The Global Financial Crisis was bad news for everyone. For many Aussies the impact of the GFC was long lasting; a lot of people lost their jobs, worried more about superannuation and there has been a lot of tightening of purse strings. But it hasn’t all been bad news, Aussies are beginning to take saving seriously as guest writer Peter Wood explains.
Banks are now reporting that this tightening of spending has had a positive effect on Australian savings habits, and in turn on the totals in our savings accounts.
Last year, Reserve Bank governor Glenn Stevens gave a speech mentioning the mining boom, Australia’s economy and the way households have re-embraced the notion of saving. According to Stevens, Australians are back to squirrelling away between 9 and 10 per cent of household income. It’s an astounding result when you consider that five years ago the household saving rate was negative 1 per cent.
Australians have gone from spending more than we earned to learning the importance of having cash on hand. But the financial crisis has taught us deeper lessons than simply needing to save more. What are the true premises behind Australia’s new resolve to boost savings?
Deposit is important
In recent years deposits were around five per cent for the average first home buyer. Low documentation homeÂ loans and loose finance restrictions meant banks were lending closer to 100 per cent of property value for home loans. Now people are approaching banks with more than 10 per cent deposit – both because we have to and because we understand the importance of having equity from the outset. Saving a 20 per cent deposit will also save you adding the cost of mortgage insurance to your repayments.
We understand credit ratings
We have learned from our previous debt levels and have a new preference for accumulating cash rather than debt. Clearing your debts is now seen as a way of getting into the property market sooner (or again). If you avoid that extra credit card, there’s no enticement to spend. And even having a credit card with no debt that is sitting idle can reduce your borrowing power when applying for a loan.
Your superannuation may need a top-up
Superannuation funds were some of the biggest losers of the GFC. As a response, cash in secure holdings such as high interest savings accounts began to look attractive. If you took just $20 a week and put it into an account paying 6 per cent interest, that nest egg would be worth more than $6,000 in five years. Boost that to $50 a week and your five-year windfall is more than $15,000.
Our lost interest equates to billions
As we began paying closer attention to our superannuation, our everyday accounts also needed overhauling.Â It’s calculated Australians miss out on at least $2.6 billion and up to $3.5 billion in forgone interest on household accounts. Shifting your savings from a low-paying transaction account to a high interest savings account means securing a small piece of this and making a big difference.
There are rarely positives to highlight in uncertain financial times, but Australians becoming savvier when it comes to saving money is one good news story that affects us all.