The financial comfort of Australian households has reached a record high, despite the negative impact of the COVID-19 pandemic, with retirees faring particularly well.
ME Bank’s latest Household Financial Comfort Report showed that retirees continued to report the highest comfort levels across all life stages.
The report also looked at the age groups with the highest level of financial comfort and those aged 75+ continued to report the highest level of financial comfort, while Baby Boomers (those aged 55-74) reported little change in the levels of comfort.
Despite the relatively good findings in the report, however, the underlying data suggests that the high levels of financial comfort may be short lived.
Read more: 11 reasons why your financial plans will fail
The Household Financial Comfort Report, a bi-annual survey of 1500 Australian households, shows that financial comfort was 5 per cent higher than before COVID-19 and the highest since ME Bank first commissioned the survey nine years ago.
ME Bank’s consulting economist, Jeff Oughton, attributed the peak in financial comfort to a combination of prudent and resilient household financial behaviours, substantial and extended government income payments, record low borrowing costs and a rebound in share and house prices.
“The pandemic has triggered many households to proactively reorganise their finances, helping to bolster their financial resilience through the pandemic,” Mr Oughton said.
Read more: What company reports reveal about us
“Households have increased cash savings, cut overspending, paid down debts, and withdrawn retirement savings to improve their ability to handle the emergency.
“This precautionary behaviour supported by the sizeable temporary government income support and very accommodative banking and financial conditions has no doubt helped drive financial comfort to a new record high in December.
“However, paradoxically if Australians stay precautionary in their spending and maintain their big saving buffers, an inclusive and durable recovery may be jeopardised, which will unfortunately hurt many of those same households with low levels of comfort the most.”
Read more: Australians missing out on energy savings
The report showed that a higher proportion of baby boomers said they were negatively impacted by the pandemic, followed by those aged 75+.
Mr Oughton predicted that Australia’s all-time high in financial comfort is likely to be short-lived.
He believes that comfort will fall as the health crisis ends and an uneven economic recovery continues.
“Despite households reporting a record high in financial comfort at the end of 2020, underlying economic and financial drivers indicate that this peak may be temporary and potentially quashed in 2021,” he explained.
“A decline in household financial comfort is likely to play out over the next six months as government support – especially JobKeeper and JobSeeker – is phased out.”
Fewer older generations reported being recipients of JobKeeper (only 8 per cent of baby boomers and 1 per cent of those aged 75+) and JobSeeker (just 6 per cent of baby boomers).
“Australia’s labour market also remains weak, with many workers reporting very high underemployment together with increased expected difficulty in finding a job and subdued wage gains, if any.”
How would you rate your levels of financial comfort?
If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.
