Research Shows Vulnerable Australians Caught in Vicious Debt Cycle
18 October 2017 at 9:37 am
Vulnerable Australians are “drowning in debt” struggling to overcome financial woes that are being magnified by attempts to manage the issues via increased debt and gambling, according to new research.
Data released by The Salvation Army on Tuesday to coincide with Anti-Poverty Week shows people seeking financial assistance through its Moneycare financial counselling service are in extreme debt, with no way out but to seek help.
The figures show that those on the brink of financial crisis have accrued $2.55 of debt for every dollar earned which equates to a debt-to-income ratio of 255 per cent, far above the average Australian household ratio of 190 per cent.
Head of The Salvation Army’s Moneycare service, Tony Devlin said it was a “vicious cycle”.
“More and more Australians are falling into the vicious cycle of debt, feeling forced to max out credit cards, take out very expensive loans or take on consumer leases when they are in financially desperate situations,” Devlin said.
“However, these band-aid solutions typically only exasperate the problem.”
According to the data from the Moneycare, one of the largest providers of financial counselling and related services in Australia, credit card debt was the most common form of debt their clients had, which is consistent with the last 10 years.
Debts were also commonly incurred through personal loans, electricity bills, car loans, welfare, mortgages, phones and fines, with the amount of payday loan debt also increasing.
Meanwhile, the research showed people on the brink of bankruptcy were spending more on gambling.
Those who disclosed gambling expenditure in 2016-17 spent 8.38 per cent of their income on betting which marks a 363.4 per cent increase over the last 10 years.
It comes as the research showed that the gig economy was taking its toll with casual and part-time workers, carers and pensioners more likely to seek out services now than 12 years ago.
According to the latest data, the percentage of casual and part-time clients has increased by 140 per cent, while, carers as clients have increased by 93.3 per cent and pensioners as clients have increased by 71.8 per cent
The data suggests underemployment and the casualisation of the Australian workforce is affecting the way people are able to manage their finances.
Housing affordability and cost of living pressures are also having an adverse effect with clients typically spending 37 per cent of their income on rent – a 7 per cent increase over the last 10 years.
Additionally, the percentage of income people spend on electricity has increased by 24.9 per cent in the same period.
Devlin said more than ever, they were seeing people “from all walks of life” seeking their help.
“The cross section of clients is growing and the amount of debt people are finding themselves in is very high,” Devlin said.
“Over the last 10 years, we have seen major changes to the employment landscape in conjunction with increases to the cost of living. This makes it harder for people to keep their head above water.”
He called on anyone who was under financial pressure to seek the help of a free and confidential community financial counsellor as a “safer alternative” to “risky borrowing or seeking help from a commercial provider”.
“Financial counsellors can advocate on your behalf and, where appropriate, negotiate a payment plan with the people you owe money to,” he said.
“Additionally, No Interest Loans Schemes (NILS) provide safe and affordable credit to people for essential items. There are always people who are willing to help.”