And earlier this month, spending data from most of the major Australian banks showed that the trend had continued for another month, with savings being seen across different age groups and the tax cuts not leading to any sizeable lift in spending in the month of August. As I said earlier, a round of applause for you all.
Saving money is one of those things that, to so many of us, can feel like a chore. If you’re not yet converted to the “savings is the greatest” camp, it’s up there with deep-cleaning the kitchen bin, chopping onions and updating your resume.
Spending, on the other hand, is almost always accompanied by a dopamine hit that makes us want to do it again and again – whether it’s buying a coffee or a new car. So, had we begun to splash our stage 3 cash, it would be understandable.
But the fact that we are, for the most part, now saving it away for a rainy day says a lot about where so many of us are at with our savings right now, and our relationship with money overall.
Despite the collective psychological hell we were all going through at the time, at the height of the COVID-19 pandemic, our savings accounts did pretty well. The Reserve Bank of Australia estimates that across all age groups, we managed to amass an excess of around $300 billion in savings.
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It turns out not being able to travel further than five kilometres for months on end – while interest rates were still low – will go a long way in building up that rainy-day buffer.
But, three years on from the period no one wants to remember – and multiple interest rate rises later – the rainy day has come and gone. New research from Yarra Capital Management shows that the majority of households had spent their COVID savings by March of this year.
Even worse, the data shows that contrary to what Westpac found in August, many Australians aged under 65 have not only spent the entirety of their COVID buffer savings, their accounts are also now below pre-COVID savings levels.
All of which brings us back to the question: should you be spending or saving this new stage 3 cash?
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With little to no emergency fund to fall back on, no certainty as to when mortgage rates might go down or rental prices will settle, or when the cost-of-living vice will ease its crippling grip, it’s little wonder Australians on low and middle incomes are now saving every cent they can. Having savings is essential at any time in your life, but particularly when there is economic uncertainty. Whether it’s a small amount or abundant, every cent saved counts.
If you’re a household with high-interest forms of debt like credit cards, personal loans or outstanding buy-now-pay-later fees, paying those down as quickly as possible and clearing that debt should be a priority.
Any opportunity to save, though, should be acted on – and quickly, as recent research indicates this tax relief is worryingly temporary.
Despite the 2024 cut, the average tax rate for 80 per cent of Australians will be back to current levels – or even higher – by 2027. Meaning this opportunity to put aside a little bit extra is disappointingly fleeting.
Of course, a lot could still happen between now and then. But at a time when inflation is still wreaking havoc, the economy teeters on the verge of a recession and interest rates remain high, some clarity from those running the show wouldn’t go astray.
Victoria Devine is an award-winning retired financial adviser, best-selling author, and host of Australia’s number one finance podcast, She’s on the Money. Victoria is also the founder and co-director of Zella Money.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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