A report released by ME Bank showed that the divide in financial comfort between regional and metropolitan households had now reached a record 13 per cent, almost twice the historical average of 7 per cent.
In a conversation with nestegg, ME consulting economist Jeff Oughton explained why there’s a divide between metro and rural stress, albeit as the majority of debt holders are feeling the pinch.
“When it comes to the level of savings, almost 50 per cent of people spend all their income each week, so they don’t have much savings on a weekly basis. They are not confident they could raise money for a financial emergency,” Mr Oughton said.
The economist highlighted the two natural disasters that have hit Australia – with the drought and bushfires forcing regional Australians to spend their savings.
“The sharp fall in financial comfort in regional areas is likely a result of ongoing drought and recent bushfire catastrophes, which have significantly lowered already low levels of financial comfort. ‘Comfort with cash savings’ fell 9 per cent, and the ‘ability to deal with financial emergencies’ fell 7 per cent, while long-term retirement comfort deteriorated, with ‘anticipated standard of living in retirement’ down 7 per cent.”
While regional Australians are suffering from financial stress, metropolitan Australians are able to take advantage of cheaper interest rates, allowing them to feel more financial comfort.
“In contrast, the improvement in the financial comfort of metropolitan households reflected significant gains in all key drivers, with record-high levels of comfort approached in Sydney (up 1 per cent to 5.94), Melbourne (up 3 per cent to 5.91) and Brisbane (up 10 per cent to 5.82),” Mr Oughton explained.
The report also highlighted the impact of record-low interest rates with young singles and couples being relatively comfortable paying down debts.
Almost 60 per cent of property investors with debt are reportedly to benefit the most from record-low official interest rates – arguably reflecting the relatively high gearing of residential property investors, especially those with both home and investment mortgages.
For households who are reportedly “worse off” from the record-low official rate, 33 per cent own their home, 13 per cent are paying off a mortgage on their home and 22 per cent are renting. By life stage, about 40 per cent of “empty nesters” and “retirees” are reportedly “worse off”.
Over 30 per cent of households with lower income (less than $40,000 per annum) are reportedly “worse off”.
In contrast, only 13 per cent with a mortgage on their home and/or investment property were reportedly “worse off”, with about the same proportion (14 per cent) of households with high incomes (over $100,000 per annum).
The notable falls in financial comfort across regional Australia dampened an overall rise in national financial comfort, with ME Bank’s overall Household Financial Comfort Index improving by 2 per cent to 5.59 out of 10 during the six months to December 2019.
Across the 11 key drivers that make up the index, 10 of the drivers improved – with notable improvements in household “comfort with debt” and recent “changes to their financial situation”, the report concluded.
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