ING DIRECT, Australia’s fifth largest retail bank, has launched its first quarterly Financial Wellbeing Index. It provides unparalleled insights into how Australian households are managing personal money matters, and over the second quarter of 2010 household financial wellbeing has enjoyed a significant upswing.
Results for the June quarter 2010 (Q2)
- Financial wellbeing has improved since the first quarter of 2010 (Q1).
- Households are more comfortable personal debt than any other aspect of financial wellbeing.
- Australians are working hard to pay off personal debt. The median mortgage balance is currently $175,509, down from $177,259 in Q1.
- Median credit card debt per household has fallen from $1,802 in Q1 to$1,673 in Q2.
- Efforts to pay down debt have seen personal savings suffer. The median value of household savings in Q2 was $6,848, down from $7,677 in Q1.
Financial wellbeing is improving
The ING DIRECT Financial Wellbeing Index rates household comfort levels across the six key aspects of personal financial wellbeng including credit card and mortgage debt, household income, personal savings and investments, and ability to meet regular bills. Our respondents rated their personal comfort level across each area on a scale from 1 (‘very uncomfortable’) to 7(‘very comfortable’). The average of these scores is indexed to the scale midpoint, so that a score of 4 has an Index value of 100.
In the first quarter of 2010 (Q1), the ING DIRECT Financial Wellbeing Index stood at 108. By the second quarter of the year (Q2) the Index had risen to 113 indicating a noteworthy rise in household financial wellbeing.
Mortgages prove no problem for Australian home owners
Despite a string of rate hikes earlier in 2010, Australian home owners are more comfortable with long term debt (mortgage plus personal loans) than any other aspect of their financial wellbeing. The comfort level of 6.5 (out of a possible 7) is the highest across each of the six focus areas.
Mortgage holders are working hard to pay off their loan. The median mortgage nationally is $175,509 down from $177,259 in Q1. Almost one in two (48%) mortgage holders are ahead with their loan, up from 46% in Q1. Only 3% say they are falling behind with their loan.
Cutting back card debt – 55% very comfortable
Households are comfortable with credit card debt too. The majority of cardholders (61%) pay off their card in full each month, up from 58% in Q1. As a result, median card debt per household has fallen to $1,673 in Q2, down from $1,802 in Q1.
Scaled back balances have seen the number of households who are ‘very comfortable’ with their card debt rise from 49% in Q1 to 55% in Q2. Only 13% are ‘very uncomfortable’ with their credit card debt.
Incomes rising – 82% ‘comfortable’
As the labour market returns to normal, households are more content with their income and comfort levels rose from 4.0 to 4.3 over the last quarter. The vast majority of households (82%) are comfortable with their income. Nationally, the median annual household income is $63,571.
17% finding it hard to meet bills
Despite rising living costs, comfort with household bills scored an overall rating of 4.0 in both Q1 and Q2. However 17% of households are struggling to meet bills, up from 15% in Q1.
Savings our chief concern ‐ 17% have none
Personal savings is the Achilles heel of Australia. Comfort with personal savings rated just 3.6 out of 7, the lowest across the six focus areas. This concern reflects a shrinking pool of household savings ‐ the median value of spare cash per household fell from $7,677 in Q1 to $6,848 in Q2.
Alarmingly, 17% of Australians say they have no savings at all. This isn’t limited to low income households ‐ 11% of households earning annual incomes of $100,000‐plus report having zero savings.
Long term investments put on back burner while we focus on debt
Australians lack confidence in their long term investments. The overall comfort score of 3.9 reflects low levels of investments outside the family home. One in four households has less than $50,000 in assets; 15% of respondents have no investments at all.
ING DIRECT CEO Don Koch said, “The ING DIRECT Financial Wellbeing Index gives extraordinary new insights into the financial welfare of Australian households. What we’re seeing at present is a big effort by households to scale back personal debt.”
“Whether it’s fallout from the global financial crisis or lessons learned from the Greek debt crisis, many Australians have reduced their home loan and credit card balances over the last quarter. The effort is all the more significant as this period included two rises in the official cash rate.”
“We’re now more comfortable about our debt levels than any other aspect of financial wellbeing but it’s come at the cost of persnal savings. In many households the pool of spare cash is drying up, and this poses a real threat if unexpected bills crop up” Mr Koch said.
Mr David Breen
The ING DIRECT Household Financial Wellbeing Index was complied by Galaxy Research from the online responses of 1,008 households recorded in April 2010 (Q1) and July 2010 (Q2).
The data was weighted by region and household size to reflect the Australian household population based on the 2006 census. The level of savings reported in the study is also calibrated to APRA national bank total deposits (households) to ensure accuracy of household savings levels.
About ING DIRECT
ING DIRECT began operating in Australia in 1999. By doing business online, over the phone and through intermediaries, ING DIRECT keeps it overheads low and passes the savings onto customers in the form of competitive rates. Today, ING Direct has grown to become Australia’s fifth largest retail bank, with around $21 billion in deposits, more than $37 billion in mortgages and more than 1.4 million customers.