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Australian households aren't saving money.
It's probably not a surprise, with cost of living pressures forcing many households to reshuffle their budget and spend more on essentials, like groceries or the doctor, leaving less to tuck away for later.
The Australian Bureau of Statistics says the saving ratio is at a 17 year low - just 1.1 per cent of total disposable income.
That's a cause for concern for Anglicare Australia Deputy Director Maiy Azize.
“It is concerning that fewer and fewer people are able to save and have a buffer (against hard times). But it's also not surprising because we know that rents have been going up by about 10% every single year. Rents have gone up by about 75% since the onset of the pandemic. I don't know anybody who's had a wage increase of 75%. And so it's really not surprising that we're seeing so many people in rental stress but also housing stress.”
Ms Azize says more people on stable wages are seeking Anglicare's support.
“Used to be the kinds of people who came to us for emergency relief were people who were genuinely having a financial emergency, you know, some really big unexpected cost hit them, or there were people who were trying to manage on a very, very low income - people on job seeker and other Centrelink payments, you know often come to emergency relief providers for help. But now we're seeing people who are in paid work, maybe there are households where there are even two people in paid work coming to us for help and that is new and it's really a sign that living costs are spiralling out of control.”
The Australian Bureau of Statistics has tracked the average savings ratio since the late 1950s.
Professor of Economics at the University of Newcastle Bill Mitchell says the savings ratio has fluctuated over time.
“If you look at it over the decades in the 1960s, for example, when we had very strong growth and strong productivity growth and strong GDP growth, very low unemployment, the household saving ratio was it was up around 16% As we approached the sort of mid 90s, the household ratio started to fall, households went crazy with borrowing. The household debt ratio rose from like 60% of disposable income to nearly 200%. Just before the global financial crisis in 2007 the household saving ratio became negative - households were in total spending more than their incomes each period. That's totally unsustainable.”
Professor Mitchell says the current state of household savings is because of intentional monetary policy decisions.
“The RBA has deliberately targeted household savings. They've said this in their monetary policy statements that they believed that they could push up interest rates without completely scorching the economy because households had saving buffers. Average mortgages have gone up about 52%, which is diabolical for low income families. The way in which households have adjusted to that in part has been to eat into their financial wealth. And so that's why saving ratio is falling close to zero again, and it's unsustainable in my view, and I find it reprehensible that government policy would deliberately rely on households destroying their own wealth and their own future and their own ability to risk-manage, to avoid political stress from harsh economic policies.”
Professor Mitchell says that decision has left the economy at risk.
“If households are highly indebted, which they are, they've got very, very little margin in their saving ratio. Then small changes in circumstances - like the second breadwinner loses their job, or hours of work are cut back - then those houses are incredibly vulnerable and become insolvent. That's it. Then if they become insolvent, they lose their houses, the spending reductions that forced on them then flow through to the rest of the economy. And you end up with a much worse situation than you would ever want.”
Since interest rate increases began, the savings ratio has decreased - down from about 11 per cent in March 2022 to about 1 per cent today.
Personal finance expert with InvestSMART, and author of REAL GIRLS GUIDE TO MONEY, Effie Zahos says even when there is bit of extra income to tuck away, it isn't something Australians are good at.
“Australians tend to be better at paying off their debt than actually saving. And it's more of a behavioural trait. I mean, when you think about it, we will do anything and everything to make sure our mortgage payments are made, for example, or to make sure our car payments are made.”
Ms Zahos says although it's hard to get started, it's crucial for households to create a buffer when they can.
“Right now it is hard for most Aussies to even think about building up a savings buffer. We've spent the last three years really ripping out our savings. Most experts say you need six months' worth of your salary in an emergency account. That's not going to happen. I mean, when you think about it, that's 10s of 1000s of dollars. I think it's really important to break it down and do what's known as a 'bare bones' budget. So actually write down what are the essentials that you have to pay, take out everything else, just the essentials, get that figure and then times (multiply) that by how long do you think you would remain unemployed in your industry. Even $1,000 in the emergency fund is better than nothing but in the long run, it is important to build up a savings buffer.”
Professor Williams says the Government needs to do more to improve household finances - which starts with keeping people employed.
“You need to avoid unemployment so when the Reserve Bank last year said that they believed that they had to push up interest rates to force unemployment up, stop household spending, well, they were also saying that they were going to be destroying household savings and the capacity to save. The government should keep unemployment low at all costs, in my view.”
Professor Williams says as long as wages remain stagnant, households will continue to struggle.
[[For many years now, we've had really record low wages growth, we've seen a redistribution of national income to profits. Now what would change that, make it easier for workers to get wage increases, what stops workers getting wage increases? Pernicious industrial relations legislation. That mentality has to change for a sustainable increase and persistence in a healthy saving ratio.”
