Majority of households either in financial crisis, or on the brink

Tuesday, 26 May 2020

Households' Covid-19 income drops.

The majority of households are in personal financial crisis, or are close to falling into it, an international survey including 3000 New Zealanders showed.

Already one in 10 Kiwi households had missed a mortgage or rent payment as a result of the Covid-19 economic crisis, the research from the taxpayer-funded Commission for Financial Capability indicated.

The impacts of the shuttered economy in March and April fell hardest on young families, Māori, Pacifica and people working on already insecure contracts.

Those with capital in debt-free homes and savings and investments, were least impacted, and least likely to be among the 34 per cent who were already experiencing financial difficulties, or the 40 per cent teetering on the brink of doing so.

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Aucklander Rebekah Bristow, who works part-time in the live music industry and is raising a child alone, felt the uncertainty of lockdown keenly.

She is a renter, and her flatmate worked in hospitality, both industries that have been hit hard in the fight against Covid-19.

'When the wage subsidy came in, we both breathed a sigh of relief that we would be able to pay our rent, but both of our jobs are vulnerable, and it's hanging over us,' she said.

'There's that anxiety about whether our jobs will still be there in a few months, and what the hell do you do?'

Retirement Commissioner Jane Wrightson took up the role just before the full financial impact of Covid-19 was felt.

Without the income from her work, and her flatmate paying part of the rent, government benefits would only be enough to pay the rent, leaving little for anything else.

Bristow counts her blessings, and thinks of the essential workers who have risked infection during the lockdown, but she also thinks many New Zealand households will be learning about how tough it is to live on tiny incomes.

'New Zealanders who have never been on a benefit are saying this is not enough to live on. We've known this for a long time,' said Bristow.

The commission's survey was conducted during the level 4 lockdown in April, and showed New Zealand households were more financially insecure than those in the United Kingdom and Norway.

Tim Barnett, former Labour MP, and now head of the Fincap network of budget agencies.

“It was a dark time for many, and we acknowledge that some may be feeling more optimistic now that we’re in level 2 and following the Budget announcements,” said Retirement Commissioner Jane Wrightson.

When the survey was done 34 per cent of households were in difficulty and 40 per cent were at risk of tipping into hardship.

'It shocked me,' Wrightson said.

Tim Barnett, chief executive of Fincap, which offers budgeting services, said: 'ANZ's annual report (on financial resilience) has always indicated many people were one unexpected event from financial hardship, but didn't think it was likely they would lose their job.'

The unexpected event was Covid-19, he said.

'So much of what was secure is now insecure.'

Wrightson said there were three broad groups identified by the survey — the 26 per cent of secure households, the 34 per cent in financial difficulty already, and the 40 per cent who were 'exposed' and teetering on the edge of crisis.

'There's a new group emerged we are calling exposed. These are people who have been largely okay so far. They are disproportionately young. They have got heavy consumer or mortgage debt,' Wrightson said.

'It shows you in reality the impact the housing market has had. If you have an enormous mortgage, and if you have have a large travel time, and cost to get to work, and if you are trying to raise children as well, then you are very, very close to the wind,' she said.

Despite some optimism after coming out of lockdown, Wrightson said: 'It is generally accepted that income loss will get worse before it gets better.'

The commission had identified signs some stressed households were making poor financial decisions, such as taking out high interest loans.

'High numbers had switched their KiwiSaver fund to one that was more conservative, thus locking in their losses,' she said.

In March alone $1.4 billion was switched from higher-risk to lower-risk funds.

Consumer Affairs Minister Kris Faafoi has acknowledged that New Zealand's laws are out of step with other jurisdictions and said the government would look at amending the Civil Aviation Act.

Without Government taxpayer-funded support, the picture would have been even worse. Four in 10 of the households surveyed had at least one member was receiving the wage subsidy, Wrightson said.

The survey indicated how little emergency savings many households had when Covid-19 struck, she said.

Other factors behind households rapid fall into financial crisis included low social welfare benefits, a large number of people with jobs in tourism and international education, and a high number of people in insecure employment, including those in casual work, the self-employed, or on temporary contracts, Wrightson said.

The insecure 40 per cent of households was a major concern, and may require a rethinking of benefits beyond the temporary move to introduce a payment of up to $490 a week for people who lose work as a result of Covid-19.

“They are the group that should be instrumental in helping to rebuild our economy, young couples with children and mortgages, most of them employed, self-employed or business owners,' said Wrightson.

'We need to help them bounce back so they can play a defining role in post-Covid New Zealand.”

Kirs Faafoi, minister with responsibility for the commission said: 'The Government is acutely aware of the financial pressures Covid-19 has placed on people and we have moved to help in a wide range of ways. We will continue to adjust, adapt and add to that range of help and guidance as we work through the Government’s recovery plan.”

KiwiSaver may also need to be restructured to let people have an emergency 'sidecar' fund, so they could build a savings fund they could draw on in an emergency.

The survey revealed just how many people had considered or tried to get money out of KiwiSaver to help them during March and April, including a disproportionately large number of renters.

'By the end of April was low, 16 per cent of members were considering it, including 30 per cent of Māori and Pacific members and 22 per cent of renters,' Wrightson said.

There had also been relatively low uptake of free financial guidance such as that provided by FinCap’s MoneyTalks service.