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Another day poorer, deeper in debt

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Gittins: Sailing close to the edge is tough

With the coming budget, spare a thought for those so poor they’re just about excluded from normal financial services, such has home content insurance or car insurance.

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Don't be too alarmed by all the talk of budget black holes and everything being on the table in Julia Gillard's search for savings. It's more likely we're being softened up for a lot more budget deficits than for a horror budget in two weeks' time.

Even so, it's clear there will be more cuts in spending and tax concessions. And though they're hardly likely to be draconian, you can be sure they'll draw howls of protest from those affected, egged on by shock jocks and opposition pollies on the make.

The trouble is the cost of true necessities such as food, clothing ... power tends to be a reasonable fixed amount, whatever your income. 

What's more, it's a safe bet they'll be aimed mainly at the better-off. So before we're engulfed by another round of upper middle class self-pity, I thought I'd get in early and tell you a little about the lives of people who really do have difficulty making ends meet.

<i>Illustration: Simon Letch</i>

Illustration: Simon Letch

According to a survey conducted by the Bureau of Statistics in 2010, almost one in five Australian adults experienced ''financial stress'' that year, where this means not being able to pay their bills, rent or mortgage on time or make minimum repayments on their credit cards, or they had to sell or pawn something because they needed cash.

A newly published report by Dr Nicola Brackertz, of Swinburne University, for the Salvation Army (my co-religionists), tells us a lot about the who, how and why of people suffering genuine financial stress. She surveyed 225 of the clients of the Salvos' free financial counselling service, Moneycare, operating for 20 years.

The first thing to note is that a third of respondents were living alone and another 28 per cent were sole parents. Only 14 per cent were couples with dependent children.

Two-thirds were women. Almost 80 per cent had a government pension or benefit as their main source of income. Only 15 per cent had wages as their main income.

Almost 40 per cent of respondents were renting privately and 22 per cent were renting public or community housing. Only 21 per cent were paying a mortgage and just 5 per cent owned their homes outright.

Put all this together and it tells me we're dealing with people right at the bottom of the heap. Most of the respondents would be unemployed, on the disability support pension or sole parents (many of whom have been relegated to the dole by a caring government).

Since the great majority of age pensioners own their homes, we're dealing in the main with only those age pensioners living alone and renting. It all goes to show how close people on the dole live to the poverty line, the more so if they have to rent privately.

With rents as they are, it's no surprise people in privately rented accommodation on a very low income are highly likely to experience financial stress. The surprise is the disproportionate number of respondents living in public housing.

The rent these people pay is generally set at 25 per cent of their income, no matter how low that income is. This sounds pretty generous; the standard measure of housing stress is rent or mortgage payments exceeding 30 per cent of income.

The trouble is the cost of true necessities such as food, clothing and power tends to be a reasonably fixed amount, whatever your income. So if your income is very low, you may not be left with enough for spending 25 per cent of the total on rent to be easily manageable. By the same token, if your income is quite high, a lifestyle choice to devote a lot more than 30 per cent of it to housing doesn't leave you feeling the pinch.

If you're as comfortably off as I am, it's a surprise to discover how small were the total debts that got the respondents into trouble with their creditors. Although a third had debts of more than $20,000, the typical (median) debt level was $5000 to $10,000.

Almost half had three or more sources of debt, with the most common being utility bills, credit cards, phone bills and personal loans. Well over half the respondents had been experiencing financial difficulties for two years or more.

Why did the respondents get into financial trouble? In their own words, ''the leading causes were insufficient income caused by retrenchment, unemployment or underemployment and an insufficient level of government allowances and pensions'', the report says.

''Health reasons, including disability and mental illness, often prevented respondents from earning sufficient income.'' It's easy for you and me to tell ourselves these people are just bad money-managers. But American research I've been reading says they're no better or worse managers than the rest of us. Their real problem is that life at the bottom is so much more unforgiving.

When your income's so low you need all of it just to get by, there's no scope to build a buffer of savings to cover you when quarterly utility bills arrive or some unexpected expense arrives. And when you can't afford car insurance or home contents insurance, big unexpected expenses are more likely to arrive.

When some service is cut off because you haven't paid the bill, you can't get it back on until you've paid the arrears and a reconnection fee. When you borrow to tide yourself over, you pay much higher interest rates than the rest of us - including to ''payday lenders'' and pawnbrokers.

