As the COVID-19 crisis deepens, few Australians have much cash in the bank

Australians are staying home in droves and businesses are closing by the hour. This is good for public health, but bad for many peoples’ incomes. And many Australians don’t have enough cash in the bank to get them through a sustained period of little or no income.

About 10 per cent of working households have less than $90 in the bank, according to Grattan Institute analysis of ABS survey data.1 Half of working households have less than$7,000 in the bank.(This data is a couple of years old, but the picture is unlikely to have changed materially for most households — data from the RBA shows that households’ financial assets increased a little between 2018, when the ABS survey was conducted, and September 2019, the latest quarter for which the Bank has published data.)

‘Working households’ — those in which at least one person had a paid job — are likely to be the hardest hit by this crisis. Many households that rely on payments such as Newstart or the Age Pension were already doing it tough before the crisis, but the crisis will not cause their incomes to fall. Retirees living off the Age Pension and their private savings are also unlikely to suffer cash-flow problems.

As you might expect, working households on lower incomes tend to have less in the bank. Among working households in the bottom fifth of household income, the median total bank account balance is just $1,350. For households in the top fifth of the income distribution, the median is$24,400 in the bank. The meagre savings of many low-income workers are a big worry because they are most likely to be employed as casuals and therefore not have paid sick leave or annual leave.

What really matters in the weeks and months ahead is how long households are able to sustain themselves if their income disappears, or is drastically reduced. To roughly measure this, we can calculate how many weeks’ income each household has in the bank. For example, if a household has a weekly income of $2,000, and$4,000 in the bank, then it has two weeks’ income in the bank.

Our analysis shows that half of working households have 5.6 weeks’ income or less in the bank.2 The bottom 40 per cent of working households have about 3 weeks’ income or less in the bank. A quarter of all working households have less than one weeks’ income in the bank. Even at the top, about 40 per cent of the highest fifth of income earners have less than 4 weeks’ income in the bank.

It’s clear that many Australian households will need help if they lose their livelihoods through the COVID-19 crisis. They should be a high priority for the Morrison Government as it puts together its second economic support package.

Note: this post was updated on 20 May 2020. The third graph was added to the post. No other changes were made.

Co Authors :

1. The measure of savings we use here is ‘value of accounts held with financial institutions, including offset accounts’. It does not include the value of other liquid assets, such as shares or bonds. Nor does it subtract the value of short-term liabilities such as credit card debts. It is a measure of households’ access to liquid assets, not their overall net worth. All data are from the 2017-18 ABS Survey of Income and Housing.
2. These calculations exclude the small number of working households that recorded zero weekly income.