Household concerns about ‘misplaced financial confidence’ – report

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Eighty-six percent of respondents have moderate to very high levels of confidence in their finances, a new study shows.
Photo: 123RF

Financial confidence has risen over the past two years, but households may be fooling themselves about how well off they really are, according to a new study.

The latest Financial Services Council (FSC) report on resilience found that 86 percent of respondents were moderately to extremely confident about their finances, an increase of 8 percentage points from pre-pandemic in 2020.

FSC chief executive Richard Klipin said other parts of the report suggested the high level of confidence could be misplaced given economic volatility, rising cost of living and rising interest rates.

“What the research tells us is that there are some clear warning signs that a perfect storm is on the way due to financial hubris, insufficient funds for rainy days or retirement investments, and economic uncertainties such as rising interest rates and inflation.”

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About 40 percent didn’t know if they could raise $5,000 in a week in an emergency, and 45 percent said they would rely on friends or family or didn’t know how to cope if they were suddenly unemployed or unable to to work for more than three years. months.

Half of the respondents said they’d had financial problems that affected their overall well-being, and financial literacy dropped by 44 percent who said they were financially literate, a 6 percent drop.

“This raises concerns that respondents’ opinions point to possible misplaced financial confidence.”

Klipin said the over-reliance on friends and whānau and the uncertainty of managing finances in times of crisis were worrying because hard times would affect everyone, which could be a recipe for hardship.

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“If we look at how the economic environment has changed significantly since January this year, the current picture is probably even more worrying.”

Higher Household Bills

The FSC survey coincided with a report from ASB Bank suggesting that households will continue to face higher living costs, but higher wages should roughly keep them in touch.

Senior economist Mark Smith said weekly spending is expected to rise about $110 per week over the next 12 months, with about two-thirds going to non-tradable goods/services and debt service.

He said the price hikes will clearly hit some harder than others.

“Debtless households will do better, while highly indebted households and those without a decent income buffer will have a much harder time.”

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However, he said a surprise was the extent and speed at which incomes had risen, around $100 a week in the year ending June, meaning many households kept pace with inflation.

“We expect household incomes to rise significantly in the coming years, largely due to significant increases in wages and salaries and the expected rebound in other incomes,” Smith said.

“This would mean that households in general should have enough money to pay the bills and potentially increase consumer spending.”

Smith said he still expected aggregate spending to remain under pressure from rising interest rates as the Reserve Bank continued to lift official cash rates to fight inflation. ASB predicts a peak of 4.25 percent in early 2023.

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