Household financial comfort index shows we are less able to save and less secure about jobs than in the past four years

The latest household financial comfort index survey, conducted by ME Bank, reveals that Australians feel less financially comfortable than they did 12 months ago, and that many households feel even less comfortable about their finances than in the past four years.



The survey, which is done every six months, involves 1,500 people and asks respondents about their financial comfort on a variety of aspects from wealth, to cash savings, to the ability to raise $3,000 in an emergency. The results are then formulated into an index score out of 10.

The results show that all household types apart from retirees feel less financially comfortable than they did in December last year, and also than 12 months ago:

However, the recording of retirees as the most comfortable is a bit misleading. The report notes that the comfort level of self-funded retirees rose 8% from December 2013 to the very high level of 7.81, but the financial comfort of “government-assisted retirees” actually fell 15% to a comfort index of 4.70.

The impact of the budget and the state of the general economy is also revealed when the index is broken down by employment situation.

The financial comfort of all groups except for casual workers is lower than it was six months ago, and for casual workers this is largely due to an improvement after the uncertainty that is usually felt following a change of government:

But where the impact really become clear is when we compare comfort levels of each group to the overall average.

As a rule, those employed full-time have greater financial comfort than the average – reflecting better job security than those working part-time or casual.

But the change in financial comfort of the unemployed in the past 12 months has drastically fallen compared to everyone else. In June last year, the comfort of the unemployed was rated 10% worse than the average and by December it was 17.9% worse. But since the budget, which included measures to toughen conditions for Newstart and which could mean people under 30 receive Newstart for only six months of the year, the level of financial comfort has collapsed to 33.6% below the average:

Interestingly, the report shows that the level of our financial comfort is linked less to our income than to our wealth. This explains why self-funded retirees are the most financially comfortable. Having a house paid off and no dependent children will generally see you in a position of greater wealth because you have spent the past 30 to 40 years paying off the mortgage and helping put the kids through schooling.

The report estimates the average wealth of retires at $586,000, just below the $596,000 wealth of couples with older children and “empty-nesters” (those aged 50-65 years of age with no dependent children) with $689,000. These three household types with the highest wealth are also the three with the highest level of financial comfort.

The report also revealed that while Australia’s overall savings ratio is at a near 30-year peak, lack of cash savings was “one of the biggest areas of concern among Australian households”.

Since the global financial crisis, Australians as a whole have been saving more than 10% of our national disposable income:

But the report found that only 46% of households reported the ability to save each month, the lowest level since ME Bank’s first survey in October 2011. And of those who were saving, the amount fell 12% over six months.

The report also found that 35% of households “had less than $1000 in cash-on-hand”, which was a rise of 7% over six months. And finally, “24% said they could not raise $3000 in an emergency, a rise of 6%”.

The drop in financial comfort experienced by households is also reflected in the retail trade figures released this week by the ABS.

While there was a surprising increase in the seasonally adjusted 0.6% monthly growth, the less erratic trend figures show a strong decline in growth of retail trade since December. The pattern of declining monthly growth over the past six months has not been replicated in the past five years.

Apart from 2012-13, monthly growth in June has been stronger than it was in December of the past five years. And even in 2012-13 June saw a pick-up in spending compared to May, suggesting the budget last year had not kept spenders away from the shops

in the manner it has this year.

For now it seems households are yet to be convinced the government is headed the right way. For all the talk about tough decisions being made to solve long-term problem, the ME Report found only “41% of Australians believe the 2014-15 federal budget will lead to long-term gains for all Australians”.

Just as retailers are finding it tough going, after a three-month sales pitch the treasurer, Joe Hockey, is still struggling to find willing buyers for what he is selling.