8 Dec 2020

Debt reduction and saving crucial over next year, says CFC

10:12 am on 8 December 2020

Paying down debt and putting away savings will be critical for those attempting to bounce back from the Covid downturn, the head a Crown entity promoting financial education says.

New Zealand dollars

File photo. Photo: 123RF

Commission for Financial Capability's Jane Wrightson told Morning Report those in precarious situations would need to show flexibility and a willing to train, while building financial resilience over the next year or so.

Her comments follow surveys of almost 3600 households carried out by her organisation, that found a third have not recovered their pre-Covid income levels, and 11 percent of households were still on severely-reduced incomes.

Two surveys were carried out, one in April and another six months later in October.

These also found working families in blue and "pink-collar", or working women occupations, were among the hardest hit.

One-in-four households had an arrangement with at least one creditor, such as mortgage suspensions or reduced loan repayments.

The survey taken in October showed many families relying on hospitality and retail jobs were still on a reduced income compared to February.

The highest percentage of households suffering smaller incomes were those where the main person being surveyed was aged between 55 and 64.

Wrightson said the survey found the situations of couples aged between 18-54 with children most vulnerable.

"The category that we were most concerned with was, generally speaking, couples between the ages of 18 and 54 with children.

"They might be renting. Perhaps one of them is at home and the other is in an occupation under some stress, such as retail, food and accommodation services. They're likely to have reduced income," she said.

"Conversely those in the knowledge sector and public sector have done better than most."

Jane Wrightson

Jane Wrightson Photo: supplied

Those adversely affected by Covid have been burning through savings and hoping for a quick improvement in circumstances. She said they needed to manage their financial affairs very carefully over the next year or so, as economic recovery slowly builds in New Zealand.

"Building resilience by paying down debt and tucking away savings is really important, particularly for people coming out of things like mortgage holidays."

The survey showed that those who could do so, had focused on increasing savings, which suggested they knew their situation was precarious, she said.

Māori and Pasifika households were still likely to have low income, according to the study.

"Māori households had the highest proportion of those who's incomes had been reduced by a third this year and Pasifika households also had the highest proportion reduced by the third."

Regionally, the survey showed Wellington was doing relatively well compared to places like Auckland, which historically had borne the brunt of economic peaks and troughs.

Wrightson said the government had helped significantly with the wage subsidy scheme and organisations like Sorted continued to provide excellent financial advice for those worried and in need of restructuring their lives in the wake of the Covid response. Money Talks was also doing the same.

Individual responsibility was key and showing initiative and a willingness to retrain in the facing of a demise in sectors like tourism and retail, she added.

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