The most common hole in people’s financial safety nets
Australians have become much more future-aware and financially prudent in the last few years, but recent research has highlighted a key element missing from many financial plans.
There’s been a dramatic and positive shift in our spending and saving behaviours in last few years – but it might not be enough to properly secure our futures.
According the Australian Bureau of Statistics, Australians have gone from saving around 0% of disposable income in the early 2000s to almost 11% in 2013.
Many experts pin this big swing on the uncertainty unleashed by the Global Financial Crisis (although there were small signs of change before 2007).
Creating a financial safety net
The massive upheaval to jobs and wealth during the GFC made saving more and owing less the obvious way to protect against economic crises way beyond our control. And many of us have been working on individual safety nets to draw upon during unsettled times.
The impressive change in behaviour reported by the ABS is also supported by recent TAL research which found most Australians would use extra income to build savings and pay down debt.
TAL asked participants if given an extra 10% of income what would spend it on. The overwhelming response: deleveraging – 87% said they would:
- boost savings;
- knock-off some of the mortgage; and
- pay-off credit cards, personal loans and bills.
But after covering these immediate needs, most were a little less future-focussed. At 4% nationally, taking out life insurance was an extremely low priority. (Most people choose a holiday as the next preferred option after deleveraging.)
The missing element – protection against illness and injury
Which means while we’re taking some healthy steps towards protecting our futures, we could take a few more. Many safety nets are incomplete – if savings are the only protection against the uncertainty of the future, there are a few gaps to fall through.
Preparation for financial strikes beyond our control means being ready for more than worldwide economic surprises. Protecting against the full spectrum of those strikes – means thinking about illness and injury.