Under Pressure: How people prioritise spending in a cost-of-living crisis

Using a survey of Way Forward’s clients – people who are in financial hardship – we investigated how people prioritise their limited financial resources in the face of a cost-of-living crisis, and what knowledge and experience they draw upon when making decisions about money.

We’ve found that when money is in short supply, housing comes first (at the expense of everything else).

The research found that the people who Way Forward support have less savings but are earning more income, meaning they are spending more overall – in part due to cost-of-living pressures.

This is also causing them immense mental stress with 86% of people admitting that they worry about money all the time and see this impact their mental health at least weekly.

We also understand that those who are most worried about money, are often least capable of changing their situation.

However, we know that having savings helps people feel better mentally and financially. Having over $1000 in savings is the most effective safeguard against financial hardship, regardless of income.

While asking for help with an acute financial problem can work in the short term, our observations are that the best way to improve someone’s longer-term quality of life is to support them in developing better money habits by budgeting, saving and prioritising.

Why do people fall into hardship?

The reasons people fall into hardship are multifaceted, but we’ve consistently observed that the consequences of debt aren’t always considered when taking it on.

There might be money to put food on the table today, but nothing left to pay the insurance premium that’s due tomorrow.

Debt can be seen as the answer to any financial roadblock, and if someone is stressed about money, they continue to dig deeper by borrowing more.

We’ve found that when people are in crisis, they experience a mental fog which prevents them from absorbing information that would help them to understand, learn and use the skills to help improve the difficult situation that they are facing. What’s more, we also know from our research that when times are relatively good, people lack the incentive to learn these new skills.

Our findings reveal:

• People Way Forward support have less savings but are earning more, meaning they are spending more overall – in part due to cost-of-living pressures.
• People prioritise housing and this means when it costs more, other expenses are sacrificed. When finances are low, it’s what people don’t invest in that counts – after ensuring a roof over their head and putting food on the table, other expenses like insurance and extras for kids are being sacrificed.
• Budgeting and debt management strategies can help people out of financial difficulty, but people in financial difficulty find it hard to absorb that information due to the stress caused by being in hardship. It’s a vicious cycle.
• People want to learn how to manage their money better, but they don’t know how, with 50 per cent of respondents telling us they want a greater understanding of how to set up a plan to manage their finances and get out of debt.

BNPL and wage advance products creating more pressure

In a world of digital money, debt is easier to access than ever before. Buy Now Pay Later (BNPL) and wage advance products continue to grow and still lack the regulation to protect those vulnerable to, or currently experiencing, financial difficulty.

Young people are particularly vulnerable to falling into problem debt owing to a lack of money management skills and overuse of BNPL. In the current digital age of shopping, where products are constantly marketed to young people via social media and purchasing is instantaneous, there are endless opportunities to make poor spending decisions.

Year on year, we’re finding that Way Forward’s clients are relying more heavily on BNPL and wage advance products to try to meet their cost-of-living expenses. This quickly results in a debt snowball where increasing levels of debt are needed to sustain everyday needs.

Way Forward encourages the Federal Government to regulate BNPL and wage advance products as credit products in a way that considers the ongoing harm and perpetuation of financial hardship they can cause.

Our research found that of those people who have used wage advance or BNPL products, 1 in 3 feel trapped in a cycle of using wage advance products and 1 in 4 feels trapped in a cycle of using BNPL products.

“1 in 10 have used BNPL or wage advance products to pay off other debts, with the proportion being higher for those with lower incomes.

“Nearly 50% of people earning under $50,000 a year have used BNPL to pay for essentials. BNPL masks a problem – that someone is either in financial hardship or close to it.”

Help is out there

By releasing this Under Pressure research report, we want Australians struggling with debt to realise they are not alone. It’s natural to feel stress and anxiety over money in those circumstances. Remember, help is out there and having a realistic repayment plan to end the cycle of debt can make all the difference in reducing anxiety that comes with debt stress.

Our team of well-trained financial hardship advocates offers free support so more Australians can find their way forward towards financial freedom.

Get in touch with Way Forward on our website or give us a call on 1300 045 502. Our office hours are 9:00 AM-7:00 PM AEST Monday to Friday.

For other services such as mental health support, please visit our page listing support services available in Australia.

Download the report for additional insights, data and recommendations for the industry, legislators and hardship teams of financial institutions.

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