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Death of the household budget puts Aussies at risk of financial shock

08 Sep, 2014

Government efforts to improve financial literacy needs a reboot with new research revealing the household budget is dead and Aussies are making financial decisions based on their bank account balance.

The ‘State of the Household Budget’ report (1) by personal loan specialist Fair Go Finance found two-thirds (67.9%) of Australians don’t have a household budget and over half (56.3%) rely on bank account balances to manage their money, in effect living day to day and making financial decisions based on one number.

Fair Go Finance Managing Director, Paul Walshe, said this behaviour is akin to choosing a travel destination based on the amount of petrol in the car and can be incredibly risky.

“Aussies who don’t budget are playing a high risk game, especially if they haven’t accumulated a savings nest egg to rely on. They’re not protecting themselves against a “financial shock” such as job loss, nor are they providing for their future,” Paul said.

When asked why they don’t budget, respondents were either apathetic with two in five (43.4%) claiming they don’t care. The remainder blame a lack of time (18.7%), say it’s too hard (13.5%) and the fact they’re scared about what they will find (12.7%)!

Women were more likely than men to claim they didn’t have time (26.2% v 9.3%), it was difficult (16.7% v 11.6%) or scary (16.7% v 9.3%). With women more likely to end up in retirement with less savings and superannuation (2), the lack of budgeting is a genuine concern.

Paul commented, “Clearly the last 20 years have been good to Australians with unemployment and inflation relatively low, however this seems to be changing and people won’t know how to respond as they have lost the discipline and skills of budgeting.

“If people want to realise a dream, avoid a lasting impact on their credit files or worse bankruptcy, they need to have something to aim for and the financial practices in place to achieve it. Critical to this is monitoring their income and expenses effectively.

“Budgeting is not hard or scary and there are plenty of services and tools out there to help you do it including our Managed Money service. In fact, taking control of your money and understanding your financial situation can provide a lot of relief to everyday stresses.”

The research implies that technology and automation is contributing to a lack of financial awareness. Half of Australians (48.3%) receive their household bills electronically but seven in 10 respondents said they’re more likely to open a bill they get in the post. This lack of awareness was highlighted by the fact that nearly a quarter of Australians (22.6%) were more likely to know how much a cup of coffee costs versus household bills like electricity or insurance.

Paul says, “We need to pay attention to where our money is going. We’ve embraced technology like payWave and the convenience of paying bills by direct debit and credit card, but are losing track of how much we’re spending on bigger ticket items and whether the impulse purchase fits in the budget. Just because you transfer funds from one account to another on your phone, doesn’t mean it’s the right time to buy that new dress or go out for an expensive meal.

“It pays to check your bills every month so you can monitor changes, especially those variable expenses. This gives you a chance to modify your behaviour, and it means you’re less likely to suffer ‘bill shock’ when you go to take money out of the ATM or pay another bill.”

In separate research of over 2,000 people, Fair Go Finance found six in 10 (62%) Australians rated their ability to manage their money as average, and nearly a third (32%) know there are things they can do to better manage their money but keep putting it off. (3)

“I urge the Government to put a renewed focus on financial literacy in this country. The 2014-2017 National Financial Literacy Strategy is a real opportunity to challenge people’s attitudes to their finances while putting the emphasis back on learning basic money management skills,” Paul concluded.

Paul also encourages Australians to get on top of their finances using the four steps of:

  1. Setting financial goals
  2. Doing a budget, and working with creditors where necessary, to determine how long it’s going to take to achieve these goals
  3. Tracking income and expenses and paying bills on time to build a positive credit report
  4. Putting milestones in place to celebrate successes along the way.

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