If none of this applies to you, count your blessings (as we used to sing in Sunday school).

Ross Gittins is economics editor.

424 comments

  • And when did the "Proice ohn cahbon" start? 2010? Try 2012 for those with short term memory problems. Conduct the same survey today and see what answers you get. A typical Gittins failure!

    Commenter
    Pat
    Location
    Sydney
    Date and time
    May 01, 2013, 5:43AM
    • Pat,

      The next federal election will be a pretty good indication of what the electorate thinks about the carbon tax.

      Commenter
      Jimc
      Date and time
      May 01, 2013, 6:17AM
    • Jimc - the next federal election will be a good indication about how Australians feel about their government raising taxes, sorry "levies" when they have shown such diciplined spending in the last 5 years. How many seats left to Labor after 14 Sep? Who knows - but they could borrow the QLD oppositions Tarago at this stage.

      Commenter
      Act Rationally
      Date and time
      May 01, 2013, 6:22AM
    • Pat,
      Thanks for a pathetic attempt to turn this into a party -political issue. Unlike you (obviously), I am living precisely in the bracket to which Gittins refers... single, on the pension, renting private accommodation.

      I am grateful that four years ago (while on a disability pension after a career in corporate banking) I cleared my debts by selling my small and mortgaged Sydney property, and moved 300 kilometres out of Sydney, in order to be able to afford to rent and still have enough to live a modest life.as long as I don't drink, smoke or gamble.

      The carbon tax has got NOTHING to do with my situation, as the government increased pension (payments (and those to others earning under $85k I believe) to compensate for its effect. It is an entirely separate issue that the power companies, who had been milked dry by successive state governments (of all persuasions),
      (a) found themselves under-invested in capital assets, and
      (b) greedily chose to "gold-plate" replacement assets.

      I am still awaiting signs that state governments have some sort of plan to deal with this greed....

      Fortunately my decision to move up the coast has meant that my lifestyle is far healthier and more fulfilling than when I was in the workforce. I cannot begin to understand, however, how people in my circumstances, but living in big cities, can possibly cope financially, or indeed have a life which is not depressing.

      And another thing PAt, do you honestly believe that somehow the situation will improve for people like me with a change of government? Pray enlighten us all.....

      Commenter
      TonyStott
      Location
      Forster, NSW
      Date and time
      May 01, 2013, 6:26AM
    • The early bird might catch the worm but not empathy by the looks of it.

      Your comment implies that prior to 2010 nobody lived in poverty. Really.

      Commenter
      kepler-22b
      Date and time
      May 01, 2013, 6:33AM
    • @ Tony Scott - hear, hear and + 1!
      I find it quite telling that some will try and turn this quite worthy and important topic into the usual boorish, party political whinge. Telling, in that those engaging in the partisan politicisation of this topic clearly have no idea of the seriousness of this issue for so many and lack the courtesy and respect to confine their comments to such which are relevant to it.

      Commenter
      Warwick
      Date and time
      May 01, 2013, 6:43AM
    • I see Tony Abbott has the selfish, whinging, environmental-vandal vote all sewn-up.

      Of course every claim made by him (and his supporters) about the carbon-price are now proven lies. Not only has it not been a wrecking ball through the economy with Whyalla still standing and lamb-roasts not at $100, (the price of lamb has actually fallen) it has reduced emissions from electricity by 9% (something which Abbott's fraud of a policy would never have achieved).

      Commenter
      Think Big
      Location
      Sydney
      Date and time
      May 01, 2013, 6:51AM
    • "....Your comment implies that prior to 2010 nobody lived in poverty. Really..."

      According to Bob Hawke no Australian child has lived in poverty since 1990.

      Commenter
      Jay Santos
      Date and time
      May 01, 2013, 6:53AM
    • Wow you somehow took the carbon tax as the underlying point of the article? What an embarrassment.

      Commenter
      Lou
      Date and time
      May 01, 2013, 6:55AM
    • Religiously inspired sympathies and appeals to guilt might work for some,
      but many of us have long left Sunday school homilies behind.

      Labor and the budget are in trouble not because Australians are not generous
      but because this government is inept, its that simple.

      Ross and other symperthisers can try to paper over the gaping cracks
      but that won't stop Labor's prodigal chickens from coming home.

      Commenter
      SteveH.
      Date and time
      May 01, 2013, 7:06AM

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