Households on the brink of 'savings cliff', ME Bank warns

Government payments have cushioned the financial blow wrought by the coronavirus, but survey findings indicate about one in five of households face losing their footing as stimulus payments recede.

Out of 1500 surveyed households, 315 had about $300 in savings -- notably less than the current JobSeeker fortnightly payment. This is among the headlining findings of ME Bank’s Household Financial Comfort report.

The survey, conducted biannually and now in its ninth year, found the government’s JobSeeker and JobKeeper payments had helped people withstand the financial turmoil brought on by the COVID-19 pandemic, and illuminated some of the risks at stake if the safety net was pulled away too much or too soon.

“Government stimulus has bought some time and helped boost the financial resilience of Australian households for now, but a household savings cliff remains as government support tapers,” Jeff Oughton said, a consulting economist at ME Bank.

“Unless the economy gains momentum, tapering government support too soon could have disastrous consequences on the financial comfort of households.”

The “savings cliff”

Of the 21 per cent of households with about $300 in savings, only seven per cent said they could maintain their current lifestyle for more than three months -- or until the JobSeeker payment begins to taper.

The support payments were enough to help people maintain their lifestyles even as the country veers into a recession, the survey found, pushing the nation’s financial comfort by three per cent -- to a score of 5.76 out of ten. This is just shy of the historical high of 5.78 recorded in December 2014.

But the comfort afforded by a fortnightly stimulus payment, received by about 20 per cent of households surveyed, could be eroded when they are minimised towards the end of the year, Mr Oughton said.

“(The households have) lost income, their jobs and entire livelihoods, their wafer-thin savings buffer is dwindling, and government support is the main action stopping them from falling over,” he said.

“Many eyes will be on what governments do in the final months of 2020 and into next year.”

The survey found about 34 per cent of households were ‘worse off’ due to the pandemic. Of them:

1. 33 per cent cited changes to employment arrangements and job security
2. 24 per cent cited changes to income
3. 24 per cent cited the “impact of COVID-19”

The hardest hit

Among the hardest hit by the pandemic is the generation stretching from the mid 1990s to 2000s, also known as Generation Z.

They were the largest recipient of JobSeeker at 12 per cent, dipped into their savings the most at 27 per cent, and withdrew funds from their superannuation the most at 27 per cent. 

“Gen Z actively took up a variety of support measures to bolster their financial resilience,” Mr Oughton said. “This is likely due to many being employed on a casual or part-time basis across COVID-19 affected industries such as retail, hospitality and tourism.”

Stretch your savings further

The wrong bank account can erode your savings by charging too much in fees or by earning weak interest rates. Finding the savings account that suits your financial situation may help stretch your money further. Consider comparing the different savings accounts available. 

One way that could help your savings grow is by opening an online savings account. These accounts typically have low or no account keeping fees, a high variable interest rate, and can be linked to your existing accounts. The reason for these perks boils down to them being an online only account, so they wouldn’t come with a bank card, for instance. 

Compare savings accounts