me bank household financial comfort report (july 2013)

8/22/2019 ME Bank Household Financial Comfort Report (July 2013)

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HOUSEHOLDFINANCIALCOMFORT REPORT.FOURTH SURVEY - JULY 2013.

THE FINANCIAL

PSYCHOLOGYOF AUSTRALIANHOUSEHOLDS.INSIGHTS FROMNATIONAL RESEARCH.


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3 Household Financial Comfort Report July 2013

ABOUT ME BANK:

ME Bank is 100 percent ownedby Australias leading industrysuper funds. It provides members

of eligible super funds, unionsand employer associationswith a genuinely fairer bankingalternative.

SPECIAL THANKS:

ME Bank would like to thankthree organisations involved inthe design and development of

the ME Bank Household FinancialComfort Report Baker Group,DBM Consultants and Economics& Beyond.

CONTACT US:

Matthew Read,Media and Communication ManagerME Bank

P (03) 9708 3334E [email protected] 28, 360 Elizabeth StreetMelbourne VIC 3000 Australia,mebank.com.au

ABOUTTHIS REPORT.

The ME Bank HouseholdFinancial Comfort Report providesin-depth and critical insightsinto the nancial situation ofAustralians based on a surveyof about 1,500 households.

This Report presents the key

ndings from the fourth surveyconducted in early June 2013,following previous surveys inOctober 2011, June 2012 andDecember 2012.

The Report includes but is notlimited to, the Household FinancialComfort Index, which measuresongoing changes to householdsperceptions of their own nancialcomfort, providing importantinsights into the changing nancial

and economic psychology ofAustralian households.

The Household Financial ComfortIndexspecically measures:

Overall household nancialcomfort by asking respondentsto estimate their nancialcomfort as well as theirexpectations and condence

across 11 measures, Other ndings about household

savings, investments, debt,living expenses, net wealth andstandard of living in retirement,and

Financial managementbehaviours and worries.

THE ROAD FROM HERE.

The Household Financial ComfortReport reects ME Banks missionto understand the nancialmindset of Australian householdsin order to deliver a fairerbanking alternative. Over time,

the Report will track changes incomfort and in doing so, highlightthe ongoing and potentiallyshifting differences betweenhousehold types, in terms ofnancial comfort and behavioursin managing nances.

The Household Financial ComfortReport will be a source of ongoinginformation to public policymakers, nancial institutionsand social welfare organisations

and will hopefully assist indecisions regarding taxation,superannuation, banking, nancialregulation, welfare reform,nancial education and otherrelated matters.


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CONTENTS.1. KEY FINDINGS 1

2. ECONOMIC CONTEXT 3

3. HOUSEHOLD FINANCIAL COMFORT INDEX 5

4. CHANGING COMFORT LEVELSWITH KEY FINANCIAL ASPECTS 1 1

5. SAVINGS BEHAVIOUR OFAUSTRALIAN HOUSEHOLDS 1 5

6. BALANCING THE COST OF NECESSITIESWITH OTHER WORRIES 21

7. EMPLOYMENT STATUSAND FINANCIAL COMFORT 23

8. APPENDIX A: HOUSEHOLD STATISTICS 25

9. APPENDIX B: METHODOLOGY 26


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DROPPING INTERESTRATES ON SAVINGS ANDTERM DEPOSITS MEANLOWER INCOME FROMTHESE PRODUCTS.RETIRED COUPLE, NEW SOUTH WALES

ONE:KEY FINDINGS.

In June 2013 Australianhouseholds reported mediumcomfort levels with their overallnancial situation (up 4% to5.5 out of 10) a signicantimprovement since the previoussurvey in December 2012,

and the highest level since theinaugural ME Bank HouseholdFinancial Comfort Report wasconducted in October 2011 -page 5.

Most household segmentsexperienced an improvementin nancial comfort duringthe past six months drivenby gains in all eleven drivers,with larger contributions to theuplift coming from investments,savings, ability to handle an

emergency, and standard ofliving in retirement. EmptyNesters felt the biggestimprovement up 12%during the past six months.The positive effects from astrong rise in share marketsand to a lesser extent theAustralian housing markethave helped to boost thevalue of direct investmentsand superannuation of mosthouseholds - page 7.

In stark contrast to others, thenancial comfort of Retirees(in particular, partly governmentfunded retirees) deterioratedby 5% during the past sixmonths. All drivers of Retireesnancial comfort deteriorated,

particularly investments,ability to handle a nancialemergency, and standard ofliving in retirement. This largelyreects the negative impactof lower deposit rates on theirinvestments given their relativelyhigh and defensive exposureto bank deposits rather thangrowth assets, such as sharesand investment properties.Unlike most other households,Retirees have experienced

little, if any benet from lowerborrowing rates given a lackof debt. Moreover, the vastmajority of their wealth issomewhat illiquid equity in theirowner-occupied home - page 7.

Across all households the topfour worries have remainedlargely unchanged over thepast six months: the cost ofnecessities was the greatestworry across all householdswith more than 50% of

households identifying it asa worry, followed by level ofsavings and cash on hand,ability to maintain lifestyle andstandard of living in retirement,and how the global economywill affect Australia. In contrast,households with high comfortlevels were increasingly worriedabout the impact of legislativechange on their nancialsituation up 10% to 31% ofhouseholds with high comfort.

The greatest positive amonghouseholds is their ability tomake ends meet, with 36%of households identifying thisas a positive - page 21.

