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Biggest improvement in financial conditions for Australians in two decades

Wednesday, 22 January 2014

Record levels: More Australian households saving and paying down debt

Sydney, 20 January 2013 - The quarterly St.George-Melbourne Institute Household Financial Conditions Report released today reveals the biggest annual improvement in financial conditions for Australian households since the survey first launched nearly 20 years ago.

The St.George Melbourne Institute Household Financial Conditions Index increased 4.3% in December to 132.6, the highest level since 2009. The result is the fourth consecutive quarter increase and a rise of 9.3% over the past year, the biggest since the survey commenced in 1994.

The survey also revealed that more Australian households were able to save money, the number almost who saved a lot doubling from three months ago to over 11%. At the same time, nearly half (47.5%) of households were motivated to save to pay down debts, the highest level since 2005 and one which has been consistently increasing since the GFC.

St.George Retail Banking General Manager Andy Fell said that while we saw an increase in retail spending in late 2013, many Australians are still cautious and focused on paying down debt.

"The Household Financial Conditions Index found that the amount of people accruing debt or drawing down on their savings decreased by 2.4 percentage points in December.

"We’re also seeing the record low interest rates continuing to help people save more money and pay off their home loan quicker. More than 40% of St.George customers are ahead on their loan repayments, putting them in a better financial position and more able to save," he said.

Chief Economist at St.George, Besa Deda commented: "Recent gains in house prices and a strong performance in the share market have been a key catalyst behind the record improvement for the financial conditions of Australian households.

Compared to September 2013, there was also a turnaround in the financial conditions for 18-24 year olds, which rose by 48.9% in the year to December, the best annual percentage rise since the series began. The improvement coincides with a significant fall in unemployment for young Australians with more casual positions made available over the Christmas break.

The unemployment rate fell 0.6 percentage points for the 15-24 age group, from 12.9% to 12.4% in November, the biggest monthly fall in fifteen months,” she said. Key findings:

  • The St.George-Melbourne Institute Household Financial Conditions Index rose 4.3% to 132.6 from September to December 2013. The index is a record 9.3% higher above its value a year ago and the highest improvement since the survey began in 1994.
  • More than four in five (83.4%) of Australian households are in a stable financial position with 48.6% of households managing to put savings away in December, an increase of 3.3 percentage points compared to the previous quarter.
  • With momentum in the NSW property market, households in the region experienced the greatest change in conditions, improving 8.6% over the quarter, followed by South Australia with an 8.3% increase. Following the increase in the last survey of 9.4%, conditions for West Australian households fell back by 6.1%.
  • Renters experienced a big decrease in their financial conditions, decreasing 9.1% in December with rental prices continuing to increase. Those with mortgages or who own their home experienced improvements of 5.4% of 8.0%, respectively.
  • Holidays remain the most popular motivation for saving with 57.2% of respondents having a holiday at the top of their list. Saving for a rainy day remained the second most popular reason, nominated by 50.1% of households, but this proportion has been steadily declining over the past nine months.
  • However the biggest jump for motivation to save was repaying debts or bills which increased by 5.7 percentage points to 47.5%. There was also a 5.1 percentage-point increase in the amount of households increasing their debt repayments to be 26% or more of their after-tax income.
  • The number of households with credit card debt increased by 3.8 percentage points, in the lead up to the Christmas period.
  • Car finance (including leasing) experienced another decline from 14.6% to 12.4% in December, suggesting less people might be borrowing to buy a car.
  • Deposits with banks remain the preferred place to hold savings at 84.2%. Banks also continue to be the most popular means for future savings, with 32.6% of respondents saying they would invest hypothetical savings this way, followed by 26.6% who would invest in real estate.
  • Superannuation remains the second most popular destination for savings after deposits at 77.5% of households, a 1.6% increase compared to the last quarter.
  • Shares as a form of saving posted the strongest increase in December of 5.9 percentage points. The recovery in the share market from late June 2013 is likely to have spurred households towards shares.