Money14 February 2020

Facing challenges to our financial wellbeing


One in three Australian workers say their finances are a major cause of stress1. Our overall wellbeing is being negatively affected by our relationship with money. Money worries don’t only affect financial health; as one of the single biggest causes of stress, it can impact mental health and physical health too if left unchecked2.

With structural changes in the economy, it’s fair to say that the money worries people currently face is likely to worsen. A significant number of serious challenges will continue to face Australians and their money in 2020.

1. Slow wage growth

Australian workers are currently getting the smallest pay rises since WWII3. A range of measures show a significant slowing in wage growth in Australia over the past five years. The Wage Price Index (WPI) grew at an annual average of 2.2% in the five years to December 2018, which compares with average annual growth of 3.3% in the previous five years to December 2013.

In February 2019, Reserve Bank governor Philip Lowe told the House of Representatives Economics Committee, 'Many people borrowed, I think, assuming incomes would grow at the old rate and they haven't, they're having more difficulty, they've got less free cash4.'

2. Working poor

Australia has a large population of working poor. The ACOSS/UNSW Poverty in Australia 2018 Report5 found that of the 3 million Australians living below the poverty line (generally defined as 50% of median household income), nearly 1 million of these rely on wages as their main source of income. Particularly vulnerable are the high percentage of sole parent families living in poverty.

3. Borrowing

To deal with the issues of rising costs and slow wage growth, employees are turning to more borrowing. Australians have the world's second largest household debts, at around 120% of GDP (everything the nation produces in a year)6. We also have nearly twice as much debt as income7, as the level of household debt to income exceed 190% for the first time in September 2019, according to the Reserve Bank of Australia.

Ninety per cent of the nearly 55,000 respondents to the ABC's Australia Talks National Survey rated household debt as a problem for the nation. On an individual level, 37% are struggling to pay off their own debts, with almost half of millennials reporting that debt is a problem for them personally.

4. Home ownership

Owning your home has historically been one of the biggest predictors of wealth in later life. Debt-free home ownership used to be known as the fourth pillar of the retirement income system8 because of its role in reducing poverty in old age9.

The average Australian’s dream of home ownership appears to be waning, down from around 70% to around 66%. Additionally, fewer own a home outright, 30%, down from 40% two decades ago. There are now more homeowners with a mortgage than those without, currently 37%, up from 31%.

High real house price growth relative to income remains a barrier to home ownership, despite current low interest rates. The level of housing debt to income has jumped to an all-time high of more than 140%10. Professor Roger Wilkins, Deputy Director, HILDA, says housing debt has more than doubled in real terms since 2001. ‘It's now averaging around about $350,000 for those with a mortgage debt, compared with around about $160,000 in 2001’.

Mortgage burdens have spiked in the 55-64 age group. In 2001 roughly 80% were mortgage-free. Fifteen years later this plummeted to 56%. These trends are expected to continue. Consequently, as the population ages, a growing number of older Australians will still be paying off a mortgage or paying rent from fixed incomes11.

5. Victims of scamming

A lack of financial education and awareness is compounding people’s abilities to keep their money out of the hands of scammers. According to Westpac’s State of Scams report released in August 2019, nearly one in 10 Australians have been scammed in the past year, suffering an average loss of $12,00012.

The Australian Competition & Consumer Commission (ACCC) revealed scammers were on target to rake in a record $532 million by the end of 2019, with the largest losses being to investment scams. The ACCC Targeting Scams Report 2018 identified that whilst higher losses are suffered by older Australians, there are much higher rates of reports with losses (20% compared to average 10%) by those aged 24 or under13.

What can we do about it?

Financial wellbeing, or the lack of it, affects everybody. At the roll of a dice, anyone can have a financial hiccup that will impact their lives. This highlights that employees across all income levels and life stages would benefit from improved financial education, and financial wellbeing.

So, what can be done? There’s no simple answer to the problem. But if you can learn how to do more with your money, you will be in a much better position to navigate any financial hiccups.









Why you live beyond your means...

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