The 4th Annual Financial Fitness Index 2012

financial indicator series

29 February 2012

Introduction

Nearly 1,000 individuals nationwide have been anonymously surveyed to assess their financial fitness in the 4th Annual Bankwest Financial Fitness Index Survey 2012.

The Bankwest Financial Fitness Index rates financial fitness based on answers to four broad categories of the Financial Fitness Index - savings position, insurance coverage, housing costs and net asset (assets less debts position - and these have been used to assess whether the financial position is fit, unfit or has borderline fitness.

Key Findings

  • 24% of Australians are financially unfit according to the Bankwest Financial Fitness Index, down from 31% of individuals a year ago
  • 25% of Australians surveyed are financially fit and 51% have Borderline Financial Fitness
  • Generation X is the generation most at risk financially with 35% Financially Unfit. Retirees are in the best position with 40% Financially Fit
  • By state, Qld (31%) and SA (27%) had the highest percentage of financially unfit individuals

The Bankwest 2011 Financial Fitness Index survey revealed that 24% Australians were Financially Unfit, compared to 31% in 2011, 28% in 2010 and 22% in 2009. In 2012, 25% of Australians were Financially Fit, compared to 17% in 2011, 22% in 2010 and 21% in 2009. 51% of Australians had Borderline Financial Fitness in 2012.

The survey also found that 52% of Australians had changed their spending patterns in 2011 with 46% becoming more conservative with their spending.

Financial fitness was determined through answers to 14 vital signs about financial health with 994individuals across Australia anonymously surveyed.

  • Financially Fit: regular savings, a range of insurance, low housing costs, high asset levels
    relative to debt and income.
  • Borderline Fitness: moderate savings, some insurance, average housing costs, moderate debt
    levels.
  • Financially Unfit: over reliance on debt, little or no regular savings, no insurance coverage, high
    housing costs relative to income.

Womens’ Financial Fitness deteriorated over past year
The Index found that more women struggle financially than men with 34% of women being Financially Unfit in 2012 compared with 21% of men. However, a higher percentage of women became Fit in the past year, 8 percentage points, in contrast to a 5 percentage point increase in the proportion of financially Fit men.

Qld and WA have the most Financially Unfit residents
By state, Queensland (31%) and South Australia (27%) had the highest proportion of financially Unfit individuals. The state with the highest proportion of Financially Fit residents was Victoria (28%).

More financially unfit Gen Xers
By generation, Gen X has the most financially unfit (35%), followed by Gen Y with 29%. Inthe past year, Gen X has also seen the smallest increase in the proportion of financially fit(1 percentage point) potentially indicating greater hardship for this group.

Baby boomers in the best financial shape
The most financially fit are retirees (40%), followed by Baby Boomers (34%), retirees (20%). Retirees saw a big increase in the proportion financially fit (20 percentage points) compared with last year.


Technical Details

The Financial Fitness Index rates financial fitness based on answers to 14 questions relating to a general financial position.

There are four broad categories of the Financial Fitness Index – savings position, insurancecoverage, housing costs and net asset (assets less debts) position. Each of these four categories is scored out of five and then added together to produce a Financial Fitness score out of 20.

A Fit score is 13 or above. Borderline Fitness is a score of 7 to 13. An Unfit score is 0 to 7.

Financially Fit – Score of 13 to 20
A “fit” score indicates a strong financial position. Being financially fit indicates high scores in themajority of the four fitness categories e.g. a sizeable (10% plus) regular savings plan, low housing costs relative to income (10% or less); a substantial asset base relative to debt and income levels and a range of insurance coverage.

Borderline Financial Fitness – Score of 7 to 13
A “borderline” fitness score indicates an adequate financial position but with room to do moreto secure a financial future. Borderline fitness indicates a satisfactory but not high score in themajority of financial fitness categories e.g. a moderate level of regular savings (6% of income);some insurance coverage to cover unforeseen circumstances; moderate housing costs (25%) as a proportion of income and a reasonable accumulation of assets relative to debt and income levels.

Financially Unfit – Score of 0 to 7
A “financially unfit” score indicates a weak financial position and the need to do more to securea financial future. Being financially unfit indicates a low score in the majority of financial fitness categories e.g. little or no regular savings; little or no insurance coverage for unforeseen circumstance; high housing costs relative to income – (40% or more); little or no assets relative to debt and income levels.


Financial Fitness Categories

Savings
The monthly savings are calculated as a percentage of monthly gross income. The higher regular savings relative to income are, the higher the savings fitness score will be. Scores range from “5” for regular saving of 12.5% or more of gross income to “0” for no regular savings.

Insurance Cover
The level of insurance coverage is measured by the types of insurance cover held. Four types aresurveyed - Life Insurance, Total & Permanent Disability Insurance, Critical Illness Insurance andIncome Protection Insurance. Scores range from “5” for having four insurance products to “0” for no insurance products held.

Housing Costs
Housing costs are measured by calculating annual mortgage interest costs or rent payments asa percentage of gross annual salary. The lower the housing costs as a percentage of income are,the higher their housing fitness score will be. Scores range from “5” for no housing costs to “0” for housing costs of more than 50% of annual pre-tax income.

Net Asset Position
The net asset position is calculated by measuring net assets (total assets levels minus total debtlevels) as a percentage of gross annual income. Total assets cover physical assets (house, car etc) along with financial assets (cash held, shares, other investments etc). Total debt covers mortgage, credit card and other personal debt. The higher the net asset level is relative to income, the higher the net asset score will be. Scores range from “5” for net assets of 600% or more of gross annual income to “0” for net assets relative to income of 0% or less.Research for the Financial Fitness survey was conducted anonymously online by Brand Management in February 2011. 792 individuals were surveyed. Individual survey participants did not receive a financial fitness rating.

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