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Intelligence Briefs

Why are Aussies with the least spending the most?

Industry Contributor

James Jayesuria, MD and Michael Cullen, Consultant
Nature Sydney

8 December 2020 4min read

The way Australians spend money has dramatically changed in 2020. No longer able to go out for a meal, they turned to Uber Eats, Menulog and other meal convenience services to deliver the same experience. Not wanting to risk it on public transport, Australians thought it safer to hail a ride via apps. But mostly, while they had nowhere to go and no one to impress, retail spending rose and so too did a reliance on “Buy Now, Pay Later” services.

Spending habits, of course, weren’t the only thing affected by Covid-19. The way Australians think, feel, and behave has changed, and these changes have been anything but uniform across the nation. The shift toward these everyday luxuries reflects an age of convenience born from necessity, but the people who can afford everyday luxuries the least are the ones spending the most on them.

My Takeout

The strategic insights consultancy firms Nature and The Lab have been tracking these societal shifts since March. As part of their work, they’ve identified and grouped Australians into five broad segments based on their present concerns and future outlook. Adding to this, they’ve collaborated with the personal finance app and research platform Humaniti to overlay spending data based on nearly two million transactions over the past 12 months to really see how we’ve reacted to 2020 in dollar terms.

One of the most striking groups identified in the research are “the strugglers” who, as the name suggests, are doing it harder than most. Representing around one in four Australians, the strugglers have lower incomes and nearly a quarter have felt the considerable financial impact of Covid (that is, they are more than 10% worse off). They’re almost twice as likely to say they feel their job is at risk compared to the average Australian and they think the next few years will be tough financially. Right now, they feel it’s every person for themselves.

Knowing that they carry this burden of financial stress, it’s not surprising that the strugglers are wanting to save money where they can. However, even a cursory glance at their transaction history shows that they’re finding this much easier said than done.

The strugglers have a propensity to spend far more on discretionary items than what we might expect based on their limited means and stated savings goals.

Let’s look at meal convenience services as an example. Total spending in the category shot up earlier this year and peaked during the March-June quarter (the height of lockdown). The strugglers were spending as much on meal delivery during this time as the more affluent and less financially impacted groups and their spending has since surpassed them, making the strugglers the highest spending group in the category.

Spending on alcohol also rose during the height of lockdown, exceeding spending during the Christmas 2019 quarter. That’s partly a product of spending moving from bars, pubs and clubs to liquor stores for at-home consumption, but it was a pattern observed across all five groups.

Although alcohol spending came down slightly in the September quarter this year, it remains high. Moreover, the strugglers are spending close to double what they were in the same period last year, which is the largest relative increase of any of the five segments identified by Nature and The Lab.

Despite the mass closure of physical stores in March-June this year, retail spending came close to levels seen during the Christmas 2019 quarter. While they are far from the highest spending group in dollar terms, the strugglers did not hold back. Their spend exceeded that of the Christmas period and continued to be 20% higher in the September than the same time last year.

The strugglers’ spending is partly fuelled by the increasing availability and use of “Buy Now, Pay Later” (BNPL) services (alongside government stimulus and other economic factors). Even before Covid, the strugglers were putting more dollars through BNPL than any other segment and they barely lifted their foot off the throttle as we entered lockdown.

Finally, the return of major sporting events has brought renewed optimism among punters. Gambling spend in the September quarter was more than double what it was in the same period last year. The strugglers again are at the forefront of that spending.

What we’re observing is symptomatic of the frustration and uncertainty facing many Australians. In taking away stability, long-term thinking has eroded. Instead, we are prioritising everyday luxuries that offer us some respite. Those most vulnerable in our society are adopting a live-for-today mentality, yet they stand to lose the most from these financial decisions.

Let’s go. What do you think?

Industry Contributor

James Jayesuria, MD and Michael Cullen, Consultant
Nature Sydney