We’ve all seen the headlines: Australia is now facing its first recession in nearly 30 years. The numbers support the claim.Australian Bureau of Statistics data released this week shows the nation’s economy contracted by 7% in the June quarter, the sharpest quarterly fall in the Gross Domestic Product (GDP) on record. It follows another GDP drop of 0.3% in the March quarter. This means the country has now recorded two consecutive quarters of negative growth - the technical definition of a recession, which Australia hasn’t experienced since 1991. Treasurer Josh Frydenberg said these numbers “confirm the devastating impacts on the Australian economy from COVID-19.” Many people are out of work, while others have seen their pay cheques cut. Spending is down too, with a number of recent surveys revealing most Australians are pulling the reins in on discretionary purchases and focusing on savings instead. So, what’s next?
At some point, every Australian might find themselves shopping around for a financial product, such as a home loan or a credit card. And while familiar brands like the Big 4 (ANZ, NAB, CommBank, Westpac) may be front of mind, Roy Morgan research shows the happiest customers actually belong to mutual banks or credit unions.For context, mutual banks are credit unions that have gone through an application process with the Australian Prudential Regulation Authority (APRA) to call themselves a ‘bank’. Besides that, there’s not much difference between the two.Right now over 30 mutual banks operate in Australia - a sector made up of more than four million Australian consumers. And for several years now, they’ve maintained the lead on customer satisfaction, according to Roy Morgan data.In May 2020, mutual bank satisfaction levels hit a high 89.2%, a slight increase from a year ago. Meanwhile the four majors lagged behind at 77.2%. So what’s the magic behind mutuals? Mozo’s banking expert, Peter Marshall says it comes down to their personalised service and strong community focus. “Mutuals and credit unions tend to be smaller than a lot of big traditional banks and more focused on a geographic area or a type of customer, so they can be more in touch with their customers’ needs,” he says.“There’s also that feeling of membership that they give you, because you have become a member of a mutual or credit union to use their product. “A lot of people like that they’re not just another number.”
Lately I've been thinking about what it means to create emergency savings, especially as it keeps bubbling up in my Google searches. The idea of a 'rainy day fund' sits well with me at face value, but it also implies that a person has the flexibility to stash away cash. This is slightly problematic because clearly not everyone is enjoying such financial freedom right now. We know that in this current pandemic-focused world, some people are literally going from pay cheque to pay cheque. So, there actually isn't a rubber-band bound wad of notes under the mattress for these folks. Indeed for some, financial support is a far more realistic solution. This is worth calling out before we press on. We have written up some guides on such support for both individuals and businesses, so they're worth a read if you're interested.If you are fortunate enough to still have regular pay coming in, many online writers, including our own, point toward the value of emergency savings. So, what is that in reality?A recent New York Times article informed me that you can’t just save willy-nilly for an emergency fund, but rather must have a disciplined approach. Specifically, the author suggested saving a regular percentage of your pay or any windfall, like a tax refund. Then, put that little bit of money into a savings account to be used later on.This is what the motivated among us call a "savings goal". The point is that without a fixed visualised goal you'll never achieve the bare minimum saving needed for your emergency. Instead you'll procrastinate or forget. I've read elsewhere that we sometimes propose a savings target that's far too lofty. This can be intimidating, the same way it is to overcome a 3-0 football deficit at the half. Any good coach will tell you if you break the task down into smaller bits, the target will seem easier to hit. You’ll be more upbeat about actually achieving it.
In June, Treasurer Josh Frydenberg announced that Australia had officially entered a recession due to the Covid-19 pandemic, making it the country’s first in almost thirty years.
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