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Rising inequality? The real story behind the numbers.

Financial Planning  |  8/08/2017  |   5 min read

Feel like your finances are going backwards? You’re not alone. The latest Household Comfort report from ME bank shows that many Australians have a pessimistic outlook about the future.

Based on a survey of 1500 households, the report highlighted the rising cost of necessities, low wage growth and future rate rises as primary reasons for our collective frowns. We’ve highlighted some of the main findings below, and asked our own Chief Investment Officer, Troy Rieck, to offer his take.

Wage Growth

Wage growth for the majority of Australians remains historically low. Around 44% of households reported their income remained the same and over a quarter recorded their income decreased over the past six months. There is also considerable underemployment, with part-time or casual workers looking for additional hours.

As Troy explains, “Wages growth is at an 18 year low, despite a low level of unemployment and an economy that has been without a recession for 26 years. It’s hard for consumers to increase spending when their pay packets aren’t growing strongly.”

Mortgage Rate Rises

Mortgage rate rises in the future are making people nervous. According to the ME Bank report, “A growing number of households are expecting their ability to manage debt to deteriorate in the future – especially if the RBA cash rate rises significantly.”

Troy says that, “Mortgage rates are at near all-time lows, but the proportion of household incomes devoted to mortgage repayments is also at record levels. High repayments are hurting consumers’ ability to spend more on non-essential items. This is only partly offset by rising house prices making homeowners feel more-wealthy.”

Growing Cost of Necessities

A primary concern for many households is the rising cost of necessities. This may include education cost, groceries, energy, etc. When combined with stagnant wage growth and concerns about future rate rises, it’s easy to see where the country’s pessimistic outlook stem from. As one respondent put it, “Our greatest worry is the higher cost of living without any pay rises.”

Troy agrees. “A big issue is the rising cost of everyday living items: gas, electricity, water, etc. This cuts into discretionary spending. But because we pay for these sorts of bills all the time, rising costs on essentials also make people feel like 'the cost of everything is going up'."

Looking ahead

Despite the doom and gloom, and the perception that income inequality is a growing concern in Australia, there are positives indicators to be found in the numbers.

  • Job security has increased, with 69% of people feeling secure about their prospects (up 6%)
  • People have also expressed increased confidence with their Cash Savings, ability to pay their monthly expenses, and overall level of debt. 
  • Anticipated superannuation living standards have also improved, increasing 5% since last year, helped by strong returns over the previous 12 months.


For a more in-depth look at the numbers you can download the free report from ME Bank here.

 

This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Before making a decision to invest in the Equipsuper Superannuation Fund, you should read the relevant Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383.  MySuper Authorisation Numbers 33813823017672 and 33813823017518  (‘Equip’, ‘the Fund’ and ‘the Equip Rio Tinto Fund’).

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