This report identifies factors contributing to families being in problem debt, the impacts of such debt, and strategies used to get out of problem debt, including the role of Budgeting Services.
This research focused on family members' views on what had led to their problem debt situation, how it affected their family and what could help other families to get out of debt.
Purpose
Research and consultation undertaken by the Families Commission between 2005 and 2006 (Families Commission 2005, 2006) raised concerns about families’ ability to manage their finances and resources effectively and about the negative consequences of not being able to do so.
The Families Commission resolved to undertake a programme of work focusing on family finances, debt and financial literacy to help build the knowledge base around these issues. The Commission is concerned about the level of debt of New Zealand families and, in particular, the experiences of those who end up in a financial situation which requires them to seek help from budgeting services.
As part of this programme of work, in-depth qualitative research has been undertaken to further understand:
- how families end up in a situation where they have debt which they cannot manage and therefore require budgeting services
- how being in problem debt affects families
- what could help families get out of problem debt.
The Families Commission knows debt impacts on the whole family and can lead to a range of negative outcomes within a family. The Commission is interested in understanding the impact of problem debt on families as this is a vital step in understanding how families can be better supported.
A study by the New Zealand Council of Christian Social Services (2009) reported that the uppermost issue that created problems for families using their support services was not having enough income for food, power and housing.
The 2008/09 economic climate has further increased the need to focus research on families in debt. If families who can draw on resources, particularly human capital assets such as education, training, experience and abilities, are feeling the pinch of increasing prices and are thinking twice about meeting basic necessities, what then is the financial reality for families on low-to-modest incomes who are without assets and who do not have employment?
This qualitative research enables us to hear the stories and understand the experiences of families in debt in more detail. It also provides information on what helps families, and within this how budgeting services can help families.
Methodology
Exploratory interviews with social service organisations (including budgeting advice services) and families using these services were completed prior to the start of this research.
The research was undertaken in two phases:
Phase 1
- Face-to-face in-depth qualitative interviews with an adult or adults from 30 families who were using (or had recently used) Salvation Army budgeting services in Whangarei, North Shore, Hamilton, Rotorua, Tokoroa, Porirua and Christchurch (Phase 1 interviews).
- Follow-up telephone interviews with the seven Salvation Army budgeting advisers who had helped to organise the in-depth interviews with families.
Phase 2
- Two workshops held by the Families Commission at the NZFFBS Conference (November 2008) which sought to ask participants (mainly budgeting advisers) on what could be done to support families to avoid problem debt.
- Face-to-face in-depth qualitative interviews with 10 families who were using (or 4. had recently used) the NZFFBS in the Auckland and Wellington regions and who received their main form of income from employment (Phase 2 interviews).
Key Results
- Some families carry high levels of debt, relative to their income. Low income families have fewer options for getting out of problem debt. This research shows that many families can get out of debt but it is a long term process involving a substantial level of determination from the family.
- The causes of debt are complex with many contributing factors. Help with changing behaviour through education and advice, and support for dealing with challenging circumstances – such as the death of a family member, ill-health and the care of children – would assist with preventing or reducing problem debt.
- Debt impacts heavily on family well-being. Many of the families interviewed struggled to meet the costs of basic necessities and the financial strain led to social isolation and stress on family relationships. The 40 families that took part in this research represented a total of 89 dependent children (younger than 18 years). These children often missed out on taking part in what might be considered normal activities. They were often living in an environment where the adult(s) operated under considerable stress.
- Parents were well aware of the impact of their debt situation on the children, and the desire to change their situation was in many cases related to improving their children’s lives. This is a powerful message to motivate and encourage families to seek help for their situation early. Families with one or more members in employment appear to have more options available to improve their situation. However, employment is not a simple solution for beneficiary families, who are often unable to work due to health issues or to care for their children, or need further education to enter the workforce.
- For some families, a culture of giving and providing for extended family members contributes to being in debt.
- Credit agencies appear to be targeting families who can least afford it and have poorer understanding of lending practices.
- Many families in problem debt situations have debt to Government and this often includes ongoing fines if the debts are not repaid. For many, the initial debt is not large, but for some this contributes to an ongoing ‘cycle’ of debt.
- Feedback from budget advisers indicates that many families are unaware of the assistance available to them, particularly from government agencies. They take a key role in getting the right assistance for families.
- Families reported that their financial situation improved as a result of using budgeting services. Budgeting services provide essential services to low income families in crisis, but are facing increased demand from middle- to high-income families who have developed problem debt.