The 5th Annual Financial Fitness Index 2013

financial indicator series

18 April 2013

Introduction

More than 800 individuals nationwide have been anonymously surveyed to assess their financial fitness in the 5th annual Bankwest Financial Fitness Index Survey 2013.

The Bankwest Financial Fitness Index rates financial fitness based on answers to four broad categories of theFinancial 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 BorderlineFitness.

Key Findings

  • In 2013 more than a quarter of Australians (26%) are Financially Unfit according to the Bankwest Financial Fitness Index, up slightly compared to 2012 (24%) but fewer than in 2011 (31%).
  • Close to a quarter of Australians surveyed (23%) are Financially Fit and just over half (51%) are Borderline Fit.
  • Generation X is the generation most at risk financially with 36% classed as Financially Unfit.
  • Baby Boomers are in the best position with 30% Financially Fit.
  • By state, Western Australia (29%), followed by South Australia (28%) have the highest proportion of Financially Fit respondents.

The Bankwest 2013 Financial Fitness Index Survey revealed that 26% Australians are Financially Unfit, compared to 24% in 2012. While an increase on last year, this remains lower than in 2010 (28%) and 2011 (31%), when Australians were recovering from the global financial crisis. Some 23% of Australians are Financially Fit, compared to 25% in 2012, while 51% are Borderline Fit.

The survey also found that 58% of Australians have changed their spending patterns, up from 52% in 2011, with 51% becoming more conservative with their spending, and only 7% becoming less conservative.

Financial fitness was determined through answers to 14 vital signs about financial health with 886 individuals across Australia anonymously surveyed.

  • "Financially Fit": regular savings, a range of insurance, low housing costs, high asset levels relative to debt and income.
  • "Borderline Fit": 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.

More Financially Unfit women than men
The Index found that more women struggle financially than men, with 35% of women Financially Unfit in 2013 compared with 20% of men. A majority of male respondents are Borderline Fit (52%), while close to half of female respondents (49%) are Borderline Fit.

Western Australia and South Australia 'Fittest' states
By state, the highest proportion of Financially Fit respondents is in Western Australia (29%). This is the highest level of Financially Fit respondents in Western Australia since 2010 (36%), and is well above the national average of 23%. South Australia has the second highest level of Financially Fit respondents (28%), followed by Queensland (18%). Victoria has the lowest proportion of Financially Fit respondents (13%).

Baby Boomers in the best financial shape
Baby Boomers have overtaken Pre-Boomers as the most Financially Fit generation, with 30% of Baby Boomer respondents Financially Fit, slightly ahead of Pre-Boomers (29%). However, compared to 2012, the proportion of Financially Fit respondents in each of these categories has fallen (from 34% and 39% respectively). Further, while 30% of Baby Boomers are Financially Fit, some 23% are Financially Unfit suggesting a polarisation between those who remain comfortable and those who are under financial pressure.

Younger generations lack Fitness
Generation X is the generation most at risk financially with 36% classed as Financially Unfit. However, the lowest proportion of Financially Fit respondents by generation is Generation Y (8%), down from 12% in 2012. The majority of Generation Y (61%) is Borderline Fit, while just under half of Generation X (46%) is Borderline Fit.

Majority affected by rising cost of staples
Close to eight in 10 respondents (79%) report higher energy costs in 2013, up marginally from 77% in 2012, while 68% report higher food costs, down from 70% last year. Almost half (49%) say transport costs have increased, down from 51%, while housing costs have risen for 41% - on par with 2012. In line with the 2012 report, few respondents report increases in the cost of childcare services (7%) or servicing debt (16%).

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, insurance coverage, 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 the majority 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 more to secure a financial future. Borderline Fitness indicates a satisfactory but not high score in the majority 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 secure a 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 circumstances; high housing costs relative to income – (40% or more); little or no assets relative to debt and income levels.

Generation Definitions
The following definitions are used for the analysis in this report:
Generation Y – 1981-1990s
Generation X – 1966-1980
Baby Boomers – 1946-1965
Pre-Boomers – 1945 and older

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 savings 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 are surveyed - Life Insurance, Total & Permanent Disability Insurance, Critical Illness Insurance and Income 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 as a 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 debt levels) 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 CoreData in January 2013. Some 886 individuals were surveyed. Individual survey participants did not receive a Financial Fitness rating.

all news articles

Bankwest SWIFT code: BKWAAU6P | Find your BSB by logging into Online Banking.

© 2016 Copyright Bankwest, a division of Commonwealth Bank of Australia (Bankwest) ABN 48 123 123 124 AFSL / Australian credit licence 234945. All rights reserved. To use this Website, you are required to read the Financial Services Guide (which you agree to be provided by accessing the link). Bankwest is a division of Commonwealth Bank of Australia, which is the product issuer unless otherwise stated. Rates stated are subject to change without notice. Any advice given does not take into account your objectives, financial situation or needs so please consider whether it is appropriate for you. For deposit and payment products, please ensure you read and consider the Product Disclosure Statement (which you agree to be provided through this link) before making any decision about the product(s). For lending products, lending criteria and fees and charges apply. Terms and conditions apply and are available on request.