ME Bank warns Aussies will struggle without government support

By Tara McCabe ·

Despite the recession and Covid-19, financial comfort for Aussie households has actually increased over the past few months. The question is, are these newfound comfort levels longlasting, or a sign of skating on thin ice?

This surprising turn of events was revealed by ME Bank in its latest Household Financial Comfort report. The research shows that government support combined with Aussies becoming more money conscious has pushed financial comfort to a record high in recent months.

ME Bank’s consulting economist, Jeff Oughton says, “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.”

Some Aussie households have less than $1,000 in savings

According to ME’s findings, around 21% of households have less than $1,000 in savings. Three percent said they would be able to maintain their current lifestyle for six months if they were to lose income, while 7% said it would only take them three months to get into hot water.

Oughton says that while government stimulus has bought some time and helped boost financial resilience for households, a savings cliff is still looming for many Aussies, should government support taper.

“Unless the economy gains momentum, tapering government support too soon could have disastrous consequences on the financial comfort of households.”

Prior to the JobKeeper and JobSeeker announcements, 34% of households said they were worse off as a result of the pandemic. Things could just as easily go downhill again for many households, should government financial support be reduced.

“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 water-thin savings buffer is dwindling, and government support is the main action stopping them from falling over,” says Oughton.

Lifeline for Gen Z and single parents

Although financial comfort for Gen Z and single parents has increased the most, the reality is that to remain financially stable, many have had to apply for government support, dip into their savings and super fund.

The number of Gen Zs who accessed their super early was three times higher than the national average. Around 27% were forced to dip into existing savings and 26% delayed or deferred bill payments.

Future Super co-founder Kirstin Hunter commented on the government’s early release of super scheme this month saying that superannuation was never intended to be used as a national relief fund.

Hunter said that a 32-year-old who withdraws $20,000 now could have $50,000 less in their super by the time they retire.

Building an emergency savings fund

While financial support is available at the moment for those who have lost work, over the long term it is still a good idea to have an emergency savings fund to fall back on.

We’ve come up with three easy steps to get you started on your’s:

  1. Review. Look at how much, if any money you have saved at the moment and think about how much you want to save and how much you can save realistically. Tip: Having enough money to cover three months worth of costs is a good rule of thumb to follow.
  2. Read. Read our essential guide to building an emergency savings fund to find out what your stash needs to cover and how you can get the ball rolling.
  3. Re-energise. Re-energise your savings with a high interest savings account. While some savings rates are close to zero right now, others are over 1.50% p.a. Compare savings accounts and make sure you’re receiving the most competitive rate possible.

Check out the savings accounts below for more options on where to keep your emergency savings fund.

  • Compare savings accounts - last updated November 26, 2020

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    Tara McCabe
    Money writer

    Tara McCabe writes across all areas of personal finance here at Mozo from banking through to insurance. Tara is expert at practical money tips, showing readers ways to live richer and be socially conscious while doing it. She earned a BA (Hons) in English Literature from Canterbury Christ Church University.