ME’s 10th biannual Household Financial Comfort Report predicts debt repayment struggle

August 3: Consistent with an expected rise in debt stress, more households ‘paying off or owning a home’ reported to be drawing on their home equity to ‘pay off debt’ – up 4 points to 11 per cent.

Drawing on their buffer in order ‘to make ends meet’ – is also up 4 points to 10 per cent during the first half of 2016 (page 38)

This result means 90 per cent Australian households report low-to-mid financial comfort, with only 10 per cent reporting high comfort.

While Reserve Bank is attempting to stimulate Australia’s sluggish economy with the historic low rate cut of 0.25 per cent, yet that may not actually lead to demand and growth in the broader economy according to Stephen Koukoulas, a leading economist.

“Monetary policy is a lot less potent that it used to be 20 years ago,” he told New Daily.

According to him this August rate cut may be reminisced as the moment when monetary policy died.

Instigated by APRA’s insistence for banks to fund their lending operations locally, major banks and lenders will not only pass on the full benefit of the rate cut to borrowers; they are instead boosting deposit rates which will be an incentive to save rather than spend, in direct contrast to RBA’s goal of stimulating demand.

APRA and RBA policies are at loggerheads and will most certainly prompt increased savings in an ever slowing Australian economy and stifle investments.

And young households will be the unintended victims of this oddball fiscal policy.

ME outlines how households will doubly struggle to repay debt:

Double the struggle to repay debt – of 65% of households with outstanding debt, 10% expect they won’t be able to meet minimum debt repayments in the next six to 12 months – a twofold increase since December 2015 and the highest since the survey began in late 2011.

Financial Comfort Index has dropped significantly, by 4 per cent to 5.37 out of 10 in the last six months. This deterioration takes overall comfort to slightly below the historical average.

Baby boomers rated themselves as the hardest hit with perceived comfort in terms of income, cash savings and net wealth deteriorating considerably – down 7 per cent to the lowest level in past couple of years.

Naturally confidence levels shows marked deterioration in their ‘ability to manage debt over the next six to 12 months’, doubling from about 5 per cent in the past few years to 10 per cent in the last six months.

Single parents reported the highest levels of concern at 19 per cent, followed by ‘couples with young children’ at 15 per cent and ‘young singles/couples’ at 12 per cent.

Baby boomers also reported greater worries with the ‘cost of necessities’ and the ‘ability to maintain lifestyle in retirement’.

“The findings add to a number of recent policy debates such as changes to superannuation,” said Jeff Oughton, ME’s consulting economist and report co-author.

“As many as 45% of baby boomers said they expect to be worse off after the recent Federal Budget. Furthermore, retirees reported the lowest levels of comfort since the survey began, although they’re still the most financially comfortable of any household life stage”, he said.

Nidhi Mehta

Similar Posts by The Author: