By Amanda Morrall
Demand for budgeting services in New Zealand has seen close to a 20% increase in the last year, a trend blamed on the rising cost of living, including food, petrol and power prices, and also job lay-offs and changing social structures.
Raewyn Fox, CEO of the NZ Federation of Family Budgeting Services, said based on current levels of demand the organisation was on course to see more than 5,000 extra people this year pushing the number of Kiwis seeking help to 37,000 for the latest year.
Fox said intensifying financial pressures facing average New Zealanders meant the organisation was dealing with a demographic that it was not previously used to seeing; middle-income families with mortgages and also retirees struggling to live on retirement income provided by New Zealand Super.
Mortgage debt a bigger factor
Fox, speaking at a workplace savings forum in Auckland, said whilst her organisation's clientele comprised only a small part of the population, the issues facing them were becoming increasingly commonplace.
As evidence of that, Fox said the level of mortgage debt the organisation normally sees, had doubled between 2009 and 2010. The NZ Federation of Family Budgeting Services charts the type of debt their clientele carries and the numbers show mortgage debt on their books has doubled. It's not the level of debt that has exploded, but rather the number of people who have mortgages who are finding they can't cope with the pressures.
"That's not because we are seeing people with twice as big mortgages, it's because we didn't used to see many people with mortgages,'' Fox told finance sector employees in attendance.
She said the tipping point for many households trying to manage their finances was a job loss or a reduction in hours.
"One of the biggest triggers is redundancies. They had a mortgage and two jobs and then one disappeared and the other can't find another job but also loss of over-time that disappeared. It might only be $150 but it seriously changes the balance of their option.''
The point at which they were presenting for help was when they had 'run out of options' to meet their payment obligations, she noted.
As a consequence of the shift in the underlying requirement for budgeting help, Fox said the organisation was having to retrain many of its volunteers and paid budget advisors to deal with mortgage restructuring, mortgagee sales and insolvencies.
Fox said New Zealanders' ability to service their debt, not unlike citizens of other Western developed nations where credit addiction bloomed, had become increasingly challenged.
Of the 30,000 of people the organisation had helped last year with budgeting services, a combined NZ$63 million in debt problems related to high-interest bearing debt that couldn't be met on time.
"It's not necessarily the debt that is the issue but the arrears. At the stage they come to see us it is because they have fallen into arrears.''
Fox said the average amount was NZ$5,000 for the clients they saw last year.
Given that the majority of the clients the federation sees earn just over NZ$30,000, the level of debt was significant, particular when it was owed to finance companies.
Debt owed to finance companies emerged last year as the second highest source of financial liability, with banks falling into third as creditors of non-mortgage debt.
Retirees struggle
Another group that was presenting with greater frequency, and which the federation was not accustomed to dealing with, was seniors struggling to live off their retirement income.
"We used to see a handful, 50-100 or so and that's increased to 500-1000,'' said Fox.
Fox said financial problems were more pronounced for those seniors who did not own their own homes because New Zealand Super (around NZ$14,000 for individuals) did not stretch far enough given that 50-60% of that was going to pay the rent.
"For most of them, it has just been general price impacts. Increases in food, power, petrol that kind of thing.'' (For more on cost of living increases see this story by Alex Tarrant).
Baby Boomers who had lost their savings to finance companies were also turning up in greater numbers, along with grandparents who were either bailing out their own kids financially or raising their grandchildren as their own.
"Their budgets don't even cover the basic essentials.''
Fox's speech was a sobering one for delegates at the Workplace Savings conference most of whom were in the businesses of selling, promoting or managing savings products.
Financial ignorance?
Savings Working Group member, Paul Mersi, another speaker at the forum, said the financial services sector was in store for many challenges given low-incomes, constrained savings ability and lethargic attitudes towards the need for retirement savings.
He said the urgency to lift financial literacy levels in New Zealand should not be under-estimated, even suggesting a re-labeling of the situation to "financial ignorance" to trigger a greater response.
AMP senior economist Bevan Graham said New Zealanders counting on New Zealand Superannuation to see them through in old age would be leaving much to risk.
He said structural budget deficits in New Zealand and elsewhere (for example Greece, Portugal, Spain, Ireland, USA and Japan), were straining public pensions.
"How sustainable are current New Zealand Superannuation arrangements? Not very,'' he said bluntly.
Graham accused politicians of playing the "ultimate game of political chicken'' in failing to bump out the age of retirement for public pensions in keeping with what other nations were doing to make it more sustainable.
Graham said he was hopeful KiwiSaver would displace property as the subject of discussion in a year's time.
"I stood here at a conference two years ago and said in three years time, I hoped that around the summer BBQ people would start talking about their KiwiSaver returns and not how much the value of their house had gone up. We aren't there yet, but we have another year to go.'''
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