Households teeter on brink

The majority of households are in 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, Ma¯ ori, Pasifika, and people working on already insecure contracts.

Those with capital in debt-free homes and savings and investments were least affected, and were 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.

Aucklander Rebecca Bristow, who works part time in the live music industry and raises a child alone, felt the uncertainty of lockdown keenly.

She is a renter, and her flatmate works in hospitality, both industries that have been hit hard by 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?’’

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

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

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

‘‘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,’’ Retirement Commissioner Jane Wrightson said.

Tim Barnett, the 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 OK so far. They are disproportionately young. They have got heavy consumer or mortgage debt. It shows you in reality the impact the housing market has had,’’ Wrightson said.

The commission had identified signs that 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,’’ Wrightson said. In March alone $1.4 billion was switched from higherrisk to lower-risk funds.

Without taxpayer-funded support, the picture would have been even worse. Four in 10 of the households surveyed had at least one member who 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.

‘‘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,’’ Wrightson said.

‘‘We need to help them bounce back so they can play a defining role in postCovid New Zealand.’’

Kris Faafoi, the 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’’ savings fund.

Among those surveyed, there had been relatively low uptake of free financial guidance such as that provided by FinCap’s MoneyTalks service.