John Kavanagh blog

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When house prices, the sharemarket and super fund returns go up, our sense of financial wellbeing usually goes up with them. Not this year. A couple of recent surveys show that Australians are worried that their financial position is worsening.

According to a survey commissioned by the Financial Planning Association, 80 per cent of working age Australians are stressed about money, with 15 per cent saying they are extremely stressed about their financial situation and 14 per cent saying they are very stressed.

This finding is backed up by ME’s recent Household Financial Comfort Index, which shows that 51 per cent of people have no spare cash at the end of the month.

ME found there was some increase in comfort levels as a result of rising house prices, double-digit equity market returns and high superannuation fund returns. Overall comfort with investments increased by three per cent to 4.99 over the 12 months to June, slightly above the long-term average.

However, investment risk appetite remains low. “Risk takers”, at 18 per cent of respondents, were outnumbered by “risk avoiders” (43 per cent).

And ME found a growing number of households that expected their financial condition to worsen. Areas of concern include the rising cost of necessities; the forecast for higher interest rates; and low income growth.

The rising cost of energy, fuel, groceries and other necessities is a “major concern”, with 40 per cent saying the cost of necessities is the primary reason for their worsening financial situation.

With mortgage interest rates up significantly over the past six months, apprehension about future rate rises is a worry.

Speculation that the Reserve Bank will lift the cash rate is causing households concern. Thirty-one per cent of households expect to be worse off financially if the Reserve Bank raises the official cash rate by one percentage point.

On average, mortgaged households are paying more than a third of their post-tax income on repayments, with 15 per cent paying more than half.

The average Australian household, earning $75,000 to $100,000, is showing signs of subdued income growth, with 44 per cent reporting no change in their income during the past financial year.

Twenty-seven per cent of all households reported income cuts in the past year.

The number of households classified as “net savers” fell by three percentage points to 39 per cent. The average amount saved each month was $888 – up from $837 in December last year.

A growing number of households are expecting their ability to manage debt to deteriorate. The proportion of households expecting to “not meet their required minimum payment on their debt” rose four percentage points to nine per cent and the proportion expecting to “just manage to make the minimum payments” rose by two points

The FPA survey found that Gen X and Gen Y are the most stressed about money and finance and most likely to struggle with financial planning.

Owning a home is no longer a dominant Australian dream, slipping to fourth place in the dream stakes.

When asked what the phrase “living the dream” meant to them, “having the lifestyle of my choice” was nominated most frequently, followed by “having financial freedom and independence”, “having safety and security”, owning a home”, “having a family” and “pursuing hobbies and interests”.

When asked what prevents them from living the dream the biggest response, by a big margin, was “low bank balance”. Other common responses were “not enough time”, “debt” and “illness or poor health”.

The top of the list of things that people would change about their lives is “not saving enough”.

The FPA survey also found that almost three-quarters of Australians find planning their life hard. However, attitudes to planning are changing, with 46 per cent of working-age Australians saying they believe in planning and are likely to stick to their plans that they make.

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