Reecting improved overallnancial comfort, mosthouseholds are somewhatoptimistic about theirnancial situation over thenext year with only a fth ofhouseholds expecting theirnancial situation to worsen,

about 30% of householdsexpect their situation to staythe same, and almost halfof households expect animprovement in their situation.While for most household typesa (net) majority expect theirnancial situation to get better,almost 36% of retirees expecttheir situation to get worsecompared to only 22% whoexpect a better situation- page 5.


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Household Financial Comfort Report July 2013 2

WE WORKEDVERY HARD TOOVERPAY OURMORTGAGEPRIOR TOHAVINGCHILDREN.WE AREVERY HAPPYWITH THISDECISIONNOW.COUPLE WITH YOUNG CHILDREN,SOUTH AUSTRALIA.

In terms of state variation,household nancial comfortcontinued to improve in mostregions. Following signicantgains during consecutivehalf years, comfort in SouthAustralia is above comfort

across Australia as a whole,after experiencing the lowestcomfort levels in June 2012.Comfort levels remained thelowest in Tasmania and thehighest in the ACT andWestern Australia - page 8.

Households saving situationhas improved slightly, witha 4% fall in the proportion ofhouseholds struggling to saveeach month, from 53% inDecember 2012 to 49% in

June 2013. In dollar terms,for those families spendingmore than they earn, theaverage amount spenteach month above incomedecreased from a high of $701(almost $8500 per annum)in December 2012 to $395($4740 per annum) in June2013, mainly reecting lessoverspending by Coupleswith children - page 15.

There was signicantly lower

nancial comfort amongCasual workers, who had thelowest levels of comfort forpeople with jobs (unchangedat an index of 5.15 during thesix months to June 2013),compared to relatively highcomfort levels for people inFull-time paid employment(up 6% to an Index of 5.78) page 23.

Risk appetites have increasedover the past six months.Complete nancial risk-avoidance fell by 7% to 16%of households, matched in partby an increase in householdswilling to take average nancial

risks (up 3% to 44%) andhouseholds willing to takeabove average nancial risks(up 2% to 18%). Only 4% ofhouseholds remained willingto take substantial risks,with no households amongRetirees and Empty Nesterswilling to take substantial risk.Currently, only Young singles/couples with no childrenare net risk lovers with thosewilling to take substantial risk

outnumbering those unwillingto take any risk - page 20.

Despite an improvementin the savings situation ofhouseholds, rising nancialcomfort with cash savingsand investments and slightlyless risk aversion in the pastsix months, households withdiscretionary savings continuedto prefer to make larger loanrepayments (up 6% to 56%of households), rather than

invest in direct shares andbonds (unchanged at 22%)or make voluntary contributionsto superannuation (33%)- page 20.


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Household consumptionspending has kept broadly inline with slower income growthand there has been a continuedshift from spending ondiscretionary to essential items.As a result, household savingshave remained relatively high as measured by ofcial data,the household saving rate fromcurrent household disposableincome was estimated at about10% in the rst half of 2013,largely unchanged over thepast couple of years and wellabove the average of the pasttwo decades.

Consumer ination hasremained relatively low inunderlying terms at around2.5% per annum albeit withsome marked variations acrossitems over the past year including larger rises in health,education and housing utilitiesand falls in other items (such asdurables like electrical goods

and cars, and recreation andnancial services).

The housing sector hascontinued to improve gradually.Spending on new dwellinginvestment has risen modestly,housing sales have pickedup, auction clearance ratesare higher and house prices,across capital cities, onaverage, are up about 4% overthe past year since a troughin mid 2012.

TWO:ECONOMIC

CONTEXT.

Recent trends in the latest ofcialestimates and other private sectorreports have shown:

Consumer condence hasbeen relatively at in the pastfew months to remain aboutits long-run average level, afterrising in early 2013.

Labour market conditionscontinued to soften in the rsthalf of 2013 with subduedforward-looking indicators.The national unemploymentrate has risen to a 4-year

high of 5.7% in May 2013,compared with 5.4% inDecember 2012. Thebroader measure of labourunder-utilisation rate (bothunemployed and under-employed) or the unusedlabour supply was 12.9%in May (or 30% higher thanthe unemployment rate) andcompared with an averageunder-utilisation rate of about12% in the second half of

2012. Average hours workeddeclined to a 2-year low in May2013. There has also been asignicant fall in employmentrelative to both the workforceand the population, partly dueto discouraged workers.

Household labour income gainshave slowed reecting slowgrowth in full-time employment,a continued lift in part-time jobgains and subdued averagewages growth.

Overall Australian households have continued a more prudent approach to nances during the rst half of2013. On a positive note, there has been a strong boost to net wealth from higher equity prices and moderatehouse price rises as well as easing debt burdens from falling borrowing rates. In contrast, real income gains(after rising consumer prices) have remained modest, gearing is still relatively high, and the labour market hasweakened further.

Growth in household debt hasremained subdued overall.The amount of housing creditcontinued to grow at an annualrate of about 4.5% in therst half of 2013. There hasbeen some pickup in housingapprovals for owner-occupiersand investors, while demandfor rst-home buyers nancehas remained subdued, despiteimproved affordability. Bothcredit card and other personalloans have declined a bitfurther especially to fundinvestments in listed equitiesand managed funds.

Household assets, on average,have increased signicantlyfurther. Notwithstanding somecontinued volatility in both equityand bond markets, this mainlyreected a further signicant risein local and global share pricesduring the rst half of 2013,and to a much lesser extent, anincrease in residential property

prices in most capital cities.Long term retirement savingsin superannuation have alsorecorded a signicant rise largelydue a pickup in asset returnsand continued compulsorycontributions, rather thanextra voluntary savings.


