Dissecting the household savings ratio

Drilling down into statistics on household savings indicates Australians aren’t as thrifty as portrayed by the official data. Only some segments of the population are meaningfully saving for a rainy day.

A recent report by Digital Finance Analytics (DFA) based on the Australian Bureau of Statistics’ (ABS) national accounts data for June 2013 that were released in November, shows that after virtually hitting zero in 2003, the housing savings ratio had recovered to 9.6 per cent by June 2013.

Based on its own household surveys and using the same methodology as the ABS, DFA calculates the ratio has since dropped back to around 8.2 per cent.

Is this good or bad? DFA looked at 40 years of data and found that the ratio of household savings to income peaked at around 17 per cent in 1974. The latest official reading of 9.6 per cent is the highest since the mid-1980s.

Biggest savers are aged 50 to 70


DFA then looked at the savings ratio by age group. Unsurprisingly, those aged between 50 and 60 years are saving hardest, squirreling away more than 16 per cent of their household income.

The next thriftiest bunch is aged 60 to 70 years old. In fact these two age groups are the only ones saving more than DFA’s estimated current average ratio of 8.2 per cent.

Even those aged between 40 and 50 years, and people over 70 years of age have below average savings ratios of around eight per cent, while people aged between 30 and 40 are saving less than four per cent of their income and those in the 20- to 30-year age bracket are saving just slightly more than two per cent.

Young growing families, battlers save least


DFA also cut the data by household segment. In order of thriftiness are self-funded retirees, the exclusive, namely the nation’s wealthiest living in exclusive suburbs, stable which refers to affluent and established households in mid- to outer suburbs, multi-cultural and suburban households, the latter being a mix of white and blue collar workers.

These five segments are doing the heavy lifting in terms of the national household savings ratio.

The savings ratios of the affluent young who tend to live in apartments in trendy inner-city suburbs, of households in rural areas, and of seniors living in metropolitan and provincial areas, including those in nursing homes and retirement villages, range between just over six per cent and slightly under four per cent.

Understandably, young growing families, defined as new home buyers living in affordable housing estates on urban fringes, the disadvantaged and battlers are saving the least with savings ratios of two per cent or less.

Downsizers saving most, first-home buyers least


Examining the data by property segment, DFA found that downsizers, upsizers and those staying put are punching above their weight when it comes to saving. Those who are refinancing their home or who own a single investment property are saving slightly less than the national average.

First-time buyers are saving the least, around two per cent of household income, as they plough everything into their mortgages, while those who want to buy and people with more than one investment property are saving around four per cent.

DFA’s analysis is consistent with the findings of Commonwealth Bank of Australia’s Home Finance Index survey. It found that for the first time in four years next-time home buyers – those who already own a home and are trading up or down – are saving a higher proportion of their income than first-time buyers, saving almost 17 per cent of their income. First-time buyers’ savings are at record low levels.

DFA concludes that looking at the headline housing savings ratio gives little insight into what is really going on. “There’s a need to drill into the details to get a true handle on what is happening.”

Overall, savings ratios are on the decline and remain significantly lower than in 1975.

Categories
Banking,
Tags:
Digital Finance Analytics, DFA, Australian Bureau of Statistics, ABS, savings, households, first time home buyers, research
Author:
Marion Williams, mwilliams@financialpublications.com.au
Article Posted:
July 03, 2014

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