Australian household financial comfort increased to near record highs throughout the pandemic as a result of government fiscal stimulus measures, according to ME Bank's latest Household Financial Comfort Report.
Household financial comfort increased 3% to 5.76 out of 10 in the six months to June 2020, marginally short of its historic high of 5.78, recorded in 2014.
ME Bank's consulting economist Jeff Oughton attributed the high financial comfort to a combination of prudent financial actions by households in response to the pandemic as well as JobKeeper, JobSeeker and the Early Release of Super scheme.
Almost all 11 measures that make up the Household Financial Comfort Index improved, notably the ability to cope with a financial emergency increased 9% to a record 5.25 and cash savings up 8% to 5.48.
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"Fear of COVID-19 and a very weak labour market triggered many households to increase precautionary savings, reduce spending, draw on long-term savings, such as superannuation, and delay bills or loan repayments," he said.
More than half of households spent less than they earned each month, up 8% to the highest level of households saving in the survey's history.
However, Oughton warns this cautious behaviour and a lack of spending may cause a negative knock-on effect to the economy and a deeper recession, especially if the government starts to pull back in fiscal support.
"Government stimulus has bought some time and helped boost the financial resilience of Australian households for now. But a household savings cliff remains as government support tapers. Unless the economy gains momentum, tapering government support too soon could have disastrous consequences on the financial comfort of households," Oughton said.
In June, only 32% of households indicated they could maintain their lifestyle for more than three months if they lost their income.
Interestingly, 21% of households have less than $1000 in savings with just an average of $300 which is significantly lower than the current JobSeeker fortnightly payment.
"Financial comfort levels are up for now, but many households are on the cliff's edge. They've lost income, their jobs and entire livelihoods, their wafer-thin savings buffer is dwindling, and government support is the main action stopping them from falling over," he said.
Almost 40% of households have benefitted from at least one of the recent government payments or taken their own actions in response to the pandemic.
Around one in five households are receiving JobKeeper and or JobSeeker with those aged up to 25 years the largest recipient of JobSeeker at 20% and the second largest recipient of JobKeeper at 14%.
In addition, 8% of households accessed up to $10,000 of their superannuation. This was much higher among those aged up to 25 years, at 30%.
"This survey shows that the financial consequences for households of this pandemic remain critical. Many eyes will be on what governments do in the final months of 2020 and into next year," he said.