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MY BIGGEST CONCERN IS I DID NOT

KNOW ENOUGH ABOUT SAVINGSOR SUPERANNUATION WHEN I WASYOUNG. NOW AT 51 I WILL FIND IT VERYHARD TO SAVE ENOUGH MONEY TOLIVE OFF IN RETIREMENT OR EVENTO BUY MY FIRST HOUSE.

SINGLE MALE, NSW.

Despite rising asset marketsand signicantly lower short tomedium term borrowing anddeposit rates to well belowaverage levels, households haveremained relatively conservativein their investment preferences

arguably reecting stillhistorically high gearing (debt toassets). Households with debthave continued to make largerthan minimum loan repayments,and build cash savings in bankdeposits, rather than directinvestments such as equities,bonds and other managedfunds investments.

As a result, overall householdnet wealth (assets less debt)increased strongly in both

the rst half of 2013 and the2012/13 nancial year as awhole, following a signicantfall during 2011/12.

Financial stress indicatorscontinue to show thathouseholds as a whole arecoping reasonably well withdebt servicing burdens dueto continued employment,disposable income gains

and relatively low borrowingcosts. This of course masksa great deal of variationamong Australians. There is asmall majority of Australians(older and higher incomes inowner-occupied housing) wellahead of scheduled mortgagerepayments and little if anycredit card debt. However, thereis a signicant share of highlygeared households with highdebt servicing costs. There

are also some regions withsignicant stress reecting largedwelling price falls and relativelyhigh unemployment rates.


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THREE:HOUSEHOLD FINANCIAL

COMFORT INDEX.

Australian households have amoderate but increasing levelof comfort with their overallnancial situation. Australiansoverall were feeling signicantlymore comfortable in June 2013,compared to the previous

survey in December 2012. Thisis the highest level of comfortexperienced by Australianhouseholds since the Indexwas established in October 2011.

As measured by the HouseholdFinancial Comfort Index,household nancial comfortwas 5.50 (out of 10) in June 2013- a signicant increase of 4%compared with the correspondinggure of 5.29 in December 2012

(Fig 1). These nancial comfortscores are consistent withthose reported when Australianhouseholds feel occasionalstress or worry, rather thanwhen nancial problems requiresignicant lifestyle change.

Jun-12 Dec-12 Jun-13Oct-11

5.205.29 5.505.39

4%

0

2

4

6

8

10

Highcomfort

Mediumcomfort

Lowcomfort

4%

2%

Figure 1: Financial comfort levels of Australian households over time.

HOUSEHOLD FINANCIAL COMFORT INDEX.

Looking forward to the nextyear, Australian households as awhole are largely optimistic. Manyanticipate an improvement in theirnancial situation during the nextyear, with:

48% stating they anticipate

their household nancialsituation will improve;

31% indicated an expectationthat their situation would staythe same and

22% predicted that it wouldworsen.

Retirees were the only householdgroup with more people whoexpected their future nancialsituation to get worse ratherthan better.


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VARIATION ACROSS HOUSEHOLD SEGMENTS

Variation in nancial comfort exists across household segments with Empty Nesters showing the highest level

of household nancial comfort (mean score of 5.96). Comfort levels for this segment have increased signicantly(+12%) since the previous report in December 2012 and this is the rst time a household segment other thanRetirees has had the highest level of Household Financial Comfort. Conversely, the comfort level of Retireeshas dropped by 5% from 6.08 to 5.70 over the past six months. Single parents remained the household typewith the lowest nancial comfort (mean score of 4.89; Fig 2).

HOW IS THE INDEXCALCULATED?

The Household Financial Comfort Indexquanties how comfortable Australians feel about their householdnancial situation as well as their expectations and condence with respect to their nances. Respondentsrate their household nancial comfort, expectations, and condence on a scale from 0 to 10 for elevenmeasures and the Index is derived from their responses. The eleven measures are:

Comfort level with the overall nancial situation of the household (1)

Changes in household nancial situation over the past year (2) and anticipated in the next year (3) Condence in the households ability to handle a nancial emergency (4), and

Comfort levels with (5) household income, (6) living expenses, (7) short-term cash savings and (8)long-term investments (including superannuation), (9) debt, (10) overall net wealth, and (11) thehouseholds anticipated standard of living in retirement.

VERY COMFORTABLE WITH MYCURRENT FINANCIAL SITUATIONAS I OWN MY OWN HOME ANDHAVE A NEW CAR.

EMPTY NESTER, QUEENSLAND.


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HOUSEHOLD FINANCIAL COMFORT INDEX BY HOUSEHOLD TYPE.

Figure 2: Household Financial Comfort Indexby Household Type.

HOUSEHOLDTYPE

Singleparents

Coupleswith

youngchildren

Coupleswith olderchildren

Youngsingles /couples(


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NOT HAVING ENOUGHMONEY FOR ALL THE THINGSWE NEED, PARTICULARLYFOR MY SON SUCH AS

ORTHODONTICS, MEDICAL. SINGLE PARENT, NSW.

VARIATION ACROSS STATESAND TERRITORIES

During the six months to June2013, the Household FinancialIndex remained relatively stablein most regions with trends towardimproved comfort with householdnances especially in SouthAustralia (Fig 3).

