More People 'Drowning In Debt' As Cost Of Living Crisis Bites

The number of whānau turning to financial mentors for help has jumped 40 percent in a year as they grapple with growing debt, a new report shows.

The second annual FinCap Voices report has laid out the financial wellbeing of those supported by financial mentors.

The 185 services across Aotearoa worked with 49,568 whānau in 2022, but that leapt to 69,807 in 2023, the report showed.

The median amount of debt owed by people seeking help increased to $14,096, up $429 from 2022.

While incomes increased last year, they were "cancelled out" by the cost of living crisis and people struggling to afford the basics like food, the report said.

"In Wellington and Auckland, we noticed a particular strain, with increases in weekly deficits and higher median debt amounts."

One Wellington-based financial mentor quoted in the report said it was not a cost of living crisis, but a "drowning in debt crisis".

Those facing the worst debt were Māori and Samoan clients, women and young people, the report found.

Debt to banks and telecommunications companies increased "significantly", with people owing banks $311 million in 2023, up from $250 million the year prior.

Those with car loans were in a more difficult position, facing a $104 weekly deficit, compared to a $17 shortfall for other clients.

People owed government departments about $100 more in 2023 than they did in 2022, and there was an $180 increase in the amount of debt owed to councils.

And anecdotal evidence from financial mentors showed whānau were struggling with mental health.

Throughout the report, financial mentors explained the type of situations they were dealing with every day.

"My biggest concern is I am seeing clients that have a deficit even with very little debt. The cost of living is only increasing and I don't want to have to start telling clients to get a second or third job to be able to afford the essentials," an Auckland financial mentor said.

"Just the normal costs for any solo mother is basically outweighing their income and that's not always debt, it's not always anything in particular. It's just a whole heap of just basically not enough income for a family," another said.

A third said some of their clients could not eat if they could not go to the food bank.

The problems were down to a mix of poor financial literacy and the unmanageable cost of living, FinCap senior policy advisor Jake Lilley said.

"At times people might not have the financial literacy they need to keep a stable budget," he said.

"But at other times, someone's doing everything they can, and simply they just can't afford to make any mistakes at all.

"Or even if they don't make a single mistake, they're going to find themselves behind and unable to keep up with their expenses because cost of living's out of control and the cost of the debt that they've got is out of control."

More support for financial services needed - FinCap

The report comes as some budgeting advice and financial mentoring services are facing closure after missing out on the latest round of government funding.

Building Financial Services funding has dropped from $22.3 million last year to $19.5 million from 1 July, due to the expiry of a time-limited cash boost during the pandemic, the Ministry of Social Development (MSD) confirmed last week.

But Lilley said they did vital work and needed more support, not less.

"It's quite worrying some of the challenges financial mentors are facing right now, with some not knowing whether or not they have a job after July."

As well as more funding for the services, recommendations included increasing government benefits, continuing to develop safe lending laws, cracking down on irresponsible car lending, and improving access to quality housing.