Australians putting financial and life goals on hold due to COVID-19

Australians putting financial and life goals on hold due to COVID-19

Australians are being forced to push back their financial goals and major life events, as COVID-19 impinges on consumer confidence and money habits, new research showed.

Almost a quarter of prospective home buyers had no choice but to put their property purchase plans on ice due to the coronavirus-induced recession, an AMP-commissioned survey of more than 1,000 adults indicated.

About one in five had to delay their purchase of an investment property. 

This is despite record-low interest rates, as well as housing prices in the combined capitals dropping by 1.5 per cent in the past three months, the latest CoreLogic data showed. 

However, those that are going ahead with their property purchases are rushing to buy in regional markets, as many professionals now working remotely no longer have constraints to live close to their inner city offices. 

Nearly 30 per cent of AMP survey respondents say they are holding off on car purchases, and the same proportion are being forced to delay major life events, such as weddings. 

Sixty per cent are pushing back their overseas holidays, as international border restrictions remain closed in Australia.

Additionally, 20 per cent of Australians are postponing planned career changes in favour of stability due to the pandemic.

Aussies make cut-backs on spending

As many rethink their life priorities and financial goals, two thirds of Australians say COVID-19 has affected their personal finances, the research found. Almost half do not expect progress on their financial goals to continue as planned pre-pandemic for at least another three months.

Nearly 40 per cent indicated they have reduced spending due to the economic environment, as the recession weighs down on consumer sentiment.

Retail turnover declined by 4.2 per cent in August amid the recession, the latest figures from the Australian Bureau of Statistics (ABS) showed. Even when excluding Victoria, retail trade across the rest of the country decrease by 1.5 per cent in the same period.

AMP Bank’s director of retail solutions & direct distribution Michael Christofides said COVID-19 has made many Australians become more financially savvy, after riding out possibly the worst stages of the pandemic.

“With talks of the recession and consumer confidence down, it’s clear that many Australians have been impacted by COVID-19, including having to hold off on making significant financial decisions from retirement to travel to buying property,” he said.

“We’re seeing Australians being more prudent with their saving and spending decisions, partially due to lockdown restrictions but also relating to a desire to be prepared for any future rainy days.

“Now more than ever, Australians are conscious of the importance of saving and preparing for the unpredictable.”

Uptick in savings as Australians plan ahead

Aside from pinching their pennies, more than a fifth of Australians have also made a conscious effort to save more, while also directing funds to investments, the AMP research found.

Forty-four per cent of poll participants indicated they have seen a boost in their savings, as many people stay at home due to COVID-19, making it harder for them to splash their cash.

Aligning with the survey findings, the average household wealth jumped by 1.4 per cent, or $5,881, per person to more than $430,000, according to ABS data, despite several major banks, including CBA and NAB, cutting savings rates recently. 

This is tipped to continue, with savings levels expected to stay high over the next three years, the latest IBISWorld research suggested. 

Meanwhile, 39 per cent said the pandemic has acted as a catalyst to sort out their personal finances and become more financially prepared, while 45 per cent are hopeful that their finances will improve post-COVID.

Mr Christofides said the pandemic has encouraged many Australians to put their personal finances under the microscope.

“There’s no doubt that COVID-19 has brought with it a number of challenges for Aussies but the challenging climate has given some the opportunity to take a step back and re-evaluate their personal finance journeys,” he said.

“Compared to earlier in 2020, there’s a sense that Aussies are taking this time to reset their financial goals and adopt more proactive financial behaviours both in relation to saving and discretionary spending.

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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 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.

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.

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.

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.

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.

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.

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.

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

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.

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 are the two types of NAB locked savings accounts?

With a locked savings account in NAB, you can earn bonus interest and learn financial discipline. NAB offers two types of locked savings accounts, each with their own terms and conditions.

The NAB Reward Saver account pays a variable base interest rate of 0.05 per cent per annum and a bonus interest of 0.55 per cent. You’re eligible for the bonus if you make a minimum of one deposit on or before the second last banking day and have no withdrawals in the month.

Meanwhile, the NAB iSaver account provides 0.05 per cent as the standard base interest rate and a fixed bonus margin of 0.55 per cent during the first four months from the date of opening the account. You can park your cash in the account and enjoy unlimited monthly transfers between linked daily bank accounts without impacting the interest rate.

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.