ME Bank: The overall financial comfort of Aussies has stalled

Despite the improving jobs market and households reporting healthier financial buffers, the overall financial comfort of Australians has stalled, according to ME Bank’s latest Household Financial Comfort Report.

ME’s Household Financial Comfort Index remained stuck at 5.49 out of 10, with improvements in some measures of financial comfort linked to better employment conditions. This includes a greater ability to maintain a lifestyle if income was disrupted for three months, offset by a decline in comfort when it comes to living expenses.

“Households’ comfort with paying their monthly living expenses fell 3% to 6.40 out of 10 during the six months to December 2017, the lowest it’s been since mid-2014,” said Jeff Oughton, ME consulting economist.

“In fact, ME’s latest report shows many households’ financial situation is getting worse and again the culprit is living expenses, with 40% reporting this as a key reason their situation is worsening.

“Around 46% of households surveyed also cited the cost of necessities such as fuel, utilities and groceries as one of their biggest worries.

“It’s unsurprising households are still feeling the pinch, given subdued income growth and the rising costs of energy, childcare, education and health. If it wasn’t for a decline in comfort with monthly living expenses, the report’s overall Household Financial Comfort Index would’ve likely increased.”

Household financial comfort rises in NSW, drops in VIC

Victoria’s household financial comfort dropped well below New South Wales’ financial comfort for the first time since the survey began in October 2011.

NSW improved by 3% in the past six months to 5.83 out of 10 in December 2017, the highest level in three years, while Victoria’s fell 7% to 5.30 out of 10, its lowest level in six years.

“New South Wales’ superior financial comfort can be linked to greater confidence in handling a financial emergency (loss of income for three months) – a reflection of healthier employment conditions in the state,” Oughton said.

“Meanwhile, Victoria’s decline can be attributed to falls across most key drivers of financial comfort, including lower confidence in handling a financial emergency (loss of income for three months) and less comfort with investments.

“The discrepancy between the two states is significant given both have traditionally felt similar levels of comfort in the past.”

Mortgage stress is set to worsen

Rather worryingly, more than half (56%) of households renting or paying off a mortgage reported they were contributing more than 30% of their disposable household income towards this cost, a common indicator of financial stress.

“Furthermore, the proportion of households who ‘worried about their household’s level of debt over the last month’ increased by 1 point to 38%,” the report said. “This proportion increased to 51% among mortgage holders, compared to 27% with no mortgage and 23% [among those] who own their own home outright.”