Household financial conditions have fallen to their lowest level in more than a decade, according to the Melbourne Institute.

The research group's Household Saving and Investment Report has found that financial conditions fell 24.3% in June, reaching their lowest level since March 2001. The report tracks the proportion of households who are saving relative to the proportion running into debt or drawing on their savings. Following the June decline, the index indicated 25.2% of households were saving. The Melbourne Institute's Dr. Edda Claus said the sharp drop-off was unexpected.

"This record low comes as a surprise as house price rises have been moderating and the unemployment rate is below 5%," she said.

Claus commented that the proportion of respondents who claimed their main motivation for saving was "saving for a rainy day" rose to 55.4%, its highest level since respondents began nominating their reasons for saving in May 2005. She said this could be due to a lack of confidence in the economy.

"This could indicate a fundamental change in consumer attitude away from accumulating toward paying off debt, but this could also indicate that consumers see weakness ahead in economic activity and hence increase their precautionary savings," Claus remarked.