The more you have, the more you think you need

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This was published 5 years ago

Opinion

The more you have, the more you think you need

Australians expectations have risen, driven by a sense of entitlement.

Australians expectations have risen, driven by a sense of entitlement.

When you ask Australians what worries them, “the cost of living” is always near the top of the list.

It ranks alongside crime and healthcare as our three biggest qualms according to the latest Ipsos Issues monitor, which asks respondents to select the most important issues facing the nation.

A recent Essential Research poll found a huge 73 per think the cost of living pressures had become worse over the past year. Only 7 per cent said things were better.

The latest National Australia Bank consumer behaviour report tells a similar story. The cost of living topped the list of concerns on NAB’s consumer anxiety index - one in four people interviewed said it was causing them a “high” level of anxiety.

Politicians happily pander to this widespread, deeply held unease about living costs.

They’re forever telling voters how much they empathise with those "doing it tough".

But there are dimensions to Australia’s chronic cost of living anxiety that might surprise you.

NAB asked participants in its last consumer survey a revealing question: exactly how much extra money would it take to ease your household cost of living pressures?

The average answer was $207 a week or an extra $10,764 per year.

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That’s equivalent to about 30 per cent of Australia’s minimum weekly wage and 13 per cent of weekly full-time average earnings.

Now, you might expect those on very low incomes would need more money each week to ease their financial worries than those with high incomes.

In fact, the opposite is true - those on higher incomes felt they needed much more to alleviate their cost pressures than those on low incomes.

Respondents who earned less than $35,000 a year (a little less than Australia’s full-time minimum wage) said they needed an extra $183 a week to alleviate cost of living pressures.

But for those in the $75,000-100,000 income bracket that figure rose to $220 a week.

And people taking home $100,000 or more a year required even more. That well-paid cohort said they needed $239 extra each week to ease the pressure, more than any other income group.

But the responses to NAB’s “how much extra money do you need” question shows that for those on higher incomes the problem is a desire for a certain standard of living rather than a cost of living crisis.

Dean Pearson, NAB’s head of behavioural and industry economics, thinks that when people are asked about financial pressures many think in terms of their quality of life rather than the financial costs of life.

“Having a trip overseas say to Bali or Thailand every year or two has almost become the norm for many Australians - an entitlement if they work hard,” he said.

“I think we’ve ratcheted up our minimum expectations about what normal is.”

In another recent survey NAB asked consumers how much a one-off lump-sum windfall would need to be to make them feel “financially free”.

The national average was $830,000 but again there were striking differences those on higher and lower incomes.

People earning over $100,000 a year said they needed an average windfall of $978,000 to feel financially free but for those earning between $35,000 and $50,000 a year the magic number was nearly 60 per cent lower at $577,000.

Victorians said they needed a windfall of $788,000 on average to be free from money worries while in NSW/ACT the figure was $1 million

That’s an expensive ticket to financial liberty (and nearly three times more than what Tasmanians need).

Publicity about ballooning electricity and gas prices has stoked cost of living worries during the past year.

But rising utility bills have been largely offset by stagnant or falling prices for many other things that families purchase.

Overall, the prices paid for a typical basket of household goods and services - as measured by the consumer price index - is historically low and has been for some years.

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The main culprit for Australia’s current cost of living worries is weak wages growth.

This problem, which has been plaguing many advanced economies since the 2009 global financial crises, has baffled economists.

One explanation is that the forces of globalisation, including international outsourcing and automation, mean workers feel they now face more competition. The uncertainty has made them cautious about asking for pay hikes. The declining influence of trade unions has probably also been a factor.

A recent British study drew attention to the unusually high rates of underemployment – which measures the number of part-timers who want more work hours but can't get them - in many advanced economies since the global financial crisis. This points to lingering slack in the jobs market and helps explain weak wages growth. Australia fits this pattern - just before the GFC in 2008 there were about 650,000 underemployed workers but that has now climbed to 1.1 million.

Last week the Reserve Bank Governor, Philip Lowe, said there has been little growth in the real incomes of households (that is after inflation is taken into account) for “for the last four or five years” and that means people “feel like the cost of living pressures are very strong.”

A new report by the Bankwest Curtin Centre for Economics has drawn attention to how the slump in wages growth has hit some workers harder than others.

The centre’s analysis of data collected by the Household Income and Labour Dynamics in Australia (HILDA) found that for part-time male workers gross hourly wages actually fell by 11 per cent in real terms between 2013 and 2016 (for full-time males hourly wage growth has stalled since 2014).

Workers aged between 18 and 24 have also fared relatively poorly. There has "been no progression in average pay rates” for young men or women since around 2010, the report says.

Dr Lowe reckons the slowdown in wages growth has now troughed but he warns the long-awaited improvement will be “only gradual”.

It doesn’t sound like that extra $207 Australians say they need to ease their cost of living pressures will be turning up any time soon.

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