Continuing a trend noted inprevious reports, Western Australiaand the Australian Capital Territoryhave recorded the highest levels ofcomfort in June 2013. Conversely,Tasmania and the NorthernTerritory recorded the lowestlevels of comfort (although resultsfor the less populous States andTerritories should be treated with

caution due to smaller samples).Tasmanian households had thelowest comfort levels nationallyand the lowest comfort withrespect to nearly all individualcomponents of the Index.Tasmanians were also mostlikely to report that they had feltsignicant worry about job loss ora circumstance that might impacttheir income (40% compared withthe national result of 22%) andshowed the highest negativityregarding their prospects if theyhad to nd another job (80% saidit would be somewhat to verydifcult to nd a job within twomonths of becoming unemployedcompared with the national resultof 53%).

The nancial comfort of Singleparent households increasedby 8% (from an index of 4.52 inDecember 2012 to 4.89 in June2013). This was largely driven bysignicant increases in comfortwith their investments (increased

23%) and positivity about theirnancial situation in the next year(13% increase in those sayingthat they anticipate a much betternancial situation in the nextyear). That said, Single parentshouseholds were nearly threetimes more likely to say thatthey had worried about job lossor an event that might threatenthe security of their householdsincome (31% reported worryingmore than a moderate amount in

June 2013 compared with 12%in December 2012).

Slight increases were alsorecorded among all otherhousehold segments Youngsingles/couples no children (Indexof 5.51 in December 2012 and5.83 in June 2013), Middle-agedsingles/couples no children (Indexof 5.26 in December 2012 and5.55 in June 2013) and Coupleswith young children (Index of 5.15in December 2012 and 5.34 in

June 2013).

Couples with older childrenshowed broadly unchanged Indexresults (an increase of less than 1%with an Index of 5.50 in December2012 and 5.54 in June 2013).

The positive effects from a strongrise in share markets and to

a lesser extent the Australianhousing market over the pastsix months have boosted thevalue of direct investmentsand superannuation of mosthouseholds. Lower borrowingcosts have also increased mosthouseholds comfort with theirdebt burdens and boostedtheir cash savings. It has alsoimproved their expectations fornancial comfort during the nextyear and in the longer term their

standard of living in retirement.


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HOUSEHOLD FINANCIAL COMFORT INDEX BY STATE AND TERRITORY.

Figure 3: The Household Financial Comfort Indexby State and Territory compared to the overallhousehold comfort score of 5.50 in June 2013.

STATE OR TERRITORY COMFORT SCORE (OUTOF 10) AS OF JUNE 2013PERCENTAGE CHANGESINCE DECEMBER 2012

NEW SOUTH WALES 5.59 +4%

QUEENSLAND 5.29 +4%

VICTORIA 5.40 +1%

SOUTH AUSTRALIA 5.70 +11%

TASMANIA* 5.01 +5%

WESTERN AUSTRALIA 5.84 +6%

NORTHERN TERRITORY* 5.07 +1%

AUSTRALIAN CAPITALTERRITORY* 6.13 +8%

OVERALL 5.50 +4%

Of the mainland states, comfortin South Australia continued torebound from the lowest levelacross Australia in June 2012to be signicantly above theAustralian average in June 2013following rises of 11% to an index

of 5.70 in the six months to June2013 after an increase of 6%during the previous 6 months.All components of the comfortindex have risen signicantly forhouseholds in South Australiaduring the past year. Similarly, bothQueensland and New South Walesreported improvements (both up+4%) in their comfort indexesto 5.29 and 5.59 respectively,while comfort also increased inWestern Australia (up 6% to an

index of 5.84). Most key driverstended to have small increasesin these three states during thesix months to June 2013 forexample, Queenslanders andhouseholds in New South Walesreported relatively larger rises incomfort levels with respect to theirinvestments while householdsin Western Australia reportedrelatively larger increases incomfort with managing their day-to-day living expenses and their

savings.Over the rst half of 2013, theME Bank Financial Comfort Indexfor Victoria was largely unchangedat an index of 5.40, but still a bitbelow comfort across Australia asa whole, although this did end atrend of decreasing comfort levelsamong Victorian households.


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I WORRY ABOUT NOT HAVINGENOUGH MONEY TO SEND MYCHILD TO COLLEGE, BUT WELIVE SIMPLY SO WILL MAKEA CONSCIOUS EFFORT TO

START SAVING HARDER.SINGLE PARENT, VICTORIA


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Wealth Householdincome

Monthlyexpenses

Cash savings Investments Debt from allsources

Anticipatedstandard of

living inretirement

Veryuncomfortable

Somewhatuncomfortable

Neither Somewhatcomfortable

Verycomfortable

MeanJun 13

28%

5.745.72

4.984.82

6.03

5.08

28%

7%

4%

3%

22%

35%

6%

8%

0%

3%

5%

0%

7%

22%

24%

4%

7%

23%

9%

22%

20%

7%

22%

35%

22%

5%

6%

2%

2%

26%

6%

8%

9%

37%

6.50

Figure 4: Seven of the 11 individual measures that make up the Household Financial Comfort Index, including distribution of comfort levelsand the average comfort score for each measure.

COMFORT LEVELS ACROSS KEY ASPECTS OF HOUSEHOLD FINANCES.

FOUR:CHANGING COMFORT LEVELS

WITH KEY FINANCIAL ASPECTS.

Australian households felt the most comfortable with monthly expenses and debt from all sources,and although signicant increases were observed in comfort levels with cash savings and investmentsin June 2013, these remained the two areas households felt least comfortable with.

