A new survey has revealed that spending habits are rapidly changing amid growing consumer stress, with consumers using these savings to pay down their mortgages.
The National Australia Bank (NAB) Consumer Sentiment Survey Q4-2023 of around 2,000 Australians has found that around one in five consumers who cut back on spending used their savings to pay down their mortgage or other debt.
Notably, more than a quarter of those in the 30–49 age group (26 per cent) used their savings to pay down their mortgage, while a higher number of those aged over 65 have focused on day-to-day living expenses (67 per cent), and the 18–29 group on savings or offset accounts (56 per cent).
NAB discovered this after asking consumers for the first time what they were doing with extra money from cutting back on spending.
Consumer sentiment worsens
The NAB Consumer Stress Index rose for the fifth straight quarter, the highest since Q1 2020, and above the survey average for the first time in four years.
While cost of living stress has levelled out, concerns related to job security continued to climb and rose sharply in the December quarter.
While cost of living pressures remain the most significant cause of stress for consumers, stress levels over living costs were unchanged in Q4 2023.
On balance, the survey showed, eight in 10 consumers believe living costs increased further in Q4 2023.
Perceptions of higher prices were most pronounced for mortgages, groceries, utilities, transport, and eating out.
The research also showed that consumer stress levels are much lower for people who own a home outright (54.6 points) than those who own a home with a mortgage (60.1 points).
Furthermore, people who own a home outright reported significantly lower levels of job stress (38.2 points) than those who own their homes with a mortgage (48.8 points), and also worried less about their ability to fund their retirement (51.6 points versus 62.2 points) and cost of living (63.6 points versus 70.9 points).
However, those who own their homes without a mortgage report somewhat lower stress over government policies (61.5 points versus 64.3 points).
Spending habits change rapidly
NAB reported that spending habits are changing quickly in response to rising consumer stress, with one in two cutting back on eating out, buying micro treats such as coffee and snacks, entertainment, and car travel.
In total, these cutbacks amounted to monthly savings of $300 (creating a potential savings buffer of around $3,600 a year if continued).
Meanwhile, four in 10 consumers cut back on holidays, food delivery, and charitable giving, while one in three slashed spending on a streaming service and major household appliances.
Spending patterns and consumer behaviour varied across age groups, income levels, housing status, and types of purchase.
For example, far fewer consumers over 65 have cut or reduced spending relative to other age groups, except for car journeys and charitable giving.
A considerably higher proportion of those on lower incomes have cut spending on food (42 per cent versus 25 per cent for higher-income consumers), car journeys (50 per cent versus 49 per cent), and insurance (28 per cent versus 19 per cent).
When asked what they were doing with the money saved from the cutbacks, six in 10 consumers said they had redirected it towards day-to-day living expenses, and just over four in 10 said they used it to support savings or offset accounts.
Around one in five paid down their mortgage or other debt while one in 10 had splurged on something they wanted.
By gender, more women used it for day-to-day living expenses (64 per cent versus 56 per cent of men).
By income, 73 per cent in the lower income group used it for day-to-day living expenses, compared to 52 per cent in the higher income group.
Three times as many higher income earners put it into a savings or offset account (50 per cent versus 26 per cent) while four times as many paid down their mortgage (34 per cent versus 9 per cent).
“Australians continue to undertake ‘consumption smoothing’, making deliberate spending trade-offs to manage household balance sheets, support their lifestyle and cope with unexpected expenses,” NAB’s report noted.
“Consumers across the income spectrum are looking for ways to save money and rein in spending. But consumer loyalty is not dead – provided a growing list of expectations are met.”
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