Australians tighten their belts, keep cash close as deposits surge

Nearly half of Australians are cutting back on spending they made before COVID-19, new research indicated.

Yet many who are in a better financial position are stashing away their cash in deposit and offset accounts, as they respond to an uncertain economy.

The proportion of people tightening their belts outweighs those who are maintaining (31 per cent) or increasing (21 per cent) their levels of spending, the Melbourne Institute’s latest survey of 1,200 adults, conducted in the first week of September, showed.

Professor Guay Lim, lead author of the survey report, described the spending findings as “sobering”, but pointed out that the future outlook has become more positive.

“There are indications of an increase in expected spending from early 2021,” she said.

“While 52 per cent of Australians report spending more or the same as before the pandemic, overall 67 per cent expect to be doing so in six months’ time.”

Thirty per cent of poll respondents believe they will be spending less in March 2021 than pre-pandemic days, slightly down by 2 percentage points from the previous survey in early July.

Spending across the states

Despite the survey’s relatively optimistic outlook, it noted that the states are likely to experience varying recovery rates, as what Australians are spending and expecting to spend differ across the states.

More people in NSW, Victoria and South Australia are limiting their spending than before COVID-19 when compared with July. But in Queensland and Western Australia, more people are maintaining or increasing their expenses.

“The differences in actual and expected spending across the major states appear to be closely related to changes in their households’ financial conditions and in how often people in each state limit activities outside of their own homes,” the survey report wrote.

The proportion of NSW residents who have not changed or have increased their spending fell by 10 percentage points to 51 per cent in the two months to September, making it the biggest drop in those spending the same or more.

Fewer people in NSW and South Australia anticipate spending to have recovered in March 2021.

“It appears that lower numbers of new cases and easing restrictions in these states have yet to translate through to higher consumer confidence and activity,” the report noted.

A different story is unfolding in Victoria. Despite 53 per cent of Victorians cutting back spending for now, one in five say they are in financial stress, and more people expect to be spending the same or more in March next year.

“Victorian households are resilient and optimistic about future spending, with 70 per cent expecting to spend the same or more in March 2021,” the report wrote.

Notably Queensland and Western Australia have seen an increase in the proportion of financially comfortable households, likely due to the easing of restrictions, which has pushed up confidence and willingness to spend. 

Aussies take financial action

As some states enjoy higher financial comfort, the share of households in a “fragile financial position” has more than doubled since before the pandemic, a separate survey of 1,145 Australians from the Financial Planning Association (FPA) showed.

But many Australians are taking things in their own hands.

Four in five Australians took steps to deal with the financial impact of the pandemic on their household, the survey showed.

About 64 per cent cut back on their discretionary spending, while 48 per cent also scrimped on essentials and more than a third cancelled their paid memberships.

Nearly one in five sought additional work and 13 per cent reached out for financial support or applied for a loan.

While many Australians are shifting their spending patterns temporarily, some also believe it could take longer for them to return their consumption to pre-pandemic levels.

Almost half of survey respondents are aiming to bring their spending on non-essentials, including dining out and social activities, back to normal within six months. One in five expect this could take up to 12 months.

Household deposits, mortgage offset accounts see a boost

The survey findings on spending patterns come as new data paints a picture of a country keeping their cash close.

Household deposits jump by 6.4 per cent, or $64 billion, during the pandemic between March and July, the latest figures from the Australian Prudential Regulation Authority (APRA) showed.

Australians have also been setting spare money aside in their mortgages.

Funds in offset accounts surged to $178 billion in the June quarter, up by 2.5 per cent on the previous quarter, and 12.4 per cent from June 2019.

Sally Tindall, research director at RateCity, said while many have lost their jobs or had their working hours and income reduced, others who are still in their jobs have seen a boost in their savings.

“Months of low-cost lockdown living, reduced transport costs, bans on travel and free childcare services has given many family budgets an unexpected lift,” she said.

For many, this was also helped with the early release of superannuation.

Rather than spending the extra cash, many of these people opted to squirrel away their savings into their mortgage to improve their financial position. 

“COVID-19 has reinforced the importance of having a rainy day fund, because what this pandemic has shown us is that no-one really knows what lies ahead,” Ms Tindall said.

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Source: RateCity. Note: Data accurate at time of publishing.

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