Budgeting Services release families from debt trap

Families that are in perennial debt should have the benefit of Budgeting Services to become normal, functional and economically progressive, says a Report.

The Report, published last month by the Wellington based Families Commission, was based on its research, Escaping the Debt Trap: Experiences of NZ Families Accessing Budgeting Services.

A number of organisations provide such services in New Zealand but Families Commissioner Gregory Fortuin said many were finding it difficult to cope with the high level of demand generated by economic recession.

The Research aimed at gaining knowledge on financial issues facing families to evolve plans and strategies to assist them.

It sought to understand family income and expenditure, lifestyle, spending and saving habits and other intervening factors that impact on family welfare.

It also aimed at identifying the causes that lead to debt and how it can be solved through budgeting services.

The Families Commission conducted its research in two phases, the first of which was held between 2007 and 2008, involving 30 families that had used the Salvation Army Budgeting Services. It included 27 families that were dependent on government benefit as the main source of income, and three working families.

The second phase, conducted early last year, accounted for 10 working families that had used the New Zealand Federation of Family Budgeting Services (NZFFBS).

Interviews based on questionnaires focused on families that had fallen into the debt trap, how it influenced their lives and efforts concerted to salvage the situation.

The study said many families did not have enough income to meet their needs.

“On the face of it, increasing the family income could be the simplest way to improve their situation. However, as families with problem debt have different income levels, increasing income is not the only way to address debt. No level of income guarantees against a family getting into problem debt,” it said.

He called for greater involvement of budgeting services, providing early assistance and financial education to families.

“Our research demonstrated that budgeting services made a real difference empowering families with the confidence and skills they need to overcome the problem of debt.

“Budgeting services would be more effective if they were resourced to intervene early and provide training to prevent the problem. Even during times of prosperity, it is difficult for them to resource early intervention. Now that they are flooded with need, they are stuck fighting fires. Many of the services need more funding and personnel targeted towards helping families before they fall into a crisis,” he said.

He said budgeting services played a critical role in reducing the burden of debt and had profound impact on the health, social and economic outcomes for families.

“If families manage their finances well, they would have more resources, less stress, and would be able to negotiate better the trials in life. Financial literacy can transform a family’s quality of life, which has positive downstream impacts on a number of issues ranging from nutrition to preventing family separation,” he said.

Mr Fortuin said that the Commission’s study had shown that budgeting services could be more effective on a proactive basis, rather than trying to solve issues after they have gone out of control.

According to him, early intervention was the best way to prevent disasters.

“An organisation providing budgeting service should remain in contact with families that experience life-changing events such as chronic illness, disability, job loss, child birth or separation. It is also important for families to seek and receive help as soon as they realise that issues were getting out of hand,” he said.

“Early intervention would require other services such as social and health services to refer families to budgeting services as a matter of course,” he said.

Mr Fortuin said equipping families with financial skills through educational workshops would help to prevent their finances from spiralling out of control.

“Budgeting services are well placed to teach families budgeting skills before any problems occur, because they have the expertise and understand the issues faced by families. Even providing budgeting support for one person is worthwhile.

“When one family member becomes more financially knowledgeable, others, including children, pick up the skills. Education is a multi-generation intervention and a worthwhile investment,” he said.

The study found that most respondents were struggling to meet everyday expenses and suffered relatively high levels of debt for their level of income.

Several families reported having debts with a debt collection agency at the time of the interview. Some respondents said they were not repaying any of their debt or were only partially repaying debt.

“For many, having a physical or mental disability in the family was a significant factor in relation to their overall levels of debt and their ability to get out of the problem. Most of the beneficiary families (23 out of 27) and half of the working families interviewed reported that at least one family member living in their household had a significant physical or mental health problem or some form of disability,” it said.