Housing is first on the list of spending priorities, says new research by debt charity Way Forward
Way Forward has released the findings from its latest research into how people in financial hardship experience a cost-of-living crisis.
The research found:
- 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.
The latest research backs up Way Forward’s previous survey findings from 2021 and 2022.
The results from three annual client surveys have consistently found that having even a small amount of savings (i.e., $1,000) and, to a lesser degree, budgeting are the greatest safeguards when navigating financial hardship and poor mental health.
Having savings – even small amounts – can significantly improve a person’s financial situation.
“We know that for many people, getting informed about how to manage their money, especially budgeting and saving, can be difficult. This is because when times are good and money isn’t a problem, there’s little reason to seek out new skills, but when times are tough, the ability to learn is affected by the stresses of dealing with financial difficulty,” said CEO David Berry.
“86 per cent of people who say they worry about money all the time see this impact their mental health at least weekly. We also understand that those who are most worried about money, struggle to manage their situation.
“While asking for help with an acute financial problem is a great start, our observations are that the best longer-term results come from supporting people in refining their money habits by budgeting, saving, prioritising and reflecting.
“Younger people are particularly vulnerable to falling into problem debt, which can be partly attributed to a lack of these skills. In the current age of digital shopping, where products are constantly marketed to young people via social media and purchasing is instantaneous, there are endless opportunities to make impulsive spending decisions.”
BNPL and wage advance products squeezing people more
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.
“We think it’s overdue that the Federal Government regulate BNPL and wage advance products as credit products, as we’re seeing the ongoing harm that these products continue to have and the way they worsen financial hardship,” CEO David Berry said.
“It is deeply concerning that of the people we surveyed who are in financial difficulty and have used wage advance or BNPL products, 1 in 3 feel trapped in a cycle of using wage advance products while 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 this proportion being even higher among those with lower incomes.
“Nearly 50 per cent of people earning under $50,000 a year have used BNPL or wage advance to pay for essentials. For us it’s clear, BNPL and wage advance masks a problem – that a person is either in financial hardship or is close to it.”
