Households are steadily gaining confidence in their financial wellbeing, with 28 per cent of Australians prepared to start spending again over the festive season, following a period of frugality and personal debt reduction – according to the latest ING Direct Financial Wellbeing Index.

The overall Financial Wellbeing Index for the third quarter is 105.9 - a rise from its lowest level in Q1 (104.8) and Q2 (105.8), indicating confidence is improving.

Confidence in credit card debt has climbed from an Index of 126 in Q1 2010, to 130 in Q3 2011. But Australians remain least confident in personal savings – 34 per cent say they are “very uncomfortable” with personal savings, the highest proportion since tracking began in Q1 2010 - showing a desire for a higher level of savings.

Confidence in the ability to pay bills is at its lowest point since the inception of the Index. The Q3 2011 Index score of 96 marks a steady decline down from 102 in Q1 2010.

Don Koch, CEO of ING Direct says, “Despite a volatile quarter in financial markets, Australian households are proving their resilience as they get debt under control and build a strong savings base.”

Christmas to Influence Spending

More than one in four (28 per cent) households see the upcoming festive season as the main driver that will reignite spending. But Australians are still wary of over spending during the holiday period. About 37 per cent would prefer to build a bigger buffer of savings before spending again.

Some 43 per cent of Gen Y Australians are most likely to prioritise saving over spending. About 28 per cent of households want to get debt under control before increasing spending. One in four (27 per cent) won’t be loosening the purse strings for another 12 months at least.

Households say concerns over job security, the outlook for interest rates and uncertainty over the political environment are the main barriers to spending.

More than one in three (36 per cent) households restrict spending due to job security fears.

33 per cent of Australians would spend more if interest rates dropped. This rises to 60 per cent among households with a mortgage over $100k.

One in four (30 per cent) are waiting for signs of economic growth/stability to start spending again.

Almost one third (28 per cent) blame the volatile political environment for restricted spending.

Koch said: “Australians have worked hard to improve their financial position over the past two years. We now have a very clear perspective of what’s happening in terms of financial confidence, and households clearly feel better about reduced credit card debt and increased personal savings. Overall, many households are well-placed financially.”

“It’s possible that as we get closer to the festive season, households will relax their purse string a little more but right now it seems the focus is very much on protecting the gains made in financial wellbeing over the last two years.”

The latest quarterly Household Financial Wellbeing Index rates household comfort levels across six key aspects of personal financial wellbeing including credit card and mortgage debt, savings, investments, household income and ability to pay bills. Respondents rated their personal comfort level across each area on a scale from 1 (‘very uncomfortable’) to 7 (‘very comfortable’).