Australians have been scared into paying off their debts and ramping up their savings due to the sinking economy and fear of losing their jobs.
Less than 5 per cent of mortgage borrowers have opted to reduce the repayments on their mortgages as figures from the big four banks have shown.
The government's cash handouts have mainly been used to pay off debt, rather than for shopping or holidays. Analysts concur that fear of the global recession has led people to pay off their debt as fast as possible.
There are grave doubts as to whether the governments $42 billion stimulus package will have the desired effect on the economy as people are too scared to spend money.
Despite the Reserve Bank having slashed interest rates, recently released figures have shown that households are collecting the savings and overpaying on their mortgages instead of going on spending sprees.
In a space of just 18 months Australians have gone from a nation of happy-go-lucky spenders to scrooge-like savers government data recently released has shown.
Shane Oliver, chief economist at AMP stated that up until mid 2007 Australia had a savings ratio of zero which indicated that the average household was saving absolutely nothing, but now that has completely turned around and we are saving around 4 per cent of our income and that figure is still rising.
AMP has predicted that Australians will rely less on the rising sharemarket and house prices and that they will save an average of 10 per cent of their income in five years time as workers become more cautious.
Mr. Oliver went on further to say that people are saving more due to massive losses to superannuation savings which they are desperately trying to replace, and that less than 30 per cent of the cash handouts will be spent in the short term.
Official figures have shown that only 10 to 20 per cent of the cash handouts in December were actually spent.
The RBA has stated that the one-off December payment to pensioners, carers and low to middle income had boosted disposable income by 4.5 per cent during the quarter. Plus the 4-percentage point in rate cuts since September has reduced $11,000 a year off interest on a $250,000 mortgage.
Australians also appear to be reluctant to spending on their credit cards. The yearly credit growth of 4.6 per cent reported in November was the lowest since RBA began compiling credit card data in 1994. Cardholders have reduced their spending by a huge 9.3 per cent.