If we focus on the seven of the 11 components of the Household Financial Comfort Indexmost relevantto the household balance sheet (Fig 4), comfort levels were highest in June 2013 with respect to:

Managing and paying monthly expenses (68% of Australian households were somewhat or very

comfortable). Comments from respondents suggested that there was greater concern about how risingprices, especially for necessities such as utilities, would inuence their ability to save or have money leftover for discretionary spending, rather than their ability to manage their expenses per se, and

Their current level of debt from all sources (57% of Australian households were somewhat or verycomfortable, in contrast to 12% of households that were very uncomfortable with debt burdens). Critically,the ndings also showed that debts were thought to be manageable when savings buffers were not eroded,but almost 30% of Australians were just managing to make minimum loan repayments and a further 6% ofhouseholds were falling behind on loan repayments.


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MEASURE Wealth (net) HouseholdIncome

Monthlyexpenses

Cash Savings Investments Debt fromall sources

Anticipatedstandardof living inretirement

COMFORTSCOREJUNE 2013 5.74 5.72 6.50 4.98 4.82 6.03 5.08

CHANGESINCEDECEMBER2012

+4% +3% +4% +3% +6% +2% +5%

COMFORT LEVELS ACROSS KEY ASPECTS OF HOUSEHOLD FINANCES.

Comfort levels remained lowest in June 2013 for:

Current cash savings (overall, 23% of respondents were very uncomfortable with their households levelof cash savings), and

Current level of investments (including investment property, superannuation, shares, bonds and managedfunds) 22% of respondents reported being very uncomfortable.

Comfort with most aspects of household nances mentioned in Figure 4 above had increased during the six

months to June 2013, with comfort across all households:

Improving signicantly with respect to managing monthly expenses (+4%), net wealth (+4%), anticipatedstandard of living in retirement (+5%) and current level of investments (+6%), and to a statistically less extent

Household income (+3%), cash savings (+3%) and amount of debt from all sources (+2%). See Fig 5 below.

OUR FAMILY SPENDS A LOT ONRUNNING THE HOUSEHOLD. WECURRENTLY HAVE 4 TO 5 ADULTS AND2 TEENAGERS IN THE HOUSE. FOODBILL IS MASSIVE AND POWER ANDWATER EXPENSES ARE INCREASING.COUPLE WITH OLDER CHILDREN, WESTERN AUSTRALIA

Figure 5: Percentage change during the six months to June 2013 in household comfort levels for seven of the eleven individual measures that makeup the overall comfort index.


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Despite the percentage increasesin overall household comfortwith investments, anticipatedstandard of living in retirementand to a lesser extent cashsavings, these aspects of thehousehold nancial position

remained among the areas withwhich Australian households hadthe lowest levels of comfort.

An examination of these aspectsof household comfort (Fig. 6)indicated that:

The increase in comfortwith investments was drivenby Single parent (+23%)and Empty nester (+15%)households. Conversely,Retiree households (-6%),

declined with respect tocomfort with the current levelof investments. As a resultSingle parents have the leastcomfort with their investments,while Empty Nesters havethe highest comfort withinvestments, followed byMiddle aged households withno children and Retirees both with the same level ofcomfort with investments.

Empty nesters and Retirees

also showed divergent attitudeswith respect to changes intheir anticipated standard ofliving in retirement Emptynesters reported a signicantlyhigher anticipated standardof living in retirement (+15%),while a decrease was noted forRetirees (-8%), albeit self-funded retirees still anticipateda relatively high standard ofliving in retirement.

An increase in comfort withcash savings was notedamong Empty nesters (+21%)and Single parents (+17%),while savings comfort forRetirees fell (-5%). Similarly toinvestments, Single parents

continued to have the mostdiscomfort with cash savingsand Empty nesters reportedthe highest comfort with cashsavings well above Retirees.

The positive effects from a strongrise in share markets and toa lesser extent the Australianhousing market have helpedto boost the value of directinvestments and superannuationof most households (exceptRetirees during the past six

months). Retirees - especiallythose partly funded bygovernments - with their relativelyhigh and defensive exposureto bank deposits rather thangrowth assets such as shares,have been negatively impactedby lower cash and term depositrates. Furthermore, unlike mostother households, Retirees haveexperienced little, if any benetfrom lower borrowing rates givena lack of debt.

SUPERGOINGOKAY AND

GROWINGNICELY.EMPTY NESTER,

VICTORIA.


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I CARRY NO DEBT WHATSOEVER.

I OWN A CREDIT CARD, BUT USEIT RARELY AND ALWAYS PAYTHE DUE AMOUNT IN FULL. ANYEXTRA MONEY I HAVE IS USEDTO INVEST FOR THE FUTURE.SINGLE MALE, VICTORIA

PERCENTAGE CHANGE IN HOUSEHOLD COMFORT WITH INVESTMENTS, SAVINGS AND ANTICIPATEDSTANDARD OF LIVNG IN RETIREMENT.

HOUSEHOLDTYPE

Singleparents

Coupleswith youngchildren

Coupleswith olderchildren

Youngsingles/couples(


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FIVE:SAVINGS BEHAVIOUR

OF AUSTRALIAN HOUSEHOLDS.

Previous Household Financial Comfort Reports found that a majority of Australian households werestruggling to save in a typical month however, this trend reversed slightly during the six months to June2013, with 49% of households struggling to save each month, compared with 53% in December 2012.

Despite a signicant decrease in risk avoidance in the latest survey, discretionary savings have been used tomake larger than minimum loan repayments and to save for medium to long term goals (such as a car, home,holiday), rather than invest in nancial assets (such as share, bonds) or to make voluntary contributions tosuperannuation.

