House hold savings….and the new normal

From the 1960s to the late ’80s Aussie families saved around 15% of what they earned. It seems the proverbial ‘rainy day’ had a little more brevity then. But with the sharp rise in house prices, as well as available credit and relaxed lending standards, household debt began to grow. From the early-to-mid-1990s, as people began to consume with unparalleled vigour, household saving rates (the difference between a household’s income and what it spends) declined sharply.

It seemed, at that point, that credit was no biggie, something to worry about another day – after all, house prices are going to rise forever, there’s heaps of jobs, loads of new opportunities, and pigs are actually flying north for the winter! In the period leading up to the GFC, household savings got so low that Aussie households actually spent nearly .05% more than they earned, all of which pretty much went on the old credit card, until …

Enter the GFC dragon

With the great recession ‘we had to have’ the spend-trend reversed, and household saving rates increased sharply. Today, Oz households save about 10% of their income: a figure that is, apparently, the new norm. RBA information shows that home-owners put up to 90% of the windfall from the past two years of interest-rate cuts towards paying off mortgage debt ahead of schedule. Instead of embarking on another designer-label shopping spree, Australians are building ’mortgage buffers’ and a little more respect for that rainy day.

All this goes some way to explaining why, despite rates hovering at 60-year lows, retail spending remains softer than a wheel of Camembert in Cairns.