Half of households just managing to pay mortgage and other bills: ME Bank survey

More than half (53%) of Australian households have no income left at the end of the month once they have paid their mortgage and other bills, according to the latest ME Bank Household Financial Comfort Report.

The report found that 43% of households break even and 10% spend more than they earn by drawing on savings, loans, credit or equity in their homes.

The most financially vulnerable are single parents, with 43% indicating they would not be able to maintain their lifestyle for a fortnight without a pay cheque, compared with 20% of couples with young children, 16% of couples with older children, and 9% of retirees.

The findings were based on a survey of 1,500 households and show that retirees (5.56 out of 10) and couples with older children (5.15) are households most comfortable with their level of savings.

Source: ME Bank

Evidence of a lack of a financial buffer for many Australian households comes a day before the RBA makes a decision about whether to lower the cash rate at its October monetary policy meeting.

A 25-basis-point rate cut would cut mortgage repayments by about $50 a month on a $280,000 variable mortgage.

It also provides some granularity to ABS household savings data, which shows that the saving rate from current household disposable income was at about 9.5% in the first half of 2012, relatively high by historical standards.

Jamie McPhee, CEO of ME Bank, says the findings indicate large segments of the Australian population are finding it difficult to save from current income.

“A savings buffer is critical if households lose an income and unsurprisingly it is those households who have low comfort with their level of savings who also report they would struggle to manage if they lost their income.”

“Banks have a responsibility to help people save through helping customers better understand their finances, providing lower cost banking products, and being straightforward and responsible in their interactions with customers,” he adds.

Despite the struggle for many to save money, the report found an overall improvement in household financial comfort, which increased to 5.39 (out of 10) in June 2011 from 5.20 in October 2011 as measured by ME Bank’s Household Financial Comfort Index.

The index measures overall household financial comfort, by asking respondents to estimate their financial comfort as well as their expectations and confidence across 11 measures, and the gap between perceived financial comfort and an objective measure of their actual financial situation.

The index also showed household financial comfort is influenced by employment status, with part-time (4.87 out of 10) and casual workers (5.07 out of 10) having the lowest financial comfort of people with jobs, while unemployed people (4.40 out of 10) had the lowest financial comfort of all.

Superannuation was shown to be the most significant driver of higher levels of financial comfort, with high comfort levels (greater than eight out of 10) observed for households with super balances of greater than $200,000.

On a state-by-state basis ACT households are the most financially comfortable (6.22 out of 10) followed by Western Australia (5.64), Victoria (5.62) and Tasmania (5.60), which are all above the national average (5.39).

Both Victorian households and Tasmanian households recorded an improvement in financial comfort compared with the October index.

South Australians are the least comfortable with a comfort rating of just 4.84

“The fall in financial comfort for South Australian households reflected deterioration in all components of the Index and was also related to greater perceived difficulties in finding a job in South Australia compared to the rest of the country,” say McPhee.

“Financial comfort remained fairly stable for New South Wales and Western Australia, with the former less comfortable than Australia as a whole and the latter significantly more comfortable.

“Financial comfort for Queensland households is similar to Australia as a whole, reflecting a significant improvement up from a low in October 2011 that was associated with the earlier negative impacts of last year’s widespread flooding and Cyclone Yasi," he says.