Kiwi families trapped by debt
The rampant cost of living means two-income families are increasingly worse off than single-income families were a generation ago – and it is threatening to put them under.
While median incomes and the number of women in the workforce has risen substantially, the money that families are putting into servicing the long-term commitments of a standard middle class lifestyle – comprehensive health insurance, a house in the right suburb and investment in education – has soared.
"It is increasingly clear that two incomes have trapped many families under a mountain of long-term financial commitments," said economist Gareth Morgan.
While the amount of money spent on food, booze, clothing and transport has dropped since 1980, statistics show that families are now spending more and more on healthcare, insurance and, most of all, housing.
In 1970, 16.63 cents in every dollar earned went towards housing and utilities. By 2011 that had jumped to 23.55 cents in every dollar. The fixed monthly outgoings of the modern middle-class family are now 2 1/2 times those of their 1970s single-income counterparts.
What has buried so many families is the level of household debt. In 1980, it accounted for 47 per cent of a family's disposable income. Today, the debt mountain is equivalent to 143 per cent of disposable income.
Debt researcher Susan St John said that in times of protracted economic downturn or financial shock there was less scope to adjust.
"So much is based on the idea of having fulltime, well-paid parents, but we are in a protracted slump and things don't work that way. There is a lot of insecurity."
Bryan Perry of the Ministry of Social Development said today's housing costs had swallowed up a much greater proportion of household income than in the 1980s. According to the Reserve Bank, even in the past 20 years, total housing and consumer loan debt had increased about six-fold in real dollar terms.
"Borrowing in order to purchase an investment can be a positive approach to wealth creation," said a recent Families Commission report. "Where debt is difficult to service and hampers family functioning, however, it can become problematic."
Perry said while there was an obvious concern with lower income households that might not have enough money for basic needs such as food and clothing, it was those on middle incomes who were unaware of the dangers of maintaining their lifestyle if a harsh financial event happened.
Federation of Family Budgeting Services chief executive Raewyn Fox said she had seen a large increase in the number of people who might be considered "well-off" coming in for advice on how to handle their money.
"In particular, where there's been two incomes and something has happened, like if one of them has been made redundant."
Fox said easy access to credit was a trap that too many people fell into, without giving thought to the future and something tipping the balance and leaving them in a financially dangerous position.
"They organise their finances so tightly that a little shock can be a major thing – the car died, the fridge breaks down or the house needs repair. People might have been sensibly paying the regular bills, they haven't allowed for the irregular ones."
If people addressed the problem quickly they could avoid a mortgagee sale but sometimes, she said, it was too late.
Figures released by Terralink International show there were 524 mortgagee sales in the first three months of this year – the highest first-quarter number on record, and almost six a day. The majority of those, Terralink managing director Mike Donald said, were mum and dad property owners who could not afford to service their mortgages.
Peter Sykes, who runs an Auckland family service centre, has seen that all too often. "It's something we see more and more. People getting into easy debt and not knowing how to handle it when things go wrong. It is a real problem."
Infometrics economist Matt Nolan said all recent government policy had been about getting second earners into the labour market, but that extra income – thanks to easy credit – was simply going into extra debt in the form of larger and flasher houses.
"That income has gone into building bigger and better houses than they had before. The square metreage has doubled."
Sunday Star Times