Capital cities leave regions behind in financial comfort index

Disinfecting Beijing streets

The gap in financial comfort between Australia’s cities and regional areas has hit a record high, fresh research has found.

The unforgiving drought has lifted prices and made it harder to get food on the table in rural communities.

So much so that regional households have seen their financial comfort fall to an eight-year low – even without taking into account the worst of the bushfires.

Australians living in these areas are less able to deal with a financial emergency and increasingly concerned about their retirement prospects, with those in regional Queensland hit the hardest.

The country’s economic woes are in stark contrast to the city’s financial progress.

Record-low interest rates have lifted property prices and financial comfort to near-record highs in Sydney, Melbourne and Brisbane – with residents reporting gains across all measures tracked by ME Bank’s latest Household Financial Comfort Index.

The biannual index asks 1500 Australians to rate their household comfort, confidence and expectations on a scale of zero to 10 across 11 measures such as cost of living and income.

It found that the gap in financial comfort between Australia’s regions and cities is now a record-high 13 per cent – almost twice the average (7 per cent) since the report began in 2011.

ME Bank consulting economist Jeff Oughton said the gap could be even larger than the index suggested, as the survey was conducted in early December before the worst of the bushfires.

“It’s probably one of the first surveys that have given us a significant insight into the impact that the drought’s been having,” Mr Oughton told The New Daily.

The measure that improved the most in the bank’s survey was ‘comfort with debt’, which jumped 5 per cent nationally to a record high of 6.55 out of 10, and 7 per cent in metropolitan areas to 6.66 out of 10. (It fell 1 per cent in regional areas).

Improvement in this measure is perhaps unsurprising given the Reserve Bank dropped official rates to a new record low of 0.75 per cent in October.

It helped drive a 2 per cent improvement in the overall index score to 5.59, with more than a third of national households (36 per cent) indicating their financial situation had improved over the past year.

The report attributed this to “less concern about living cost pressures, fewer households reporting falls in income, more households reporting improvement in employment status and improvements in cash savings”.

“[Cost of living expenses] are still their biggest worry. There’s just been a little bit of easing in it,” Mr Oughton said.

The report also exposed how low interest rates are driving a wedge between the haves and the have-nots.

Overall, low interest rates left more households feeling better off (27 per cent) than worse off (23 per cent).

But one in two said they felt no impact at all.

Responses to the question varied across life stages and housing arrangements, as the graph below demonstrates.

Empty nesters and retirees, who largely depend on the interest earned on savings accounts and other assets, reported the greatest negative impact, followed by those who own their home outright.

Renters and single parents said the rate cuts had left them worse off, too, while high-income earners and people who negatively gear investment properties reported the greatest financial boost.

“Monetary policy is working – there are more people better off than worse off [as a result of low interest rates]. But I guess all this highlights is: Not many,” Mr Oughton said.

“In a broader activity and jobs sense, we’re still not getting the flow on through to jobs and growth,” he said, adding that the federal government must do more stimulate the economy.

“We need the slack in the labour market to be absorbed. And the [stimulus] needs to be targeted at specific groups who will go out and spend that money.”

The report’s ‘winners’

Households in Brisbane, Melbourne and Sydney, where financial comfort rose to 5.82, 5.91 and 5.94 respectivelyHouseholds with a mortgage reported a 4 per cent jump in financial comfort to 5.46. Of those who gained benefit from the RBA rate cuts, 32 per cent increased their mortgage repaymentsHouseholds with incomes over $100,000 reported the largest wage increases and are also more likely to own assets, which normally rise in value when interest rates fall.

The report’s ‘losers’

Regional households, especially in Queensland, where financial comfort fell 14 per cent to 4.95 out of 10Casual workers are the workforce segment with the lowest financial comfort. It fell 4 per cent to 4.80Single parents have the lowest financial comfort across different household types (up 2 per cent to 4.45)Renters continue to report low financial comfort (4.67 out of 10).

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