Australians don’t have less cash to spend, they’re just saving considerably more, new research suggests, with tax and interest rate cuts since mid-2019 not providing their intended stimulus for the economy.
Australians are saving 36 per cent more in 2019 than in 2014, while reliance on credit cards has decreased in favour of debit cards, research conducted by ANZ and Roy Morgan has found, suggesting that Australia’s financial wellbeing has improved over the last five years despite tough economic conditions, such as Australia’s prolonged period of low wage growth.
Between December 2014 and June 2019, the ANZ Roy Morgan Financial Wellbeing Indicator rose from 57.4 to 59.7 (out of 100), with the 2.3 point improvement largely driven by more active saving and less borrowing for everyday expenses.
The report is based on data of over 75,000 Australians conducted over a period of five years, and assesses the financial behaviours as well as psychological, social and economic factors that contribute to financial wellbeing.
A key finding of the report, which has reportedly helped increase national financial wellbeing, is an increase in savings.
The study found that active savings levels are at their highest point since the study began in 2014.
According to the report, Australians are saving 36 per cent more now than they were five years ago, with median savings for Australian households having increased from $4,110 in 2014 to $5,580 in 2019, and the mean savings figures increasing from $29,430 in 2014 to $42,208 in 2019.
Further, the number of Australians relying on credit cards has reduced, as has the average unpaid credit card balance brought forward from month to month (from $1,402 in 2014 to $1,239 in June 2019).
Additionally, more households have turned to debit cards for daily spending, with the number of Australians with debit cards increasing by 30 per cent over the last five years to 62.5 per cent.
Along with an overall improvement in financial wellbeing, the indicator reported increases across “all dimensions” of financial wellbeing.
According to the report, respondents’ scores for “meeting everyday commitments” in their finances increased from 67.5 in 2014 to 70.7 in 2019, while their score for “feeling comfortable” in their financial situation increased to 55.3 from 54.1 in 2014.
Financial “resilience for the future” increased from 50.4 in 2014 to 53.0 in June 2019.
Commenting on the report findings, Alexis George, ANZ deputy CEO, said: “We are encouraged to see Australians are generally meeting more of their daily financial commitments and are more financially resilient than they were five years ago.”
Savings ‘over and above’ stimulus measures
Westpac economist Bill Evans has treated the sharp increase in Australians’ saving habits with a bit more caution, seeing the trend as the hallmark of a more risk-averse consumer base, going hand in hand with ongoing depleted levels of consumer spending.
According to Mr Evans, the September quarter saw a 2.5 per cent lift in household disposable income, driven largely by a 6.8 per cent fall in tax paid and a 2.5 per cent fall in interest paid.
However, the rate of savings for households rose from 2.7 per cent in the June quarter to 4.8 per cent in September, which Mr Evans stated is “convincing evidence that uncertain households chose to ‘save’ the tax and interest rate cuts, and then some”.
He went on to say: “The cautious consumer has chosen to lift its savings rate and hold spending effectively flat. The lift in savings is over and above the policy stimulus — suggesting heightened risk aversion.”
A further sign of very high consumer risk aversion is the movement of consumers towards “safe options” for their savings, with 64 per cent of consumers in December opting to inject excess cash into deposits, superannuation or paying down of household debt, according to research by the Westpac-Melbourne Institute.
Other studies also suggest that an increasing number of Australians are choosing to utilise savings achieved from tax rebates and the lower interest rate environment in order to pay down debt rather than on household spending.
Figures from AMP revealed a 14 per cent increase in the number of home loan customers switching from interest-only to principal and interest loans, in a study taken in the weeks directly before and after the first cut to the official cash rate in June 2019.
More recently, Your Property Your Wealth director Daniel Walsh highlighted that property investors are increasingly paying down their principal, or refinancing their debt, rather than investing in other projects, in a move away from traditional negative gearing investment strategies.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.