CANBERRA, Australia – Recent data released by the Australian Bureau of Statistics (ABS) shows the highest boost in Australian households’ savings ratio.
Despite the adverse effects of the COVID-19 pandemic to the economy, data gathered in the June quarter of this year reveals a high increase in the household savings ratio. In the latest data from ABS, household savings rates jumped up to at least 19.8 per cent. The rate is even significantly higher if super funds are counted, showing a rise of up to 24.8 per cent. These numbers have been the highest the bureau has seen in the country in 40 years.
The previous months posed many challenges in nations and economies struck by the COVID-19 catastrophe. The disrupted industries, increased unemployment rate, higher government and company spending, and many more factors pushed Australia to the first recession it has seen in 29 years.
On a positive note, a good thing that emerged out of the chaos is the increased household savings and lower consumer goods spending among many Australians.
For the last 30 years, Australian households save, on average, 4.7 per cent of their per annum net income. However, at the end of the June quarter, household spending decreased, giving household savings a significant boost that amounts to at least 42 billion dollars. Including the funds saved from the early superannuation release scheme, household savings already amount to 71 billion dollars.
The early release of the superannuation funds to working Australians is one of the government’s notable COVID-19 responses. Superannuation funds are government-mandated contributions employers have to pay to each of its employee’s super funds or accounts. The amount of distribution depends on the employee’s tenure and overall income per hour. However, the withdrawal of these funds is postponed until the employee’s retirement. This program ensures that Australians will be given a decent self-funded retirement, even without retirement loans or insurances.
In some cases, the superannuation fund can also be redirected and released to eligible employees. The government has used this program to relieve pandemic-affected Australians, especially those whose finances and income was reduced due to COVID-19 effects.
In recent weeks alone, superannuation fund releases have already reached 33 billion dollars, as stated by the Australian Prudential Regulation Authority (APRA). This program has already reached at least 3.2 million Australians.
During the early weeks of this month alone, at least 49,000 applications were received, with 27,000 being new applications and 21,000 as repeat ones. The superannuation scheme released millions and billions of funds to Australians each month since applications were opened. The biggest amount of super funds released in the records was in June, where at least 6.2 billion dollars were withdrawn. On average, new applicants access at least 7,402 dollars from the scheme, while repeat applicants accessed 8,426.
This government relief relevantly helped in the increase of the Australian household budget, thus, also increasing household savings.
Another major factor that directed this increase is the recorded low household spending ratio. Australians received more funds through the various government COVID-19 relief packages but decided to put more budget aside, decreasing household spending on consumer goods.
Among many categories, spending is the strongest in furniture, home improvement, and electronics. ABS statistics reveal that spending on furniture and other household goods categories increased to 1.8 billion in the June quarter alone. This number is seen to be an effect of the countrywide lockdown as mandated to contain the COVID-19 virus.
On the flip side, this is still an irrelevant amount as an extraordinary decrease in spending on many other categories is also recorded. According to ABS’ data, there was seen to be over 33 billion dollars of expenditure reduction on the remaining categories.
The bureau’s analysis is that many Australians chose to improve their savings using the government’s income support rather than splurging transportation or travel. The pandemic-related lockdown is also a contributing factor, banning Australians from leaving their areas at the global catastrophe’s peak.
Adding to these factors further, credit card debt is also at a noteworthy decrease from 28.4 billion dollars at the end of 2019 to only 22.4 billion dollars in June of this year, falling up to more than 20 per cent.
Prominent banks and other financial services have also recorded an increase in savings accounts and term deposits. The Commonwealth Bank of Australia has reported a five per cent hike in its savings accounts from January to July of this year. Zip, one of the largest alternative finance firms in the country, has also recorded an increased repayment rate from its customers’ accounts to 16 per cent in May from the 13 per cent last year.
Other factors that instigated this record-high household savings rate are the bank considerations related to the pandemic response. A great portion of Australian household debt is housing-related loans. The Commonwealth Bank of Australia has already implemented cuts on its home loan rates of an all-time low of 0.25 per cent. With the bank announcing the unlikely increase of these rates for at least three years, housing debts now records the lowest since 2002 at 5.6 per cent.
However, with the increased household savings and decreased home loan interests, a rise in the number of home loan commitments is also at hand. In July alone, new housing loans, especially in the owner-occupier category, rose at 8.9 per cent. ABS has identified this increase as the highest rise in the series’ history.