Aussies are planning to hunker down this year and save rather than spend in a trend expected to drag on businesses and stymie economic growth and property prices.
New polling has revealed “rebuilding savings” has emerged as the top financial goal for Aussies this year, with respondents indicating they planned to save more even if interest rates were cut.
It suggests widely anticipated cuts in interest rates later this year, which would have the aim of boosting a sluggish economy, may not produce as large an economic sugar hit as regulators would like.
If this scenario plays out it could mean the decision by more Aussies to save, rather than spend, will lead to a higher chance of further RBA cuts down the track.
A common reason Aussies wanted to save more money and reduce their spending was due to cost of living pressures and a financial hangover from years of higher interest rates, the Finder.com.au polling showed.
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Aussies have indicated they plan to save more and spend less, even if rates are cut.
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Nearly half of all Australians surveyed said they had dipped into their savings within the last year to manage living expenses
The average Aussie withdrew $3,600 from a designated savings account over the past 12 months to cover everything from medical treatment to mortgage repayments.
The research found 18 per cent of Australians had depleted their savings to pay for everyday essentials, while one in 10 raided their savings to pay for an emergency expense.
With their savings now depleted, a third of Aussies said their top financial goal this year was to save more and rebuild their bank balances.
Another common priority was boosting income, with about a quarter of Aussies saying this was their biggest financial goal for the rest of the year.
Finder personal finance expert Sarah Megginson said Aussies felt they needed to rebuild their savings after years of overspending. Picture: Supplied
Finder personal finance expert Sarah Megginson said Aussies have set their sights on recovery.
“People want to regain a sense of control over their money, whether that’s by increasing their income, reducing debt, or boosting their super,” she said.
Ms Megginson said the trends pointed to a climate of lower economic sentiment.
“When people prioritise saving over spending, it can directly reduce consumer demand for goods and services,” she said.
“This can lead to decreased sales for businesses, which can have the impact of prompting them to cut back on staff hours, headcount and production.
“Since consumer spending is a major driver of economic growth, a sizeable drop can slow down the economy.”
Some expect Michele Bullock, Governor of the Reserve Bank of Australia, to announce another cut as early as May. Picture: Oliver Contreras
Ms Megginson noted that increased savings was a good thing at an individual household level.
“For individuals, higher savings can provide a necessary financial buffer against unexpected expenses or economic downturns.”
Rebecca Pike, money expert at Finder, said the cost of living has negatively impacted the wealth status of Australians.
“It’s disappointing that households had to empty their savings to stay on top of expenses.
“From health crises to job losses, millions have had to turn to their savings to get themselves or someone they know out of trouble.”
Ms Pike said the cost of living is to blame. “Many are struggling to pay their bills and are left to dip into their savings jeopardising their financial goals.”
Cost of living pressures have been a key theme in the lead up to the federal election. Picture: Jason Edwards
Westpac last week announced it expected the Reserve Bank to cut the cash rate by 0.25 per cent at its May meeting.
Interest rate cuts have historically driven up home prices but the boost from another cut may be less pronounced this time due to looming global uncertainty.
Westpac’s chief economist Luci Ellis told “turmoil abroad” suggested a weaker economic environment ahead.
“Global growth – and especially US growth – will be slower; the response of China will be disinflationary for the world outside the US; and uncertainty is likely to delay decisions on some investment projects.”
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