For its latest Household Financial Comfort Report, ME surveyed 1,500 Australian households in December 2018.

The results report that many households are enjoying higher income, falling living costs, increased cash savings and less overspending, driving the overall Household Financial Comfort Index higher.

The index increased 2% over the six months to December 2018 to a 5.56 out of 10, which is the highest it’s been since mid-2016 and above the index’s historical average (since the survey began in October 2011) of 5.45.

Strengthening conditions in the labour market were reported to be the major driver of this increase, with 38% of households reporting income increases over the six months to December 2018 – the highest proportion in three years.

Households feeling more confident about their ‘ability to pay regular expenses’ was another key driver, although households still cited the ‘cost of necessities’ as the ‘biggest worry’ they have about their finances.

Narrowing financial comfort gap between renters and property owners

The falling property prices experienced by various capital cities over the past few months seemingly narrowed the financial comfort gap between property owners and renters – the first time this has happened since the survey began.

The financial comfort of renters rose 8% to 4.78 out of 10 (its highest point in four years) while the financial comfort of households owning a home outright fell 3% to 6.27 (its lowest point on record).

Consulting Economist for ME Jeff Oughton said the comfort gap between very high income earners and lower income brackets also 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,” Mr Oughton said.

“Together the changes have helped to narrow the big gap in financial comfort that had been widening.

“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 homeowners and 11% of investors expect the value of their properties to fall in 2019.”

Increased saving and less overspending – a sign of concern?

The survey also found 51% of households saved money each month over the past six months, which is the equal highest level on record.

The average saver put away an estimated $862 per month (up 7%), while the average over-spender drew down an estimated $453 per month (down 28%) from their savings or credit.

With the increased savings, the ability for households to handle a financial emergency rose 1% to 4.83, the second highest score on record.

Mr Oughton said property falls and economic and political uncertainty could be the cause of this increased belt-tightening.

“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,” Oughton said.

“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.”

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