It has been widely documented that Australians are choosing to save rather than spend or invest, much to the detriment of retail and other sectors.
Given the current global economic uncertainly, inflation concerns and on-again off-again threats of interest rate hikes, it’s not surprising that we’re putting cash away and saving it for a rainy day. The question is, however, when will the market decide ‘enough is enough’?
Reserve Bank Governor, Glenn Stevens, has pointed out that until recently, household consumption (let’s call it ‘expenditure’) was increasing at a greater rate than household disposable income. The gap between expenditure and disposable income – savings – was therefore closing, and it doesn’t take an economist to work out that this is not a trend that could be sustained for the long-term. And alas, since the financial crisis of 2008/09 we have seen this trend reverse dramatically, and saving levels are as high as they’ve been for a generation.
If this was a correction we had to have, then what impact have the sovereign debt problems in the United States and Europe, and natural disasters in Australia and abroad had on our spending and saving habits?
Homeloans’ general manager retail sales, Greg Mitchell says that while the levels of savings could not have reduced any further than they had by 2008, the acute reversal is clearly more than a correction.
“Global economic uncertainty, CPI increases, rate hike threats and a new tax are not being ignored by householders,” Mitchell said.
“It’s clear that these are all compounding to create an overwhelmingly cautious sentiment.”
In close correlation with consumer expenditure is the value of household assets. Many of us know all too well what happened to the value of our assets as a result of the financial crisis in 2008/09. In parallel with the decline in the value of our assets came a reduction in our spending habits. And with a reduction in expenditure comes an increase in savings.
So if the value of assets such as property and shares is determined largely by sentiment, then are we just waiting for the market to decide that the future looks bright in order for the future to become bright? We reported last month about the possibility of the property market reaching tipping point, and Mitchell is confident that the tide is turning.
“Financial institutions are very keen to lend, long-term interest rate forecasts have softened, and property is, in many parts of the country, under-valued,” he said.
“After a period of saving, some Australians are well placed to make an investment, and I believe over the medium-to-long term that many will see a solid return.”
So whether or not a particular individual or family has managed to fatten up the piggy bank, the fact that as a nation we’ve been saving at almost unprecedented levels puts us in a position to make the switch to ‘spend’, driving up the value of all of our asset portfolios.
See our top 10 tips on saving.
