Australians still positive about their finances

In the last few months, there has been a lot of media attention on cooling real estate values and declining share prices, but a report by ME Bank has found that despite this, most Australians are, in fact, feeling quite good about their financial situation.

The digital bank, established in 1994 and supported by industry super funds, says that its 15th bi-annual Household Financial Comfort Report shows that income gains, easing living costs, increased savings and reduced overspending were the main drivers in this financial optimism. The report is based on a survey of 1,500 Australian households conducted in December 2018.

Consulting Economist for ME, Jeff Oughton says that cooling housing and share markets haven’t yet dented the financial outlook of most Australian households. “Many residential property owners remain positive: only 13 per cent of home owners and 11 per cent of investors expect the value of their properties to fall in 2019.”

It seems that the wealthier you are, the less comfortable you are. The overall financial comfort of those earning more than $200,000 a year fell sharply by 6 per cent to 6.79 out of 10, while those earning $75,000 to $100,000 a year reported their overall financial comfort had increased by 7 per cent to 5.87. For those earning less than $40,000 a year financial comfort was up 2 per cent to 4.52.

Data collated by property analytics company CoreLogic shows that residential property prices fell by 9 per cent in Sydney and 7 per cent in Melbourne, but did not change in regional Australia during 2018. The ME report says that this fall had no notable negative impact on households’ comfort, which was up about 3 per cent in Melbourne, more across Victoria, and down only 1 per cent in Sydney and New South Wales.

Queenslanders are the most comfortable – up a record 8 per cent to 5.68 out of 10. Across regional Australia, household comfort rose by 6 per cent to 5.43, the highest level in four years.

Less than half (47 per cent) of Australian households are paying more than 30 per cent of their income towards housing each month. This figure is a common indicator of financial stress and the improvement, down from 56 per cent six months ago, is said to be driven by improved rental conditions. For households with home loans, the figure was stable at 44 per cent. Almost half of households with a mortgage (49 per cent) pay above the minimum required by their mortgage.

The report states that a key driver in the general rise was shown to be the strengthening labour market and subsequently larger pay packets. “The proportion of households reporting income increases in the six months to December 2018 rose four points to 38 per cent, its highest level in three years,” the report says. “Changes to my income” was the most common reason given for an improved financial situation.

Australians are saving more and spending less and Mr Oughton suggests that this may be a consequence of sustained property falls and also reflects economic and political uncertainty.

The number of households saving regularly increased by three points to 51 per cent in the six months of the report – the equal highest level since the survey began. The estimated average saving each month increased by 7 per cent to $862. This flows through to greater financial resilience and confidence in being able to meet regular commitments and financial emergencies.