Empty nesters feeling financial discomfort: ME report

With subdued and stagnant incomes, more Australians are feeling strapped for cash, and are being forced to dip into their savings to cover the rising cost of living expenses, ME’s latest Household Financial Comfort Report (HFCR) has revealed.

Empty nesters (50 years old and over) reported a record low in financial comfort.

“You may think that empty nesters would have fewer financial worries – most have paid off their mortgage, their kids have flown the coop, the majority are still working and some have voluntarily retired," consulting economist for ME, Jeff Oughton said.

"However, many are still concerned about current finances as well as worried about their life after work, expressing an 8% drop in comfort with their expected standard of living for retirement, as well as a 7% fall in their ‘comfort with savings’.

"Recent changes to superannuation in the past year appear to be significantly impacting this life stage."

The report also pinpointed students reporting a substantial decline in financial comfort of 15% to 4.18 since the last report.

“Students are always among those with the lowest financial comfort in each HFCR due to a lack of comfort with cash savings, investments, net wealth and their reduced ability to manage a financial emergency," Oughton said.

"However, this recording is a major negative spike and can be attributed to falls across most components that make up the Household Financial Comfort Index, in particular ‘level of debt’, ‘comfort with living expenses’ and ‘confidence in the handling a financial emergency’.

Oughton said more households are overspending to cover necessary living expenses and are drawing down on savings, with mortgage and rental stress remaining high.

“Comfort with short-term cash savings was the most notable component of the Household Financial Comfort Index to decline, seeing a 3% decrease to 4.93 out of 10 during the first half of 2018 – its lowest level in a couple of years.”

The report showed that households’ confidence to raise money for an emergency dropped three points below the average since the survey began, and fewer households reported they are saving. The estimated amount that Australians are saving each month decreased by just over 10% during the first half of 2018.

More Australians are also overspending – households who ‘typically spend all of their income and more’ increased 3points to 11% during the six months to June.

“Clearly, this is a potential tipping point. At the moment, Australians generally can dip into their savings to get by. However, some households may get to a point where there’s no more savings to draw from.

"Currently, around a quarter of Australian households have less than $1000 in cash savings,” Oughton said.

“If we see big negative shocks in the coming year, whether they are higher loan rates or an international trade war, then a lot more families will suffer increased financial stress.”

The latest report found that the cost of necessities continues to be the major financial concern for households, with more than half of households reporting it as their ‘biggest financial worry’, up seven points to 53% in June 2018.

Similarly, when asked why their financial situation worsened during 2017– 18, 44% of households said it was due to the cost of everyday items, an increase of four points since the previous report.

Consistent with ABS wage data, the latest HFCR data found nearly half of households (42%) still had the same income as a year ago, while a quarter (24%) reported income cuts and 34% received a raise. Unsurprisingly, ‘comfort with income’ declined in the past year by 2% to 5.61.

Oughton said similar to strengthening in the ABS jobs data, the report revealed increased confidence in people’s ability to find a job; however, high levels of job insecurity and underemployment remain. Around 23% of casual and part-time workers said they would prefer to undertake full-time work if they could.”

In the six months to June 2018, the report’s overall Household Financial Comfort Index went sideways from 5.49 to 5.44, once again indicating that the financial comfort of Australian households is not advancing.

Mortgage and rental stress still high, despite the housing market cooling.

The report revealed housing stress is still prevalent among Australian households.

For those with home loans, a broadly unchanged 45% of households reported to be contributing more than 30% of their disposable income towards mortgages during the past six months – a common indicator of financial stress

"The good news for renters is that financial stress has lessened somewhat during the past six months, thanks to thehousing market cooling and rents falling. While almost three-quarters (72%) of renters were previously contributing over 30% of their disposable income towards rent, this number dropped significantly to two-thirds (67%) in the most recent survey,” Oughton said.