SAVING FOR A RAINY DAY: HAVING A SAVINGS BUFFER INCREASES FINANCIAL SECURITYAND 51% OF HOUSEHOLDS ARE ABLE TO SAVE IN A TYPICAL MONTH.

0%

SPEND MOE THAN THEYEAN EACH MONTH.

SPEND ALL OFTHEI INCOME.

SPEND LESS THAN THEYEAN EACH MONTH.

5%

39%

People who spend more than theyearn must come up with an extra$395 per month ($4740 per annum).

People who spend less than theyearn are able to save an average$870 per month ($10440 per annum)

SAVING FOA AINY DAY.

Figure 7: Percentage of households who are spending more or less than their income in a typical month.


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Across all Australian households:

49% of households are not saving of which 39% of households were breaking even each month (that is,spending all of their income and no more), and the remaining 10% were overspending (that is, spendingmore than they earned by drawing on savings, loans, credit cards or equity in their home).

By household segments:

Spending more than they earned in a typical month remained most common among Single parents

(14%) and Couples with young children (13%), while overspending is least common by both Young andMid-aged singles and couples with no children (5%). Cash left over at the end of the month was mostcommon among households comprised of Young singles/Couple no children (66%), and Empty nesters(60%), while savings tends to be less common among Single parents (33%) (see Fig 8).

CASH FLOW IS TIGHT

DUE TO HAVING 2 KIDSAND GOING FROM 2FULL TIME WAGESTO 1 AND A PART TIMEWAGE. ALL BILLSARE PAID 100% ON

TIME, BUT SAVINGFOR LANDSCAPING,HOLIDAYS ETC ISTOUGH.COUPLE WITH YOUNG CHILDREN,SOUTH AUSTRALIA.


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While the percentage of households spending more than they earned each month remained relativelyconsistent with previous surveys (at about 10% of households), there has been a marked fall in the dollaramount of overspending in a typical month especially among Couples with children. Over the past sixmonths, the average amount spent each month above income decreased from a high of $701 (almost$8500 per annum) in December 2012 to $395 ($4740 per annum) in June 2013 (Figure 9). Over the past sixmonths, overspending in a typical month for Couples with young children and Couples with older childrenhas fallen markedly from about $900 to about $300 and $500, respectively.

51% of survey respondents spent less than they earned each month (ie savers) with an average of $870per month saved (or approximately $10440 per annum). This was similar to the results noted in the previoussurveys for the Household Financial Comfort Index. Among those saving over the past six months, lessspending by Couples with children was partly offset by increased spending by Young singles/couples,Single parents and Empty nesters.

TYPICAL MONTHLY SAVINGS FOR DIFFERENT HOUSEHOLD TYPES.

Youngsingles/couples

(


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A savings buffer is critical if households are faced with a nancial emergency. It is those households that havelow comfort with regards to savings and typically overspend each month that also report they would not beable to raise $3,000 in an emergency and many would not be able to maintain their lifestyle for long if they losttheir income (Fig 10).

For example:

29% of Single parents would not be able to raise $3,000 for an emergency and this segment was morelikely than other household types to say that they would only be able to maintain their lifestyle for lessthan a month if they lost their job (29%). Couples with young children were in a slightly better situationcompared to Single parent households, yet 17% reported only being able to maintain their lifestyle for lessthan a fortnight if they lost their job and 21% could not raise $3,000 emergency cash.

Empty nesters (50+yo) and Retirees reported the highest likelihood of being able to maintain their lifestylefor six months or more (31% and 29%, respectively). Empty nesters also reported among the highest

comfort levels with their cash savings, yet a relatively high percentage (17%) could not raise $3,000 in anemergency perhaps reective of a focus on saving for retirement without easy access to cash.

AMOUNT SAVED OR OVERSPENT BY AUSTALIAN HOUSEHOLDS IN A TYPICAL MONTH SINCE OCTOBER 2011.

Jun-12 Dec-12 Jun-13Oct-11

$54

$850

$70

$847

$395

$870

$665

$885

0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1000

Average cash left over in a typical month Average overspent in a typical month

Figure 9: Average cash left over by Australian households that are able to save in a typical month and average cash overspent for householdsthat are unable to save. Results are shown for the four waves of the Household Financial Comfort survey.


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ABILITY TO MAINTIAN LIFESTYLE OR RAISE EMERGENCY CASH.

If lost their incomewould be able tomaintain lifestyle for

SINGLEPARENTS

COUPLES WITHOLDER CHILDREN

MIDDLE-AGED SINGLES /COUPLES NO CHILDREN

COUPLES WITHYOUNG CHILDREN

YOUNG SINGLES / COUPLES(


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DISCRETIONARY SAVINGSAND FINANCIAL RISKA signicant decrease in nancialrisk avoidance was observedin this latest survey. Over thesix months to June, thosehouseholds willing to take no

nancial risk (ie risk avoiders)fell by 7% to 16% whilehouseholds willing to takeaverage nancial risks increased3% to 44% and above averagenancial risks increased 2% to18%. Households willing to takesubstantial risks (ie risk lovers)remained largely unchanged ina minority of 4% of households.This decrease in risk avoidancewas observed in all types ofhouseholds, except for Retirees.

Despite this decrease in riskavoidance, risk avoiders continueto exceed risk lovers by 12% ofhouseholds overall. In terms oftypes of households, 25% of bothRetirees and Empty nesterswere unwilling to take any risk andvirtually no Retirees or Emptynesters were willing to takesubstantial risk. Young singles/couples with no children were theonly households with slightly more

risk lovers (11% of households)than risk avoiders (9%).

