Financial stress skyrockets as AMP warns conditions likely to deteriorate in the next two years

Two thirds of Australians are enduring extreme levels of financial stress, analysis carried out by AMP has found, with those nearing retirement the most worried.

AMP says financial stress among Australians has surged in the past two years. Picture: Gaye Gerard/NewsWire

Half of Australians expect cost-of-living pressures to deteriorate over the coming two years as a rising number of households suffer extreme levels of financial stress despite federal and state governments rolling out generous subsidies and tax relief.

Analysis by AMP shows 66 per cent of Australians over the age of 18 feel financially stressed, either mildly, moderately or severely.

Only one in three Australians were financially secure, which was down from half during the pandemic years.

Financial stress was higher among those who live in Australia’s most expensive city for housing, Sydney, and also Tasmania.

Sydney had 30 per cent of residents in the most extreme bracket of financial stress compared to the national average of 27 per cent.

It was also reported among those who earn under $50,000 and also those who earn between $100,000 and $150,000. Those who live in Perth, Adelaide and Canberra, as well as high income earners above $150,0000, were the least likely to be financially stressed.

With rising financial pressures and people focused on meeting major short-term expenses, long-term planning is being compromised, with one in three saying they are never or are rarely planning for their financial futures

AMP bank group executive Sean O’Malley said people were buckling down financially and reducing spending on mandatory expenses such as groceries as well as discretionary spending to try to stay afloat.

“Aussies with a mortgage are staying up to date on their mortgages, but are forgoing other things to just stay on top,” he said.

“People are looking for every opportunity to save some money, which could be small purchases like your streaming service or your gym, or even larger expenses such as holidays.”

Three in five Australians spent less on groceries this year, according to the AMP survey of 2475 Australians, while a third have cancelled streaming subscriptions and gym memberships and one in three spent less time engaging in regular hobbies and interests.

The degree of financial stress is forecast to worsen, with 52 per cent expecting the cost of living will rise significantly

AMP observed that financial stress was highest among those approaching retirement. Picture: Steven Saphore/NewsWire

“We’ve had multiple forecasts on when rates will be cut but in the past year those time frames have been pushed further and further out. That is playing into people’s belief that cost-of-living relief may be further away than previously hoped,” Mr O’Malley said.

“Households do not see the cost of everyday goods get cheaper or stabilise, which is playing into those feelings.”

Households have endured affordability constraints since the end of the pandemic, with weak housing supply driving up the cost of buying and renting at the same time as 12 interest rate rises.

Cost-of-living concerns will remain a significant problem for households for the rest of the year after the Reserve Bank ruled out rate cuts, with Australia likely to be among the last of the major economies to lower rates following moves already in the US, China and Europe.

The need to meet major short-term expenses has seen a rising proportion of Australians move their thinking away from longer-term needs such as retirement or superannuation. AMP observed that financial stress was highest among those approaching retirement, with 40 per cent moderately to severely stressed about whether they’ll be able to live comfortably in retirement

“There’s a real fear that cost of living pressures will remain and people nearing retirement are concerned about whether what they have saved for retirement will be enough to fund the lifestyle that they want,” Mr O’Malley said.