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Will you spend or save your tax refund?
When it comes to tax refunds, Australians are a little more frugal than you might expect.
Will you spend or save your tax refund?
When it comes to tax refunds, Australians are a little more frugal than you might expect.
While the size of a tax return or refund might vary across Australia, clear spending trends are said to exist.
CBA’s head of behavioural economics, Will Mailer, noted that an annual tax refund is often one of the biggest single cash deposits a typical household receives in a given year.
“At present, one-third of Australians are living paycheck to paycheck, while approximately 40 per cent don’t have a sufficient emergency savings buffer,” Mr Mailer said.
“As such, an end of financial year tax refund is a golden opportunity to progress on a goal, recover from a setback, or build up a buffer for the future,” he noted.
Referencing a recent study conducted by the University of Chicago, Mr Mailer explained that individuals often interpret ‘extra’ money as more easily spendable than their own money returned. Namely, the study offered people a $25 payment, either framed as a ‘bonus’ or a ‘rebate’.
It found 79 per cent of those who were given money labelled as a rebate saved all $25, while only 16 per cent who were given money labelled a bonus saved their total amount.
This might explain why many Australians choose to save their tax refund rather than spend it.
According to data collected last year by ME Bank, 58 per cent of Australians surveyed said they were planning to use their tax return to add to their own savings.
Compared with 17 per cent in 2019, 21 per cent of respondents said they would use their tax refund to pay down their home loan in 2020. Another 18 per cent said they would use their tax return for investment purposes.
Just 22 per cent of respondents confessed that they would use their tax refund for discretionary purchases.
At the time, ME general manager for personal banking Claudio Mazzarella noted that “a tax refund is a great opportunity to establish or bolster your emergency savings, particularly at a time like the present”.
“A tax refund can also provide a good opportunity to maintain assets such as your home, car or health, which can postpone bigger expenses in the future larger expenses down the line,” he said.
Previous data released by ASIC and the Australian Taxation Office suggested that 29 per cent of Australians planned to use their tax refund to pay off outstanding bills in 2018.
“Many people are expecting larger than average tax refunds this year,” Elinor Kasapidis, senior manager tax policy at CPA Australia, told nestegg.
“After nearly 18 months of COVID doom and gloom, it’d be understandable if they felt the urge to splurge. Seeing a financial adviser can help you be more strategic and set yourself up for long-term financial security,” she said.
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