Financial stress on the rise
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.”