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Debt stress rose before latest lockdowns

Households’ comfort with debt was on a decline during the first half of the year, despite broader financial security hitting a high.

A report has shown the financial comfort of the average Australian household climbed to a peak over the 1H21, despite the rollback of government stimulus.

ME Bank’s bi-annual Household Financial Comfort Report has quantified how comfortable Australians feel about their financial situation.

On average, household financial comfort increased by 3 per cent to an index of 6.04 out of 10 during the six months to June and it rose above pre-pandemic levels, 8 per cent higher than December 2019. It was 5 per cent higher year-on-year.

ME Bank reported almost all of the 11 measures underlying the financial comfort index had improved and reached highs in the 1H21.

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Net wealth was up 5 per cent to 6.21, comfort with cash savings (up 1 per cent to 5.83), comfort with investments (up 3 per cent to 5.67 and around 14 per cent above its historical average) and comfort with expected retirement (increased by 8 per cent to 5.82).

However, comfort with debt (of all sources) was down by 2 per cent over the six months, to 6.76 – although it was largely consistent with a year prior, when it was 6.7, and higher than both pre-COVID levels and the historical average (6.55 in December 2019 and 6.25 respectively).

ME consulting economist Jeff Oughton commented comfort levels had been bolstered by several factors, despite the phasing out of most government COVID assistance earlier in the year.

“These include rising investments such as the property market, slightly higher average incomes in a rebounding job market and more conservative spending and savings behaviour. For most households, their comfort has even bounced significantly higher than pre-pandemic levels,” Mr Oughton said.

But there are still sections of the population, including single parents, casual and gig economy workers, self-employed and unemployed Australians, who aren’t feeling as comfortable, he added.

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Single parents saw a 13 per cent fall in comfort to 3.06, a return to pre-pandemic levels, after they saw the temporary introduction of free childcare in 2020.

Self-employed workers were down by 6 per cent, to 5.83, driven by falls across factors such as debt and net wealth.

Meanwhile casual workers and unemployed individuals had relatively low levels of comfort, at 5.54 and 5.32 respectively.

“These groups are highly susceptible to changes in government support and ongoing turbulence during Australia’s economic recovery,” Mr Oughton stated.

Younger adults (18-29) and those aged over 60 reported the highest comfort levels – 6.38 and 6.59 respectively.

Meanwhile Gen X (aged 41 to 56) recorded lower than average levels of comfort and the smallest improvement out of the generations, since the onset of COVID (down 1 per cent over the six months to June to 5.55).

They reported lower levels of comfort around net wealth, debt levels and cash saving.

Cash savings at a high, but fifth of households have under $1k saved

The proportion of households improved by 1 per cent to 58 per cent, with the amount typically saved rising to $960 per month.

A third of households (34 per cent) spent all of their income without overspending, while 8 per cent overspent, with the excess falling to $483 in June – the lowest since December 2018.

The historical average portions were 50 per cent of people banking savings, 40 per cent would break even and 10 per cent would overspend.

However, despite the highs, 21 per cent of households reported they had less than $1,000 cash savings – down 6 per cent from prior to the pandemic.

Further, a quarter (24 per cent) said that if they lost their income, they’d only be able to maintain their current lifestyle for one month, while 11 per cent said they’d make it work for two weeks.

“Despite more households savings and an overall greater comfort with cash savings, there’s still a significant proportion of Australians that remain highly vulnerable to a loss of income,” Mr Oughton said.

“With pandemic lockdowns continuing to occur across Australia, households with low cash savings are at significant risk, especially in instances of extended strict lockdowns like we’re currently seeing in New South Wales, Queensland and Victoria.”

Australians who thought it would be “easy to find another job within two months” increased by 5 percentage points to 41 per cent – returning to the historical average.

Meanwhile, job security had improved, up 3 percentage points to a high of almost 75 per cent of workers since the end of 2020. Unemployment also eased during the first of the year but 40 per cent of casual workers indicated they would prefer to work an additional 13 hours a week on average.

“Employment arrangements and job security remain of critical importance to the overall financial comfort of Australian households and longer-term economic recovery,” Mr Oughton said.

“In fact, labour market conditions are a key reason that overall financial comfort has increased over the past six months, but paradoxically they’re also one of the leading drivers among households who said their financial situation has worsened.”

[Related: Mortgage settlements dip across states: PEXA]

Debt stress rose before latest lockdowns
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Sarah Simpkins

Sarah Simpkins is the news editor across Mortgage Business and The Adviser. 

Previously, she reported on banking, financial services and wealth for InvestorDaily and ifa.

You can contact her on This email address is being protected from spambots. You need JavaScript enabled to view it..

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