial com­fort of most house­holds, particularly those earn­ing less than $100,000.

The pro­por­tion who felt they could ‘some­what or very eas­ily find a new job within two months if they be­came un­em­ployed’ in­creased from 37 per cent to 42 per cent cou­pled with a 6 point in­crease to 69 per cent of house­holds feel­ing se­cure with their job, likely con­trib­uted to a 3 per cent rise in com­fort with in­come in the six months to June 2017.

Yet while house­holds with an­nual in­comes over $200,000 recorded a ‘dou­ble digit’ rise in financial com­fort (up 10 per cent to 7.85), those earn­ing un­der $40,000 per an­num saw no change (static at 4.43).

“Six months ago, we saw a clear in­come di­vide emerg­ing be­tween the rich and poor and in this Re­port, this gap is ex­ac­er­bated fur­ther.

“The av­er­age Aus­tralian house­hold (those earn­ing $75,000-$100,000) is show­ing signs of sub­dued in­come growth, with 44 per cent see­ing no change in their in­come dur­ing the past financial year.”

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