Every month it seems that there’s a new report by some institution either saying how good or terrible we are at saving.
However one official measure is through the Australian Bureau of Statistics' (ABS) household savings rate, published alongside its gross domestic product (GDP) measurements every three months.
Savings ratios sky-rocketed during the pandemic amid an influx of stimulus money and lack of ways to spend it.
But soaring inflation and resulting interest rate hikes since have seemingly hit Aussies in the hip pocket. The household savings ratio was sitting at its lowest level since 2008 last quarter.
Inflation vs wages growth
One factor that's likely put a dint in Australian household savings is the fact that the nation has not recorded real annual wage growth since the March 2021 quarter, with inflation outpacing wages growth ever since. That means Australian workers have been effectively earning less money.
Meanwhile, the Reserve Bank of Australia (RBA) has been on a hiking spree since May 2022, lifting the cash rate from an all-time low of 0.1% to an 11-year high of 4.1% at the time of writing. That's likely left borrowers feeling worse off financially.
With money proving to be tight for a wide range of Australians, what are we doing with what we have? Are we spending it lavishly, or are we being more conservative and stashing it in our savings accounts? Based on research from numerous entities, it looks like the latter.
The table below displays a snapshot of savings accounts in Australia with some of the highest interest rates on the market:
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Average savings in Australia
According to data from NAB, the average Australian had around $34,000 tucked away in a savings account as of late 2022. The bank surveyed more than 2,000 Australians to make its findings.
However, the amount of general savings a person held varied significantly across various demographics.
In capital cities, the average punter held around $38,000 in savings, while their regional and rural counterparts respectively boasted around $28,500 and nearly $27,000.
The amount a person holds in savings was also found to differ between men and women. Men aged between 50 and 64 were found to have the healthiest savings accounts, with an average balance of $106,000, while women of the same age had around $23,000.
Average Australian's savings by age
| Age | Average savings for men | Average savings for women |
|---|---|---|
| 18-29 | $18,712 | $11,153 |
| 30-49 | $27,005 | 24,081 |
| 50-64 | $106,236 | $22,759 |
| 65+ | $98,312 | $46,044 |
Source: NAB
Household savings ratio
The bank's research also found 73% of Aussies were trying to grow their savings. However, one in five had watched their balance slip over the previous three months.
Meanwhile, more than half of those surveyed were worried about the rising cost of living, with lower income households the most anxious.
That makes sense given the household savings ratio – the ratio of household income saved to household net disposable income – has been slipping lower in recent times.
It hit lofty highs of more than 20% in mid-2020. According to the ABS, the rise in household saving was driven by increased household income, coupled with a decline in spending.
But those days are behind us. At last count, the household savings ratio was 3.7% – a 15 year low.
Aussies re-evaluate spending amid cost of living pressures
While the rising cost of living, largely driven by inflation and rate hikes, has put pressure on Australians, many are successfully shifting their spending habits to overcome the challenge.
After reaching out to more than 570,000 of its customers through a pro-active check-in program, NAB found half of consumers are re-evaluating and prioritising their spending to save cash where they can.
An average Aussie is saving $286 a month by cutting back on things like restaurant meals, barista-made coffees, and travelling by car.
"Australians have become ‘considered consumers’ by prioritising those things that they consider personally valuable,” NAB group executive of personal banking Rachel Slade said.
“For some, that means keeping the daily coffee and croissant while for others that means saving on takeaways to secure Taylor Swift tickets – it’s about personal choice and deciding what trade-offs suit your own values and lifestyle.”
Savings vs debt
Meanwhile, fewer people appeared to be signing up to large mortgages over the first three months of 2023, compared to the same point of 2022.
Australian Prudential Regulation Authority (APRA) data shows us that of the new residential mortgage loans written in the March 2023 quarter, 7.5% were to borrowers with debt-to-income (DTI) ratios above six. That marked a 15.6 percentage point drop on the March 2022 quarter's results.
This came off the back of a drop in home lending.
There was an 8.5% fall in the value of residential mortgage loans written in the quarter – coming in at around $145 billion worth. That means nearly $10.9 billion of loans written over the first three months of the year were to those borrowing more than six-times their income.
Meanwhile, many Australian homeowners are feeling the impact of mortgage stress. Research by AMP Bank found nearly 70% of all mortgage holders are worried about meeting their repayments now and if rates were to keep rising.
Looking beyond home loans, Australian credit card debt was at around $18.4 billion in April, according to RBA data. That's 4% higher than its 2022 low of nearly $17.7 billion.
See Also: Save, Invest or Pay Off Debt First?
Why do Australians save?
Despite interest rate pressures, the Australian dream is well and truly living on. A third of Australian savers have been found to be stashing their cash in the hopes of buying a home.
That's according to Bank of Queensland. It collected data from more than 10,000 Australians holding one of the banking group's digital savings account.
Other top savings goals held by Aussies included holidays (17%), a new car (7%), and – perhaps most wisely – a rainy day fund (14%).
Age-old goals of getting out of debt, getting married, or getting an education each accounted for between 2-3% of savers.
The remaining fifth of savers had something else on their mind.
Do Aussies use their savings account?
According to 2,000 Australians surveyed by NAB in February and March, most of us have money tucked away in a high interest savings account.
Interestingly, it's the younger generation that's leading the way when it comes to putting their spare cash in high interest accounts. More than two thirds of those aged between 18 and 29 hold their savings in a high interest account, compared to half of those over 30 years old.
So, where do the remaining Australians choose to keep their extra money?
- Interestingly, 26% keep their savings in cash
- Term deposits are another a common wealth building tool, utilised by 29% of those aged over 65 and 7% of those aged 18-29
- Another 15% use their savings to offset their mortgage
Having a savings account is useful for keeping money in a safe location and accumulating interest.
It’s also generally a good idea to have at least three to six months' worth of living expenses in liquid cash in case something unexpected happens, like losing your job or falling ill for a lengthy period. This is called an emergency fund.
How to save money
Depending on who you ask, you’ll get various answers to the same question: how much should I be saving out of every paycheque? You’ll find that most ‘experts’ will say between 10-30%, but this obviously isn’t possible for people who barely make enough to get by, are experiencing mounting debts or have other expenses, like caring for a sick loved one.
The first step towards savings is budgeting – doing a monthly budget of all your expenses can give you a good starting point. From there, you can cut out unnecessary expenses or prioritise the more important ones. You should then move on to clearing debts if you have them. Having money sitting in a savings account might not mean much if you’re getting charged through the nose in loan interest.
When you do decide to set a savings goal, start small, and work from there. Achieving a realistic goal can give you the confidence to kick on and save bigger amounts over time.
Article first published August 2019 by William Jolly, last updated July 2023
Image by Marco Lopez via Unsplash
William Jolly
