Financial wellbeing in Australia declines

Amid rising interest rates and cost of living pressures, the health of finances among Australians saw a slight decline in 2022.

It now stood at 50 points out of a possible 100, a 2.6 point increase from March 2020 but a 1.1 point decrease from the previous year when it was 51.1.

Savvy’s Financial Wellbeing Report: The Changing State of Australians' Finances by the Commonwealth Bank and University of Melbourne’s Melbourne Institute used five metrics for the survey:

•            Level of savings relative to similarly aged individuals;

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•            Any payment problems in the last year;

•            Ability to cover usual monthly expenses;

•            Months where expenditure exceeded income by 80%; and

•            Number of days where a respondent had the ability to raise one- or six-months’ expenses from available savings or credit.

The financial wellbeing categories of “Having Trouble” and “Just Coping”, as judged by the report, increased by 1.5 points over March 2021 and March 2022.

The number of Australians living paycheque to paycheque and the proportion of Australians without adequate rainy-day savings also rose.

Financial wellbeing decreased across all age brackets but Australians from the Silent Generation, who were now in their 80s, had the largest fall of 1.7 points. Next were Baby Boomers at -1.1 points followed by Gen X and millennials at -1 point each. Generation Z’s wellbeing declined by 0.5 points.

Geographically, the highest average levels of financial wellbeing in the country were recorded in the ACT and Victoria. The lowest levels were in the Northern Territory and Queensland.

All Australian states and territories recorded overall decreases, chalked up to rising expenditures and worsening consumer sentiment.

Perhaps due to economic uncertainties, savings levels had grown in the past year. Median savings balances were now 46% higher than pre-pandemic levels. Part of this rise in precautionary savings was attributed to caution around Government interventions like JobSeeker and JobKeeper being stopped.

There was a six-point increase in the number of Australians who were consistently spending at high levels i.e. over 80% of their income which damaged their capacity to save regularly.

“Though the good old days of near zero interest rates are over, people who are struggling to make ends meet may be hampered by paying ongoing high-interest debts such as credit cards,” observed Savvy spokesperson and financial expert Adrian Edlington.

Some of his recommendations to wrangle debt include setting a strict budget and potentially consolidating debts using a personal loan. 

“This allows households to ease some of the pressure of debt and put them on a path to debt freedom, saving more, and greater financial wellbeing,” Edlington added.