Tuesday, December 12, 2023

Mixed spending amid rising cost of living

A new report by CommBank iQ takes a look at changes in spending behaviour in response to inflation, interest rate rises and rent increases.

CommBank iQ is a joint venture between Commonwealth Bank of Australia (CBA) and data science and artificial intelligence company Quantium, which uses aggregated and de-identified payments data from seven million CBA customers to track spending trends.

While most groups have experienced some pressure, people aged 30 to 34 are experiencing the most pressure, generating the highest cost-of-living pressure score. Renters are also feeling significant pressure.

Discretionary vs essential

The Cost of Living Insights Report shows discretionary expenditure remains elevated post-Covid, while spending on essential items is barely growing in line with inflation. People are being thrifty in areas of everyday expenditure to prioritise on experiences, with travel and accommodation spending up 39% in January-March on the same period last year.

“Putting our expenditure under the microscope shows we’re responding to the increased cost of living in diverse and sometimes unexpected ways,” says the report’s author CommBank iQ Head of Innovation and Analytics Wade Tubman.

“What we’re seeing is a continued Covid rebound effect, with consumers catching up on the experiences that they missed out on during the pandemic. It seems counter-intuitive that at a time of increased cost-of-living pressures, consumers are choosing to boost their discretionary spending.”

Spend across the age groups  

The report reveals a sharp divide in spending patterns according to age group, with older Australians increasing their expenditure while younger customers are cutting back. Annual spending by those aged over 35 has increased by 7.7%, almost double the 3.4% increase in spending by those under 35.

Australians aged 25 to 29 show the largest reduction in expenditure, while 18 to 24 year olds have sustained their spending in real terms with many still living with their parents. Young people are choosing to go out less, although their average spend on these occasions has increased.

Cost of Living Pressure Indicator

The report’s Cost of Living Pressure Indicator – which measures changes in an individual’s total and discretionary spending – has risen sharply and is positioned to increase further. This is accompanied by heat maps showing how this pressure is being felt across different areas of Sydney and Melbourne.

“Our Cost of Living Pressure Indicator shows renters are experiencing more pressure than homeowners in general,” says Mr Tubman.

“Despite the increased financial burden on some mortgage holders, a little under half of all homeowners are mortgage-free and a third of those with a mortgage have savings buffers of two years or more.”

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