Reecting the overall lack of riskappetite, the purchase of nancialassets (such as shares and bonds)remains the least likely form ofnancial savings/investments by

households during the past sixmonths. The most popular usesof discretionary savings remainedthe medium to long term goals ofsaving for a car, holiday, home,and, to a lesser extent, makinglarger than minimum bank loanrepayments. Indeed, there was asubstantial increase in householdpreferences towards savings byboth making larger than minimumloan repayments and savingsfor a holiday and car with both

up by 6% to 56% and 72% ofhouseholds respectively, over thepast six months.

All households, except forMiddle aged singles/coupleswith no children and Retireeshave increased discretionarysavings preferences for a holiday,car, home, while all types ofhouseholds have signicantlyincreased making larger loanrepayments older households

without children (both Middleaged and Empty nesters) havecontributed the most to increasedbank loan repayments.

MY INCOME

IS CURRENTLYENOUGH TOPAY OURBILLS ANDHAVEENOUGHLEFT OVERTO SAVE FORHOLIDAYS.

MIDDLE-AGED COUPLE,NEW SOUTH WALES.

..WE AREEXCEEDINGOURCURRENTSAVINGSGOALS.COUPLE WITH YOUNGERCHILDREN, VICTORIA.


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SIX:BALANCING THE COST OF

NECESSITIES WITH OTHER WORRIES.

Greatest areas of householdworry remain the rising cost ofnecessities, especially amonghouseholds with low nancialcomfort.

Despite improvements inhow comfortable Australian

households feel about theirability to manage their monthlyexpenses, when asked whattheir greatest worry is overall,the cost of necessities includingfuel, utilities and groceries isthe top worry, with 52% ofhouseholds listing this as a mainconcern and this being the mostcommonly listed concern acrossall household types. AmongAustralian households, the levelof savings or cash on hand (40%)

and the ability to maintain theirlifestyle in retirement (32%) werealso frequently listed as top areasof concern (Fig. 11).

TOP FOUR FINANCIAL WORRIES AMONG AUSTRALIAN HOUSEHOLDS.

HOUSEHOLDSOVERALL

(INDEX =5.50)

52%Cost of necessities(e.g. fuel, utilities,groceries)

40%Level of savings/cash on hand

32%

Ability to maintainlifestyle in retirement/standard of living inretirement

31%How the globaleconomy will affectAustralia

LOW FINANCIALCOMFORTHOUSEHOLDS.(INDEX 0-4)


59%Level of savings/cash on hand

54%

Ability to makeends meet

40%Level of personal/household debt(e.g. credit card bills,money owed onpersonal loans)

HIGH FINANCIALCOMFORTHOUSEHOLDS(INDEX >8)

37%How the globaleconomy willaffect Australia


31%

Impact of legislativechange on nancialsituation

22%Ability to maintainlifestyle in retirement/standard of living inretirement

Figure 11: The top four nancial worries of Australian households comparing low and high nancialcomfort households. Shows the percentage of households who rated the items as a worry.


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WE BOTH WORK BUTSTILL ARE UNABLE TOSAVE DUE TO THECONSTANT INCREASES INUTILITY BILLS, HEALTHCOVER, GROCERIES ETC.COUPLE WITH PRESCHOOL CHILDREN,WESTERN AUSTRALIA.

Across household types,those with low nancial comforttended to be those with a lackof savings buffer, lower incomes,higher non-mortgage debt andlower property values thesehouseholds tended to worryabout balancing rising costs, debtand cash savings. Householdswith high nancial comfort tendto be those with high investmentsespecially in superannuation andproperty and higher net wealth,and the greatest concerns ofthese households were relatedto how the global economywould impact Australia, the costof necessities, and the impactof legislative change on theirnancial situation and to a lesserextent the anticipated standard ofliving in retirement (Fig. 11).

However, across all householdsthe top four worries haveremained largely unchangedsince the previous survey,except for households with highcomfort levels. The latter wereincreasingly worried about theimpact of legislative change ontheir nancial situation up 10%to 31% of households with highcomfort.

In contrast to householdconcerns, the greatest positiveamong households was theirability to make ends meet, with36% of households identifyingthis as a positive. A quarter ofhouseholds reported that the levelof debt and job security were alsoamong their greatest positivesabout household nances.

WORRY ABOUTGOVERNMENT

CHANGES TO TAX LAWS,SUPERANNUATION,ETC. ALMOST TIMEFOR BOTH OF US TORETIRE AND WE DONTWANT TO BE PENALISED

FOR WORKING HARDAND SAVING FOR OURRETIREMENT!RETIRED, NEW SOUTH WALES.


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SEVEN:EMPLOYMENT STATUS

AND FINANCIAL COMFORT.

There is also a great deal of variation in nancial comfort reported by different parts of the labour force,with signicantly lower nancial comfort among Casuals and the Unemployed.

According to the Index, Casuals had the lowest levels of comfort for people with jobs (unchanged at an indexof 5.15 during the six months to June 2013), while relatively high comfort levels were reported by people inFull-time paid employment (up 6% to an Index of 5.78). Conversely, there was a signicant increase of 21%in the nancial comfort of the Unemployed (index of 4.95 in June 2013 compared with 4.08 in December 2012;Fig 12), although Unemployed continued to record the lowest level of comfort of any part of the labour force.

HOUSEHOLD FINANCIAL COMFORT INDEX BY WORKFORCE STATUS.

