After more than two decades of sustained economic growth and weathering hardships like the global financial crisis, for many people Australia is still the “Lucky Country”. But researchers at the Centre for Social Impact (CSI) have found two million Australians are experiencing a severe to high level of financial stress or vulnerability.
In research commissioned by NAB, CSI CEO Professor Kristy Muir and researchers at the University of NSW also found almost two-thirds (64.3 per cent) of Australians are facing some level of financial stress, while one in four had difficulty simply accessing financial services in the previous 12 months.
“Financial resilience is our capacity to recover from a financial shock or to absorb a financial shock,” Muir says. “Our research is about understanding what resources people draw on to do this.”
Four keys to resilience
Muir’s CSI team surveyed a representative sample of Australians to identify four key factors that contribute to financial resilience: access to financial products and services; access to economic resources (such as income, managing debts and costs of living); financial knowledge and behaviour; and access to social capital.
CSI acknowledges building resilience is complex and relies on a combination of the factors identified. The Centre is also set to release more results examining which programs and supports have been able to create positive change so far.
“We want to understand what the changes over time are,” she says. “What the pressure points are and which areas are getting better or worse and for whom.
“The cost of living has gone up relative to incomes, which means people have less disposable income for savings or to respond if something goes wrong – like a washing machine or a fridge breaks down and needs fixing or replacing.
“There is also evidence that debt has increased around the country. The questions then emerge about what is good debt and bad debt and can people manage the repayments?
“If we don’t have adequate support systems in place and we don’t have an adequate supply of affordable housing, what happens if you lose your job? What happens if you lose your stable income support? What happens if you’re like the one in six Australians who isn’t able to raise $2,000 within a week in an emergency?”
CSI researchers also found 48 per cent of Australians had only a “basic understanding” of financial products and services which affects people’s financial resilience.
“Economic resources are also low for many people,” the report says. “In the event of a financial shock, national savings levels are very poor – with nearly half the population (46.6 per cent) having two months or less worth of savings available, including 9.7 per cent who reported having no savings at all.
“Some people experienced added risk with low levels of social capital. For example, more than 18 per cent of people reported minimal social connections.”
Record numbers seeking help
Financial counselling is an independent service offered by many community agencies around Australia. The CEO of peak body Financial Counselling Australia Fiona Guthrie sees the financial stress many Australians are under every day.
In March this year, the National Debt Helpline, the phone financial counselling service run by Financial Counselling Australia and the gateway to financial counselling, received a record 17,038 calls from those struggling with credit card debt and worries about paying rising power bills and rents.
“Some people wrongly think that financial stress is mainly the result of poor money management,” Guthrie says. “But the reality is that the most common causes are unemployment, illness or relationship breakdown.”
“The data all points to the same thing: that there are a large number of people who are very close to the edge.
“There’s quite a large group of people who are extremely poor, struggling on very low incomes. But there is also a sizeable number of Australians that have a high level of income, assets and debts but can quickly get into trouble if they lose their job.
“Most of us are two to three pay packets away from not being able to pay the bills.”
Act now, not later
Guthrie’s advice is to act early to face up to the reality of financial difficulty rather than simply ignoring the mounting bills or resorting to a payday lender, which will just make the situation worse.
“Payday loans are debt traps. If you have problems with bills and debts, resorting to high cost credit won’t solve the problem, just entrench it,” she says.
Instead, she suggests seeking help from trained and non-judgmental financial counsellors who will listen to each individual’s story over the phone or face to face and then work with their clients to find a solution, that works for them.
This advice is supported by Joe Seychell, General Manager of NAB’s hardship assistance team NAB Assist, “It’s easier to fix a problem if you get it early and you get the right support. Customers who come to us are more likely to get back on track quickly and feel a sense of control than those who don’t.”
In 2013, NAB undertook a radical redesign of their entire debt collection system. The bank brought in Kildonan UnitingCare, a renowned community service organisation, to find new ways of helping customers deal with their financial hardships, a critical task in a country with around $2 trillion in household debt.
Fighting the high fees of cash loans and consumer leases
For those shut outside of the traditional banking sector, financial shocks can trigger a cycle that leads straight to fringe lenders.
Organisations like Good Shepherd Microfinance are working to counter this by helping people in need access small no interest loans or low interest loans.
“It’s turning good intentions into action,” Good Shepherd Microfinance CEO Adam Mooney says. “It’s a human-centred approach. There are many causes of financial stress but there are many solutions emerging as well.
“Sometimes people feel that they don’t have any alternative other than to take out a high cost cash loan or an expensive consumer lease. Our loans programs offer a safer and more affordable option for many people who can’t access mainstream finance.”
Good Shepherd Microfinance’s programs include access to the No Interest Loans Scheme (NILS) and the low interest Step Up loans which are backed by $130 million committed by NAB for microfinance lending.
The loans are available through more than 240 community organisations in 670 locations nationally as well as through seven Good Money stores in major centres.
Good Shepherd Microfinance has worked with NAB to reach 480,000 people so far with a goal of one million by 2018. To scale up further, Good Shepherd Microfinance, with NAB’s support, is also looking into harnessing the power of technology as an enabler of financial inclusion within the coming months.
“We want to move away from crisis and hardship to zeroing in on the evidence for long term resilience,” Mooney says.
“We are looking at what role does financial resilience play in enabling people to lead full lives. And not just when the shocks come but in having the security and the peace of mind of knowing you are financially resilient, having a buffer and capability and the social capital to kick in.”
Mooney says the casualisation of the workforce – particularly in female-dominated sectors like nursing and teaching – is contributing to the high levels of financial stress in this country.
He also suggests seeking honest financial counselling and advice while nationally working on solutions to the four pillars of resilience identified by Professor Kristy Muir and the Centre for Social Impact.
With research showing three million Australians struggling to access mainstream banking, he adds: “It’s really in all of our interests for investment into building knowledge.”
The Centre for Social Impact plans on releasing the next phase of its research into financial resilience in August this year, supported by NAB.
Find out more about NAB’s approach to financial inclusion and resilience.
