An interesting question was raised last week about Australia’s return to form as a nation of savers.
From a peak of over 20% in the early 1970’s Australia’s household savings ratio had rolled down a very steep hill to negative territory in the early 2000s.
From there it barely kept its head in positive territory until the big shock of the GFC.
The savings rate swiftly jumped above 10% and remains there today, but there’s now a question – are those savings something that households can draw upon?
Credit Suisse released research suggesting our high household saving rate was illusory because it includes superannuation and didn’t properly account for principle payments on mortgages.
Adjusting for superannuation Credit Suisse found that the current 10% saving level fell to 2%; the scary thing here is, this adjustment means Australia had a negative household savings rate from 1997 to 2008.
Now superannuation is saving, but our capacity to draw from it is limited until retirement.
Then there are principle mortgage payments, when these are removed the savings rate drops from 2% to -3.6% meaning we’ve been negative savers since 1997!
Some people argue paying off the mortgage is saving, but the reality is you’ll always need somewhere to live, so your house is more a consumption item than investment.
And if you take money out of your house, it can only exit as debt.
Now what to do if you’re one of those in negative territory or just want to save?
First stop using credit cards, then start the ‘pay yourself first’ method.
Set up an online savings account and have the money you want to save directly debited from your transaction account.
Without that money you’ll be forced to lower your spending and most online accounts are cardless so impulse won’t be a problem.
UBank’s (NAB) Usaver account is cardless offering 4.31%, if you deposit $200 a month; while RAMS’ (Westpac) RAMS Saver is cardless offering 4.31% if you deposit $200 per month and make no withdrawals.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Searching for the top financial adviser in Australia?
