Financial stress due to COVID-19 easing but still rife

Financial stress due to COVID-19 easing but still rife

Money worries due to COVID-19 are easing for many households, but not everyone is out of financial strife yet, a new survey from the Australian Bureau of Statistics (ABS) showed.

Financial stability is being restored for many, with 72 per cent indicating that their household finances saw no changes, an ABS survey of about 1,500 people in mid-September found, up from 66 per cent in mid-June.

But some are still not out of the woods yet. Sixteen per cent believed that they were financially worse off due to COVID-19 in the month leading to the poll, a fall from the 19 per cent in mid-June.

One in eight felt that their financial position had improved, down from one in six three months earlier.

Boosted personal finances were put to good use. Nearly 30 per cent of Australians either increased their savings (22 per cent) or reduced their debt (7 per cent). Fifteen per cent managed to do both.

But a staggering 49 per cent were not able to grow their savings or cut down on debt.

A larger proportion of families with children appeared to be facing tough financial situations, compared with those without kids.

“Circumstances were different for some households, with more than one in five (21 per cent) of households with children reporting their household finances had worsened in the four weeks leading up to the survey, compared to 14 per cent of lone person households and those without children,” ABS head of household surveys, Michelle Marquardt, said.

Financial relief

Nearly 20 per cent said their household had taken at least one measure to help pay for everyday expenses between mid-August and mid-September.

This is a substantial increase from the 14 per cent who took steps to make ends meet in the May to June period.

Of those who took some financial action in the September period, 9 per cent dipped into their accumulated savings or term deposits, while 4 per cent reduced their home loan repayments.

One in 10 Australians were receiving the coronavirus supplement, a fortnightly $550 welfare payment that was lowered to $250 on September 24.

About a third of those on the benefit said they mainly used the payment on household supplies, including groceries.

The money went towards paying the mortgage or rents for 28 per cent of welfare payment receivers.

Of those receiving the supplement, 12 per cent were aged between 18 and 64, while 3 per cent were aged 65 and above.

Rise in aggression due to financial stress

The findings come as aggression surged among financial distressed people, Financial Mindfulness’ latest Financial Stress Index (FSI) report indicated.

People who were “always acting aggressively towards others because of their financial position” ballooned by more than eight times since before COVID-19, according to the report, which put together the findings from a survey of 363 adults in the year to August 2020.

More than 2.2 million Australians are financially stressed to the point that their wellbeing and capacity to function is compromised.

Those who felt that they could not grow their savings jumped by 22 per cent compared with pre-pandemic days.

Survey participants who always found it hard to wind down due to their financial situation swelled by 151 per cent.

About 70 per cent of poll participants felt “financial shame” due to their money worries, while many either ignored their situation (63 per cent) or spent money recklessly to deal with the stress (62 per cent).

More than two thirds said financial stress has had a negative impact on their relationships, and 64 per cent got into conflicts with their loved ones.

Financial Mindfulness founder and chief executive officer, Andrew Fleming, said money-related stress levels have seen an upswing since COVID-19 hit.

“Financial stress was a significant problem before the COVID-19 pandemic, but we now can see the increased damage it is having on individuals and work productivity,” he said.

“It is staggering to see how much financial stress is impacting mental and physical health, relationships and work.”

The FSI was researched and developed by neuropsychologists and financial experts to understand how financial stress affects wellbeing.

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Learn more about savings accounts

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 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.

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 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 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 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

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. 

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.

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 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.

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

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.

Should I open a Commonwealth locked savings account?

If you have trouble saving money, a Commbank locked savings account could be a potential solution. A locked savings account won’t let you make withdrawals and as such, it can help you grow your savings balance if you keep topping it up. 

The Commonwealth locked savings account advertises high-interest rates and minimal maintenance fees, along with a host of other incentives that will encourage you not to touch the money. 

The account offers a higher interest rate for each month that you make limited or no withdrawals, as well as regular deposits. 

To qualify for a Commonwealth locked savings account with the advertised features, you will need to fulfil specific criteria such as:

  • Depositing a fixed minimum amount into the account every month.
  • Making a fixed number of deposits each month.
  • Making a minimum or no withdrawals each month.
  • Maintaining a minimum account balance.

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.