Australians are hanging on tight to their money, with savings levels tipped to stay high in the next three years, new IBISWorld research found.
While the budgets of many families and workers have been hit hard by the pandemic, others who have kept their jobs have managed to remain financially secure, and are taking action to protect their finances.
Household savings as a proportion of gross disposable income jumped to 7.9 per cent in 2019-20, compared with 2.7 per cent in the year prior, according to new data from IBIS World.
“As with the post-GFC recovery, savings are likely to remain at elevated levels for at least the next three years. Consumers are likely to spend cautiously as they did after the GFC (global financial crisis),” the research firm found.
IBISWorld senior industry analyst, Matthew Reeves, attributed the surge in savings rate partly to the temporary relief in housing cost payments.
“The largest component of household expenditure is rent and other housing costs such as mortgages,” he said.
“Rent and mortgage relief provided by landlords and banks since April 2020 has constrained spending in this area, which accounts for 20 per cent of total household spending.”
Household net savings ballooned to a staggering $42 billion from $7.1 billion in the June quarter, data from the Australian Bureau of Statistics (ABS) found, as Australians spent $35.2 billion less due to temporary business shutdowns.
Government stimulus propped up family incomes: RBA
Reserve Bank of Australia’s deputy governor, Guy Debelle, noted that household incomes did not tumble along with gross domestic product and employment declines, which he described as “remarkable and highly unusual”.
“Normally in recessions, household income falls along with the decline in output and employment,” he said, speaking at an online conference run by Australian Industry Group on Tuesday.
“This time that hasn't happened because of the income support from the government through JobKeeper and JobSeeker.”
Dr Debelle also attributed the rise in improved cash flows to superannuation withdrawals, lower interest rates and financial support from the banks.
He argued that if the government had not provided financial stimulus, financial hardship would have been worse for many.
“The fact that household income rose in the quarter does not mean that the stimulus was overdone,” he said.
“That households saved a large amount of this income support means that their balance sheets are in a considerably better place than would normally be the case in a recession. They are better placed to support the recovery as it unfolds.
“The transfer from the strong balance sheet of the government to bolster the balance sheet of the household sector is an entirely appropriate and timely policy response.”
Money goals shelved during COVID-19
While some have been fortunate enough to bump up their savings in a recession, many other Australians have been making financial sacrifices, with major money goals being put on ice.
A third of Australians had no choice but to use their life savings to survive since the onset of the pandemic, a MyState Bank commissioned survey of more than 1,000 showed.
One in 10 of those who dipped into their savings say they have wiped out more than half of their nest egg.
Of those who were forced to spend their savings, nearly a quarter indicated that they originally planned to use those funds for a first home deposit. One fifth were saving for their golden years, while 25 per cent said the money was supposed to go towards a holiday.
“The economic implications of COVID-19 have caused many households across the country to redirect their savings to the basic necessities, shelving their big financial goals and decisions, at least, for the time being,” according to MyState Bank general Manager of customer experience, Heather McGovern.
Family savings are largely going towards buying groceries and paying for household bills, the survey found.
Personal finances in trouble
Financial stress is rife. Half of Australians believe that spending another $200 on their monthly living expenses would be unaffordable.
And nearly 40 per cent of those polled said they did not have an emergency fund set up pre-COVID.
Many Australians have been left financially struggling, despite the range of government and bank-provided hardship support measures, Ms McGovern said.
“While lockdown measures have helped some Australians into a better financial position; for others, it has left gaping holes in their household income,” she said.
Nearly one in five indicated that their household income has dropped by more than a quarter as a result of the pandemic.
“What started out as a health crisis has been felt in the hip pockets of many Australians across the country,” she said.
“With financial support from the government winding back in September, many Australians are likely to feel the pinch even more. As a bank we recognise the need to help our customers stay financially healthy during this time.”
Yet more than 40 per cent of respondents reckon it will take another six to 12 months before finances will recover from the impact of the pandemic.
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Source: RateCity. Note: Data accurate at time of publishing.