Consumer Confidence Hits Three-Year Low

If you've been feeling nervous about your finances recently, new research confirms you're not alone. Consumer confidence has plummeted to its lowest level in over three years, sitting at just 87.9 as of May 2025, according to the ANZ-Roy Morgan Weekly Consumer Confidence index. This isn't a recent trend though as the index has been below the neutral 100 mark for the last 4 years and represents the lowest consistent trend since the start of this century. The research reveals a concerning cycle where economic distrust is creating a self-reinforcing pattern that's limiting spending and investment, even as traditional economic indicators show improvement.

Economic Distrust Becomes the New Normal

The pandemic fundamentally changed how we view economic institutions, creating what Roy Morgan Research calls a "prolonged period of economic distrust." Before COVID-19, most people trusted the economy more than they distrusted it. However, the pandemic marked a decisive tipping point that pushed the nation into sustained net distrust territory.

Roy Morgan CEO Michele Levine identified two critical factors driving this shift. First, the pandemic exposed and amplified existing weaknesses in institutional trust, permanently altering how people judge institutions, brands, and leaders. Second, a distrusting public becomes inherently risk-averse, spending less and saving more, which creates a drag on economic recovery.

This distrust acts as a barrier to economic recovery, with consumers remaining wary even as traditional economic indicators improve. This skepticism prevents the release of consumer spending that typically drives economic momentum, which in turn runs the risk of becoming a self-fulfilling prophecy as it creates the perfect condition for the economic decline it was trying to avoid.

Rising BNPL Usage Signals Growing Financial Stress

More People Turn to Buy-Now-Pay-Later Services

The research reveals a concerning trend in how people are managing their finances. Currently, 24.5% of adults now rely on Buy-Now-Pay-Later services at least once annually, with 15.9% using them monthly. This represents almost a 10% increase over the past year, indicating growing financial stress among consumers who are turning to credit products to manage everyday expenses.

The Hidden Cost

Whilst BNPL services are helping consumers spread the cost, it's not as helpful for business owners as merchant fees for BNPL services typically sit around 4%. That's significantly higher than credit and debit card charges. Small businesses are especially impacted as they now have to decide whether to absorb this cost, or pass it onto consumers.

What This Means for Your Spending Power

So, in the long run, what seems to be a convenient service for consumers can end up costing you more. As more people use BNPL services, merchants are hit with more service fees which could potentially lead to increased prices across the board as businesses adjust to cover these costs. So in a slightly ironic twist, By Now Pay Later services, whilst used my many to ease financial burden, could end up contributing to it.

The Unexpected Impact

The surge in BNPL usage could also potentially affect how you approach traditional credit products. As more people turn to these services for everyday expenses, it could impact your credit profile and thereby your borrowing capacity for larger purchases like home loans or personal loans. So when comparing credit options, it's worth considering how your BNPL usage patterns might impact your overall financial picture.

Why Good Economic News Isn't Boosting Confidence

Despite encouraging signs such as falling interest rates, improving retail spending, and growing business confidence, there's certainly plenty in the news for consumers to be worried about that reinforces these psychological barriers to economic recovery.

Job security and worldwide stability are no small contributor to this. Recent tariff wars has highlighted the volatility of global prices. The maturation of AI, and it's unknown impact on the employment landscape, along with companies laying-off thousands as they either jump on the AI bandwagon or down-size in a post-pandemic world, creates uncertainty on long term plans. This all feeds the instinct to 'bunker down' despite traditional positive economic factors.

This disconnect suggests that even as borrowing becomes cheaper and inflation pressures ease, people will remain cautious about major financial decisions. Restoring confidence is going to take more than just better numbers – it needs a fundamental shift in how people perceive economic stability.

Kohler suggested that sustained improvements in job security and continued interest rate cuts may eventually restore consumer confidence, potentially by the end of the year. However, this timeline depends on whether the underlying trust issues can be addressed alongside the economic improvements.

What This Means for Your Financial Decisions

The current environment of low confidence and institutional distrust creates both challenges and opportunities for your financial planning. With consumer confidence at such low levels, you might find yourself naturally more cautious about major purchases or investments, which could actually be beneficial for building emergency savings.

However, if you're considering major financial decisions like taking out a home loan or refinancing, the current environment of falling interest rates might present opportunities despite the broader confidence issues. The key is balancing natural caution with strategic financial planning that takes advantage of improving lending conditions.

When evaluating your options, consider how the broader economic sentiment might affect your own financial behaviour and whether you're being appropriately cautious or overly conservative in your approach.

Looking Ahead: Signs of Potential Recovery

While the current situation presents challenges, the research indicates that recovery is possible with the right combination of factors. Economic recovery isn't just a numbers game any more, it's more a people's game than ever, and one that has to be won if economic recovery is to be fully realised and sustained.