Australians concerned about expenses due to COVID-19 continue to scrimp

Australians concerned about expenses due to COVID-19 continue to scrimp

Australians are being more economical due to COVID-19, with many concerned that life will not return to normal by the end of the year, new research from the Melbourne Institute has indicated.

The latest Taking the Pulse of the Nation survey, conducted July 6-10, showed that 45 per cent of Australians are spending less than they were before the pandemic at the beginning of 2020. A third said their spending level hasn’t changed, and one in five are spending more than they were pre-COVID-19.

Many Australians also expect their future spending will be reduced. One third reckon they’ll be cutting their spending at the end of the year, and of those who are already spending less, more than half think they’ll still do so when the year ends. Researchers note that this is a sign that there’s concern around whether life will go back to normal this year.

Close to 40 per cent of poll respondents believe they’ll spend around the same as pre-pandemic days.

Australians appear to be financially coping slightly better with COVID-19, with 22 per cent saying they are finding it difficult to pay for essential goods and services, a fall from 25 per cent since the previous week.

The proportion of those in financial stress decreased in all states bar Victoria, where financial stress was up by 2 percentage points. The state, which has become the new COVID-19 epicentre in Australia, has experienced a resurgance in confirmed coronavirus cases. Parts of the state are in the middle of a six-week stage three lockdown.

The research also found that while consumption is likely to improve towards the end of the year, it’s widely expected that spending levels may still be lower than pre-pandemic days.

“This is serious as household consumption expenditure is already low,” Melbourne Institute Professor Guay Lim said.

“Household consumption expenditure has already fallen in all states, from a positive quarterly growth in December 2019 to negative values in March 2020. Further declines in spending will seriously hamper the economic recovery process.”

Meanwhile, older Australians are generally spending less now, but expect to spend more post-pandemic. And while those that were most financially stressed trimmed their budgets the least, researchers believe this suggests they have less room to reduce spending.

What to do to better manage your household expenses

There’s no doubt that COVID-19 has changed how Australians spend their hard-earned money. Melbourne Institute researchers pointed out that Aussies are reducing their spending in areas such as hospitality, tourism, transportation, recreation and entertainment.

But they’ve also ramped up consumption in other areas, including groceries, food delivery, bills, cleaning appliances, and furniture and office equipment.

If you’re concerned about your ability to pay for household expenses going forward, one of the first things you might want to do is start a spending budget. To save money effectively, you need to know where your cash is going. Through a detailed budget, you’ll be able to identify where your larger expenses go, detect areas where you can cut back and plan for future expenses. More than half of households said they wished they had saved more before COVID-19 to help them with their finances during the economic downturn, a recent St George Bank survey showed.

It might also help to target any larger debts you may have. For many people, this is likely to be their home loan. With such low mortgage rates, it could be possible for you to ask for a lower rate or refinance to another lender that is able to offer a better deal. A lower rate may potentially mean lower monthly repayments, though you may want to speak to a licensed financial adviser or mortgage broker to see how it might impact your mortgage.

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Learn more about savings accounts

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.