Australia’s financial inequality gap narrows for the first time in seven years: ME Bank

Australia’s financial inequality gap has narrowed for the first time in seven years, with most households feeling better about their finances, according to ME Bank’s 15th bi-annual Household Financial Comfort Report.

The report found this to be the case despite significant falls in residential property and share markets.

Consulting Economist for ME, Jeff Oughton, said “The comfort gap between property owners and renters, as well as between very high income earners and other income brackets, has narrowed."

“We’ve seen a correction for wealthier, older property-owning Australians who’ve been riding the hot property and bull share markets for much of the past seven years, while middle and lower-income households have begun to benefit from an easing in living cost pressures and income gains."

“Cooling housing and share markets haven’t yet dented the financial outlook of most Australian households, and many residential property owners remain positive: only 13% of home owners and 11% of investors expect the value of their properties to fall in 2019,” he concluded

The report found, "financial comfort of renters, while still significantly lower than other tenures, was up 8% to 4.78 out of 10, its highest in four years, reflecting improving rent conditions, while the overall financial comfort of households who own a home mortgage-free fell 3% to 6.27 out of 10, its lowest point since the survey began."

Financial Comfort

• Those earning over $200,000 pa fell by 6% to 6.79.
• Those earning $75,000-$100,000 pa increased by 7% to 5.87
• Those earning under $40,000 pa increased 2% to 4.52

In the six months to December 2018, the report’s overall Household Financial Comfort Index increased by 2% to 5.56 out of 10, the highest in the past 5 surveys (30 months).

Slightly above the historical average of 5.45 out of 10 since the survey began in October 2011.

 ‘Changes to my income’ was also the most common reason cited for improvements to one’s financial situation.

Another contributing factor to the overall increase in household financial comfort was an improvement in how households felt about their ‘ability to pay regular expenses’, which increased 3% to 6.60 out of 10 – albeit the cost of necessities remains the ‘biggest worry’ about their household finances.

Mr Oughton said, “we’re still seeing some geopolitical effects, with households concerned about the world economy up two points to 29%, and combined with domestic property and share market corrections, many Australians are beginning to tighten their belts to build financial resiliency."

“If above average cash savings and reduced spending behaviour continues during 2019 it could significantly slow economic growth and in turn may lead to smaller job and income gains.”

Increased savings has flowed through to greater financial resilience with an improvement in households’ ability to handle a financial emergency (up 1% to 4.83, the second highest level since the report began).

Almost half of households with a mortgage (49%) continue to pay above the minimum in repayments. 

The report found a decline in households being unable to meet debt servicing commitments in the last year, with just 12% unable to meet a personal loan or credit card repayment.

Furthermore, only 7% missed a mortgage payment due to lack of funds in this time. 

Financial comfort in Queensland jumped markedly to a record level in December 2018 – up 8% to 5.68, the highest across Australia.