This paper was produced under the Funding Australia’s Future project which aims to better understand the changing dynamics of the financial system and its impact on future economic growth. The research from Stage Two drills down into the issues challenging the financial sector and culminates in a set of recommendations for improving Australia’s Financial System. 

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This paper builds on some of the key themes identified in Stage One of Funding Australia’s Future, particularly as they relate to the finance-related matters for households in Australia. The growth in household balance sheets, relative to GDP, ceased with the advent of the Global Financial Crisis (GFC), when stock market values fell with particularly adverse consequences for those in or near retirement with retirement savings (popularly termed as ‘sequencing risk’). Notably, household savings out of current income increased, partly offsetting the effect of the decline in asset values on household wealth. Both household debt and asset holdings as ratios to income appear to have stabilized at levels somewhat below their GFC peaks, with low nominal interest rates facilitating debt servicing. Measured in dollar terms, household financial assets and liabilities have continued to grow albeit at more subdued rates of around 5 per cent p.a. This compares with rates in the mid-teens in the years prior to the GFC.

We also know that government policies can have a significant impact on household balance sheets. As well as compulsory superannuation and associated tax concessions, there is a range of other taxation arrangements that exert an influence. These include dividend imputation, capital gains tax concessions, negative gearing of investments in real and financial assets, and exemption of the family residence from capital gains tax and age pension assets test. The impact of these policies on saving, investment and borrowing decisions vary depending upon the income and wealth position of the household and point in the lifecycle.

There is risk for households and individuals in many areas of financial services. Longevity risk is a major issue when retirement savings balances in superannuation funds remain relatively low, especially for women who on average retire with around half the superannuation balances of men. Investment risk and market risk have moved from corporations to individual households as superannuation funds have transferred from defined benefit to defined contribution . Households also carry relatively high levels of financial risk with respect to their mortgages, due to the predominance of variable rate home loans. Further, where property insurance is concerned, in a country prone to natural disasters, gaps remain with respect to flood insurance, and storm insurance, especially in northern Australia.

The objective of this paper is to provide an overview of recent household savings, investment and borrowing trends, including rates of return, costs and risks, and types of financial products and services used (including in post-retirement). The paper will also consider how the financial sector currently contributes to household balance sheet development over the lifecycle. Consideration will be given to the role and merits of government policies in affecting household balance sheet development and their broader implications for the financial services. Finally, the paper will investigate the potential impact of demographic change by taking a life stage (or life cycle) approach to household balance sheet development in Australia.


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The Australian Centre for Financial Studies (ACFS) initiated the Funding Australia’s Future project in late 2012 to undertake a stocktake of the Australian financial system, and its role and challenges in facilitating future economic growth within the wider economy.

In an economy that has enjoyed 21 years of consecutive economic growth and shown a resilience through the Global Financial Crisis (GFC) which is the envy of many nations, the financial sector has played a strong and pivotal role. The past decade, however, has been one of significant change. The impact of the GFC and the subsequent wave of global re-regulation have had a profound effect on patterns of financing, financial sector structure, and attitudes towards financial sector regulation. Identifying the extent to which these changes are transitory or likely to be more permanent is crucial to understanding how financing patterns and the financial sector will develop over the next decade or so.

The Funding Australia’s Future project is in three stages, the second of which assessed how well Australia’s financial sector serves the economy, and how effectively it links the sources and uses of finance for the benefit of Australian society.