Australians are not good savers. In fact, history tells us that we would much prefer to spend almost all of the money that we earn as soon as we get it, and if that isn’t enough we will borrow more money and spend that too!
To examine how effectively we are saving our money, economists use a variety of different measures. One measure is to look at gross savings as a percentage of GDP. Measured in this way, savings in Australia have fallen from around 9% of GDP in the 1960s, to an average of 2% of GDP in the 1990s. This is an incredible turn-around, but it does follow the general pattern which has been experienced by all developed countries during this period.
Household savings can not be directly measured. The household saving ratio is calculated as the residual which remains when consumption is deducted from income. This figure is then divided by the total income received. In the 1970s, this figure was around 15% in Australia, but since that time we have experienced a downward trend.
By 2002, the household saving ratio in Australia was negative. This suggests that Australians are now spending more than they receive in income. The only way that this is possible is for us to borrow in order to supplement our incomes. It is not surprising, therefore, that both household debt and net foreign debt have increased significantly since that time.
In 2004/05, the household saving ratio fell to -1.9%. This suggests that for every $100 we earned at that time, we were spending $101.90. Clearly this is not sustainable in the long term – eventually we must repay the debt that we accumulate. Fortunately the trend seems to be reversing; in 2005/06 the household saving ratio improved to be -0.7%. While this figure is still unsustainable, it does suggest that saving has become a more attractive option in the Australian economy since 2004/05.
