In a clear sign of how tight household finances have become for many Australians, the latest data from the Australian Bureau of Statistics (ABS) reveals that the average household saved just 0.6% of their income in the June quarter. This marks a significant drop from previous years and highlights the growing financial strain on households due to rising interest rates and cost-of-living pressures.
During the pandemic in 2020, when strict lockdowns were enforced and interest rates hit record lows, Australians drastically cut back on their spending. As a result, the household saving ratio skyrocketed to an all-time high of 24.1%. The combination of government stimulus packages and reduced opportunities for discretionary spending meant that many were able to accumulate substantial savings.
However, the situation has changed dramatically since then. As illustrated in the graph below, household savings have been steadily declining, largely due to rising interest rates and increasing inflation. These factors have eroded disposable income and left households with less money to put aside for savings.
How Does This Compare to Historical Averages?
Looking at the long-term data, the average household saving ratio since 2000 has been around 5.0%. The current level of 0.6% is well below that average, indicating that many households are feeling the pinch. Despite this, it’s worth noting that there have been more challenging periods in the past. In fact, since 2000, there have been 14 quarters where the household saving ratio was negative, meaning Australians were spending more than they earned. So, while savings levels are low right now, they haven’t yet fallen to the point where people are going into debt to cover day-to-day expenses.
What Could the Future Hold for Household Savings?
With inflation beginning to ease and some analysts predicting a potential rate cut on the horizon, there is cautious optimism that household saving rates might improve in the near future. Lower interest rates would reduce mortgage repayments and other borrowing costs, potentially freeing up more disposable income for savings. However, much will depend on broader economic conditions and how quickly cost-of-living pressures subside.
For now, many Australians continue to feel the financial squeeze, and saving money has become more challenging than ever
