Consumers cut back discretionary spend but leave room for travel and entertainment

Australians continue to prioritise spending on travel and entertainment despite feeling ongoing pressure from rising living costs, according to the latest CommBank iQ Cost of Living Insights Report.

The report shows quarterly spending by Australians on essential goods and services rose, but well below inflation, while overall discretionary spending was flat.

Australians are increasing their expenditure on essentials such as insurance, medical costs and pharmacies, leaving less room to spend on discretionary categories like household goods and clothing. Travel and entertainment spending were the only discretionary categories to record above-inflation growth (8.2 per cent and 8.6 per cent respectively) – compared to an 8.1 per cent decrease in households good spending.

According to the report, 25-29 year olds have been the hardest hit with a 5.1 per cent decline in their total spending – the only age group to decrease both discretionary and essential spending. Despite a pullback in discretionary purchases, those in their twenties continued to find room in the budget for entertainment experiences (up 13 per cent).

“Leaving room in the budget for experiences is a continuing trend. However, they are having to reduce spending in other areas,” said CommBank iQ Head of Innovation and Analytics Wade Tubman. 

“We’re seeing consumers in their twenties cut back spending but still leave room to fund experiences. We’ve also seen younger people redirecting discretionary spending from things like clothes and homewares, to spend on cinemas and ticketed events such as concerts and sport.”

The report uses spending data for the September 2023 quarter compared to the same period in 2022 and paints a picture of spending at an individual level. The latest results confirm that, despite interest rates remaining on hold through the period, many Australians are feeling more pressure from rising living costs. 

“Given the most recent rate rise, it will be interesting to continue to monitor these trends, as we expect to see a dampening of the post-covid experience spending preference,” said Mr Tubman.

The report also reveals a divide in spending by geography, with spending by Australians in regional areas outpacing those in metropolitan areas.

On average, regional Australians are growing their spending more than double metropolitan consumers (2.9 per cent versus 1.2 per cent) as many city dwellers feel the pinch from housing costs. The gap between regional and metropolitan areas was most prominent in New South Wales and Victoria. 

“We’ve seen lower or negative discretionary spending growth in metropolitan New South Wales and Victoria where many people are grappling with higher rents and mortgages,” Mr Tubman said.

Another sharp divide was spending across age groups. Consumers under 40, who are more likely to be restricted by mortgage and rental costs, decreased year-on-year spending in the September quarter. Older Australians are proving more comfortable with the only above-inflation total spending growth seen in those over 70.

While discretionary spending went backwards for consumers under 55, those over 55 have increased their purchases this quarter, compared to last year.

Further insights

Categories in focus – Aussies rush to cinemas and cruises:

• Consumers are choosing to divert spending to entertainment, helped by major sporting events and film releases during the September 2023 quarter
• The “Barbenheimer” effect saw cinema purchases up 31 per cent, led by Australians under 30, while spending on ticketing services (concerts and sport) climbed 18 per cent
• Compared to the corresponding quarter in 2022, consumer spending on travel increased overall, running ahead of inflation. Among the larger sub-categories, growth was highest in cruises (up 55.3 per cent) and online travel bookings (up 34.4 per cent)

Spending across states – New South Wales and Victoria hit hardest:

• South Australia (+2.9 per cent) and Western Australia (+2.5 per cent) recorded the strongest spending growth per capita
• New South Wales (+1.1 per cent), Victoria (+1.0 per cent) and Northern Territory (+0.7 per cent) saw the weakest growth per capita
• New South Wales and Victoria were the only states to record year-on-year discretionary spending declines

A divide between regional and metro spending:

• Discretionary spending has stayed relatively steady in regional Australia, compared to declines in metro areas
• This suggests people in metro areas, where mortgages and rental costs are higher, are redirecting discretionary spend to cover higher fixed costs
• That gap is widest for metropolitan New South Wales and Victoria compared to regional counterparts

Spending by age:

• 25-29 year-olds increased spending on entertainment (+13 per cent) but decreased spending on household goods (-17 per cent), apparel (-10 per cent) and retail services (-9 per cent)
• Those over 65 increased spending on travel (up 17 per cent) and eating out (up 11 percent)

CommBank’s Cost of Living Support Hub provides a range of tools, tips and guidance to help our customers navigate current cost of living pressures.

More about CommBank iQ

CommBank iQ is a joint venture between Commonwealth Bank of Australia ABN 48 123 123 124 (Commonwealth Bank) and The Quantium Group Pty Ltd, designed to give businesses and institutions the power of Australia’s largest and de-identified transaction banking dataset, unlocked by leading analytics and artificial intelligence. This unique partnership enables businesses and institutions to understand and predict the needs of Australians like never before. Visit: commbank.com.au/commbankiq

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