Financial mentor charity FinCap sees 'stress and strain' from people seeking financial support against a falling number of financial mentors and reduced funding

As the number of people seeking financial mentorship rises by the thousands, funding for the sector has fallen by $7 million, according to a new report from financial services charity FinCap.

FinCap offers free financial mentoring around New Zealand and released its second annual FinCap Voices report on Friday which details yearly findings from the financial sector.

The report shows the high cost of living environment has caused the number of people supported by financial mentors to soar from 49,568 people in 2022 to 69,807 in 2023 – a 40.8% increase.

In 2023, the number of financial mentors decreased to 808, a decline of 31 from 2022.

This huge increase in clients for financial mentors has coincided with a decline in the number of financial mentors and financial mentoring services altogether in the sector. 

“This is causing strain and stress,” the report said.

'Challenging time'

FinCap Chief Executive Ruth Smithers said although resourcing for the sector remained “constrained”, its financial mentor network had managed to support the larger number of people who sought financial mentorship.

“This is evidenced by financial mentors having helped whānau increase their income by around $200 in the time that they work together in every year we have reported on.”

The charity said its latest FinCap Voices report had come at a “challenging time” for financial mentoring services.

Alongside a $7 million funding reduction for the sector, dozens of financial mentoring services have recently learned they will no longer receive funding from the Ministry of Social Development.

FinCap’s report said the amount of debt owed rose significantly in 2023, with the median debt level reported to a financial mentor of $14,096, $429 more than in 2022.

“Unsurprisingly, one of the biggest challenges in 2023 was the increased cost of living, which intensified financial stress and drove many whānau further into unaffordable debt,” Smithers said.

'A drowning in debt crisis'

The report found debt didn’t affect everyone equally either; some of the most indebted were Māori and Samoan clients, women, and young people.

FinCap’s report noted the high cost of living environment had also made food unaffordable for many people.

“While incomes increased for clients of financial mentors, the cost of living rose at the same rate, leaving whānau in a worse position overall,” the report said.

An unnamed financial mentor from Wellington in the report described it as not a cost of living crisis but “a drowning in debt crisis”.

Despite an overall increase in incomes in 2023, FinCap said the median client faced a larger weekly deficit compared to 2022.

“The median weekly deficit increased to 6% as financial mentors supported whānau who were progressively struggling to cover bare necessities amid the increases in the costs of living.”

In 2023, 33% of FinCap’s clients relied solely on income support, such as JobSeeker benefits or Superannuation, while 39% received a mix of salary or wages and income support and 28% relied on salary or wages only.

This indicated that many clients were trying to find work or boost their incomes, the report said.

Recommendations

FinCap said it would continue to advocate for greater funding and acknowledgment of the financial mentoring sector.

In 2023, the number of clients significantly increased across services, but funding for the financial mentoring sector remained “insufficient”.

“Communities will always need financial mentors, and without an increase in funding the services will face continued strain,” the report said.

FinCap also wants the development of NZ’s safe-lending laws to remain “maintained”.

“Vulnerable borrowers are not a small or fixed group of our population. Borrowers can be vulnerable when the lending being offered does not properly consider their situation. Overdrafts and lower interest or buy now, pay later lending, just like higher interest lending, can be the tipping point that plunges a borrower into a vicious cycle of increasing debt,” the report said.

FinCap said it was dedicated to working with the Government until the Credit Contracts and Consumer Finance Act (CCCFA) benefited all consumers.

Minister of Commerce and Consumer Affairs Andrew Bayly announced in January earlier this year that he wanted to reform the levers of the country’s financial services regulation inherited from the previous government rather than start from scratch. 

He then revealed in April that he was revoking the affordability regulations introduced by the previous government into the CCCFA in 2021.

Bayly said at the time that Labour’s affordability regulations had thrown a “bucket of cold ice” over banks and financial providers by mandating minimum steps to assess loan affordability and the time it took to process loans “dramatically increased”.