Crisis looming without boost to savings

THE LOW level of Australia’s household cash savings is looming as a major crisis for the country in the future, the Financial Planning Association (FPA) has warned.

In a major new report released last week, the FPA warned that unless the level of cash savings are lifted dramatically, retiring baby boomers will put an enormous fiscal strain on public funds in the not-too-distant future.

The report, compiled by the National Centre for Social and Economic Modelling (NATSEM) on behalf of the FPA, found that cash savings held by the average household have fallen by six per cent per year since 1993.

By comparison, the report found the amount of savings held by the average household in the sharemarket grew by 14 per cent since 1993.

However, the report also found that 90 per cent of shares were owned by the wealthiest 20 per cent of households, signalling a dearth in the saving habits of those not occupying the most affluent sections of society.

In what is a wide-ranging report on the state of household savings in Australia, NATSEM also found:

nThe average wealth held by Australian households has increased by 41 per cent in the last nine years — or 3.9 per cent per annum — from $199,000 in 1993 to $280,000 in 2002;

nEquity in the family home is the biggest contributor to wealth for most households, accounting for about 56 per cent, or $155,000, of their total wealth portfolio;

nSuperannuation is the next most significant asset, accounting for 20 per cent ($56,000) of wealth for the average household, and making up almost all of the wealth of the least affluent 20 per cent of households. Of the remaining assets, shares account for $34,000 worth of the average household’s total wealth, while rental properties account for $18,000 and cash deposits $17,000;

nThe most affluent 20 per cent of the Australian population have an estimated average wealth portfolio of $772,000, 40 times higher than the least affluent 20 per cent with $18,000;

nHouseholds in New South Wales are the most affluent in Australia, with an average wealth of $339,000, compared to an average across the country of $280,000. Victoria with $269,000 and the Australian Capital Territory with $259,000 came in second and third respectively, while South Australia and Tasmania are at the other end of the spectrum;

nHouseholds headed by younger people aged 25-34 are less affluent in 2002 than their counterparts nine years ago. Younger households have seen a drop in their average wealth from $198,000 to $121,000 since 1993. However, households aged 45-54 have seen their average home equity alone increase by 42 per cent since 1993.

According to the FPA, the report will form the backdrop of a new savings policy it is developing in conjunction with NATSEM.

The new policy may include a call to allow people to access their superannuation savings before retirement for specific purposes such as deposits for a home, education and health, as an incentive to encourage greater savings.

In July, the FPA told the Senate Select Committee on Superannuation it had hired NATSEM to examine whether such a policy would be viable.

“The introduction of compulsory super has helped to ensure that all households have some savings. However, people need to also focus on their consumption patterns and level of voluntary saving,” FPA chief executive Ken Breakspear says.