Figure 12: Household Financial Comfort Indexacross the workforce, showing variation in comfort scores across parts of the labour forcecompared to the overall comfort score of 5.50 in June 2013.

WORKFORCESTATUS

Full-time paidemployment

Part-time paidemployment

Self-employed Casual Unemployed Overall

COMFORTSCORE AS ATJUNE 2013 5.78 5.42 5.48 5.15 4.95 5.50

CHANGESINGEDECEMBER

2012

+6% +1% -3% THE SAME +21% +4%

MEETING PAYMENTS AND

PAYING BILLS AS I ONLY HAVEA CASUAL JOB. I GET A LOT OFHOURS WITH MY JOB OVER THESUMMER MONTHS BUT HARDLYANY IN THE WINTER MONTHS.MIDDLE AGED FEMALE, VICTORIA.


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IM ONLY A CASUAL

WORKER SO I ONLY GETA FEW SHIFTS A WEEKMEANING I DONT EARNVERY MUCH. ITS HARDTO SAVE WHEN YOUDONT EARN MUCH AND

YOU HAVE THINGS LIKETHE PRICE OF PETROLCONSTANTLY RISING.CASUAL WORKER, QUEENSLAND.

The ability of households to savewas also affected by employmentstatus. Although there was animprovement in the latest Survey,Casual workers remained themost likely to spend all theirincome on household expenses

with nothing left over in a typicalmonth (down 12% to 40% inJune 2013). Fewer Casualworkers also overspent abovetheir income in a typical month(down 5% to 6% in June 2013),while Casual workers beingable to save money after payingexpenditures in a typical monthrose signicantly (up 15% to 53%in June 2013).

In terms of workforce status(employed persons):

Nearly one-half (47%) ofCasual workers felt somewhatto very insecure in their jobswith 19% feeling very insecurein their jobs (compared with16% in December 2013). Thiscontrasts with only 5% ofFull time workers feeling veryinsecure about their job.

Slightly more Casual workersreported that they would lastless than a month if they lost

their job (25% for Full timeworkers and 30% for Casualworkers). Among Part timeemployees, 31% reportedlasting less than a month if theylost their job.

Casual workers were mostlikely to report that they wouldbe unable to raise $3,000 in anemergency (27% comparedwith 14% of Full timeemployees).


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EIGHT:APPENDIX A:

HOUSEHOLD STATISTICS.

HOUSEHOLD TYPE STATISTICS.

HOUSEHOLDFINANCIALCOMFORT INDEX

AVERAGE NETWEALTH

AVERAGEHOUSEHOLDYEARLY INCOME

Young singles/couples (


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NINE:APPENDIX B:

METHODOLOGY.

ME Bank commissioned DBMConsultants to develop theHousehold Financial Comfort

Indexwith Economics & Beyondand Baker Group. The researchincludes an online survey ofapproximately 1,500 Australians

aged 18 years and older who donot work in the market research orpublic relations industries. Wavesof research have been conductedin October 2011, June 2012, mid-December 2012 and June 2013.

For analysis, the populationsample was weighted accordingto ABS statistics on householdcomposition, age, state andemployment status to ensure thatthe results reected Australianhouseholds.

An extensive review of othernancial health /comfort indicesand the academic literaturesuggested that a numberof factors contribute to selfassessment of nancial wellbeingand comfort. As such the

ME BankHousehold Financial

Comfort Indexincorporateseleven measures of howhouseholds feel about theirnancial situation these include:

Comfort level with (1) theoverall nancial situationof the household

Changes in household nancialsituation (2) over the past yearand (3) anticipated in the nextyear

(4) Condence in thehouseholds ability to handlea nancial emergency, and

Comfort levels with (5)household income, (6) livingexpenses, (7) short-term cashsavings and (8) long-terminvestments, (9) debt, (10)overall net wealth, and (11)the households anticipatedstandard of living in retirement.

To provide contextual insight forthe Comfort Index, respondentswere asked to rate howcomfortable they would be withtheir current overall householdsituation if they were feelingoccasional stress or worry,

and also if they were experiencingnancial problems which requiresignicant lifestyle change.

To collect data on how householdsfelt about their nancial situationvia household nancial comfort,condence with nances andanticipated change in nances,we used 0-10 scales anchoredby descriptive terms not atall comfortable to extremelycomfortable (comfort), not at allcondent to extremely condent

(condence) and worsen a lot toimprove a lot, with a mid-pointof stayed the same (anticipatedchange). Questions to collecthousehold actual nancial dataincluded those that asked fordollar amounts or dollar rangeas well as actual behaviour (e.g.,whether or not their householdwas able to save money duringa typical month).


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NOTES:


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FURTHER INFORMATION.The ME Bank Household Financial Comfort Report also examined:

Financial management behaviours

Home ownership and the use of home equity

Household ability to manage debt over the next 12 months, and

The gap between the expected nancial comfort of individualhouseholds based on their nancial situation to the actual nancialcomfort scores that they report.

For additional information, contact Matthew Read([email protected]) at ME Bank.

DISCLAIMER.Members Equity Bank Pty LtdABN 56 070 887 679 (ME Bankhas prepared the attachedME Bank Household FinancialComfort Report. Information inthe report is current as at July2013 and is subject to change.The Report has been preparedin good faith however we makeno representation and give nowarranty as to the accuracy,reliability, or completeness ofthe information contained in theReport. ME Bank does not acceptany responsibility in any way forthe report or for your use of theReport for any purpose.


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me bank household financial comfort report (july 2013)

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