Posted on

The Australian dream holds big financial risks

Can you actually afford to buy

The Australian dream holds big financial risks.

It’s said that the American dream is upward mobility – the ultimate example being to become the US President.

The Australian dream seems more modest – home ownership, especially the good-old quarter acre block.

But arguably it comes with bigger risks than the American dream, especially for Australians in capital cities.

With interest rates at record lows and house prices surging, home ownership seems like the golden ticket for many, given the promise of appreciation that seems like it could go on forever.

But realistically, home ownership is unaffordable for an increasing number of Australian first-time home buyers, especially those in major cities on average salaries.

The fact remains ‘the Australian dream’ means many people who cannot – or barely can – afford property keep reaching for it and opening themselves up to chronic financial stress.

Who wants to give up on a dream though, right?

The problem is most pronounced in Australia’s biggest city – Sydney – where the median Sydney house price is sitting at $1,112,671, Melbourne $859,097 according to Corelogic.

To be able to afford the repayments after making a 20 per cent deposit, a Sydney household needs to earn at least $147,629 a year, 9News reported.

If that household wants to avoid living in mortgage stress – and have the relative luxury of a buffer against interest rate changes – its annual salary would need to be at least 7,155.

Mortgage stress is classified as anything above spending 30 per cent of your pre-tax income on household repayments.

According to the salary tracking website, Payscale, the average annual salary in Sydney is $76,000 – meaning the combined income even two adults earning that would fall short of avoiding financial stress.

In Victoria, it’s $70,000, it’s $71,000 in the Australian Capital Territory, while in Queensland it’s $66,000 and in Western Australia, it’s $73,000.

Because property prices are highest in New South Wales, Victoria and the ACT, anyone considering buying a home in those States, need to be on a six-figure salary to have any realistic hope of entering the property market.

9News reported 41.1 per cent of households across Australia are in financial stress despite the lower interest rate environment.

In NSW, 44.19 per cent of households were in financial stress and 37.66 per cent of households reported being in mortgage stress, and property is only getting more expensive.

Recently the ANZ bank predicted property prices in Sydney and Melbourne could surge a further 19 per cent and 16 per cent respectively before slowing in a year’s time.

So, what’s the answer? We are not saying avoid home ownership – but to be aware of what you can and cannot afford.

Mindfulness can be part of the solution to financial stress and avoiding it from taking hold.

A clarification is needed though. Mindfulness is not a solution to loan repayments that are just too high to sustain – if that is happening, we’d suggest getting honest with your bank and urgently and seeing what can be done.

But a mindful approach to money can help those who need to avoid unhealthy habits with money to maintain repayments.

Perhaps most importantly, becoming financially mindful will help people avoid entering contractual situations they really should not be in.

Posted on

Financial stress is widespread for Australians

The Sydnety Morning Herald

Financial stress is widespread for Australians.

Financial Mindfulness released its latest Financial Stress Survey and the results showed just how much damage financial stress is causing. The Sydney Morning Herald covered the story.

Nearly one in three Australians is feeling financially stressed, with damaging effects on mental and physical health and social relationships.

The CoreData/Financial Mindfulness Financial Stress Survey of 1000 people found 30 per cent of people reported financial stress, and the problem affects all socio-economic groups.

Marian Russell, from North Narrabeen on Sydney’s northern beaches, knows the feeling well.

Her husband, Zac, 28, works long hours as a carpenter while Ms Russell, 24, looks after the couple’s two children, Allegra, 2, and Bodie, 1.

Marian Russell with her two children, Allegra, 2, and Bodie, 1, at Warriewood beach. Credit: Daniel Munoz

The family lives pay cheque to pay cheque and struggles to pay off a debt they acquired when they bought a vehicle for Zac’s work.

“This week we literally had $30 after all the bills were paid. It’s sad but we’ve got to be thankful we’ve got food in the cupboard,” Ms Russell said.

“It’s taking its toll, not just on our relationship but emotionally, on myself. I have anxiety and depression and it doesn’t help not having my husband around because he has to work six days a week to keep food on the table. It’s a lot of pressure for a young mum.”

Ms Russell said her husband found it hard to switch off from work and the couple rarely get to go out together. Her husband’s family live nearby but are away until the end of the year, so free babysitting is off the cards for now. They got married in the registry office because money was too tight for a wedding and Ms Russell has shelved her plans for study.

Marian Russell had to take her children, Allegra, 2, and Bodie, 1, out of swimming lessons because of money worries.

Marian Russell had to take her children, Allegra, 2, and Bodie, 1, out of swimming lessons because of money worries. Credit: Daniel Munoz

Her biggest fear is not providing for her children. She cancelled their swimming lessons because it cost too much, a decision that weighs heavily given the family live so close to the beach.

Ms Russell said she would like to contribute financially but if she went back to her former work in retail, the cost of childcare would leave the family only $10 a day better off. “I would love to work but it’s not worth it,” she said.

Instead she sells her art online, under the name LunaTribeDesign on Instagram and Facebook, providing some “pocket money” and a much-needed emotional boost.

Ms Russell said they were lucky to live in a good rental property but she doubts they will be able to get ahead while living in Sydney.

The financial stress survey found money worries were widespread across all socio-economic groups. Clinical psychologist Dr Nicola Gates, who was involved in the study, said people on high incomes reported financial stress as well.

“It can be over-commitment but also things can change profoundly for people,” Dr Gates said.

“A client in my practice had a recreational sport accident … he came off his jet ski and hadn’t set himself up well with insurance, so the family lost the major breadwinner just like that. So where do the school fees come from? How does the mortgage get paid? People’s financial position can be more precarious than they realise.”

Dr Gates was aware financial stress was a problem for her clients but was surprised the survey suggested it was so high in the general population.

Potential reasons include the high cost of housing, lack of wages growth, perceptions of job insecurity and the fact financial literacy has not kept up with the complexity of the financial system.

“Financial stress is very prevalent and there’s a lot of shame and embarrassment around financial stress and as a result people don’t really talk about it,” Dr Gates said. “Shame is a particularly acute risk for mental illness.”

The psychological burden of stress has a physical effect on the body, with lack of sleep and lowered immunity. And people often cope with financial stress in ways that can damage their health and relationships.

Thirty-five per cent of financially stressed respondents have used drugs or alcohol to manage negative feelings stemming from their money worries, while 38 per cent have been hurtful towards themselves or others.

Almost nine in 10 financially stressed respondents regularly miss social events because of money worries, compared with only one in five of those not financially stressed.

More than seven out of 10 people who are financially stressed regularly lose sleep because of money issues, compared with less than one in 10 of those who are not financially stressed.

And more than half of financially stressed respondents report considerable difficulty concentrating due to money worries, compared with only 3 per cent of those who are not financially stressed.

By Caitlin Fitzsimmons

Updated September 4, 2017 — 11.29am first published at 12.15am in the Sydney Morning Hearld