Fact 3: With the best budgeting skills there still isn’t enough to pay the bills

  • Because people in poverty must survive on very low incomes, they are adept at budgeting and making ends meet
  • Contrary to the popular myth, people in poverty don’t spend all their money on alcohol, smokes and gambling
  • Inadequate income levels is the real issue impacting on the ability of people in poverty to manage their finances
  • Debt can be a problem for some low-income people, but debt is often linked to tragic circumstances
  • Debt and problems managing money isn’t just an issue for people in poverty

People in poverty are adept at budgeting and making ends meet

The research that has been done (e.g. Hidden Hunger) points to the fact that people on low incomes are generally very good at budgeting – because they have to be. A study of food costs for low income families showed just how hard it is to afford to feed a family with a healthy diet on a low income.

“[A]ll the food prices have gone up dramatically but our income has not gone anywhere – we’re still struggling on the same income – trying to use the same small amount of money for food but being able to buy less and less because – we’ve got to cut things out of the budget – we don’t buy cheese anymore” (Grassroots Voices report).

“It is easy to budget on $100,000 a year but hard to budget on $14,000 a year”, Michael Gorman, Christchurch City MIssioner

Contrary to the popular myth, people in poverty don’t spend all their money on alcohol, smokes and gambling

The biggest users of alcohol and tobacco are higher income households – they spend almost twice as much per household as the poorest households although this works out to about the same proportion of income.

Less than 5% of people living in lower income areas are gambling in a way that could be regarded as risky or “problem” gambling, according to the Ministry of Health. However, low income families much more likely to have experienced problem gambling behaviour than high income families, according to the Ministry of Health. One reason for this is that half of gaming machines, the most addictive form of gambling, are located in low income areas.

However, the conclusion of the Expert Advisory Group on Child Poverty in 2012 was “parental drinking and drug use are not significant causes of poverty”, and problem gambling, while unlikely to be significant cause, makes poverty worse for affected families.

Inadequate income levels is the real issue

People on benefits with no other earned income have incomes well below recognised poverty lines which leave them with nothing in reserve.

NZCCSS studies of foodbank clients show that:

  • The majority of clients receive a benefit as their only source of income
  • Median and average weekly net incomes of foodbank clients were less than half that of the average New Zealand household
  • Median net income was between $169 and $211 per week
  • Around three quarters of clients spend greater than 30% of their net income on housing.

Debt can be a problem for some low-income people

…But is often linked to tragic circumstances, including death, illness and relationship break-up. Low-income families try hard to get out of debt but often don’t have enough income to become debt-free.  Low income families are often forced to borrow money simply to meet everyday living needs.

Debt and problems managing money isn’t just an issue for people in poverty:

Since the deregulation of the financial sector in 1984, New Zealand households have become increasingly debt-ridden. Average household debt has increased from 59% of disposable income in 1991 to 154% in 2014.There is now far easier access to credit than previously in New Zealand’s economic and social history and New Zealand households have been using this credit to fund consumption. The impact of the financial crisis and recession since 2007-2008 has been to halt the growth in debt but not to significantly reduce it.

  • Those with the highest incomes owe the most on their credit cards.
  • 2,952 people undertook a „no asset procedure‟ in the twelve months leading to June 2014, an alternative to bankruptcy that was introduced in December 2007. Bankruptcies themselves have decreased considerably since 2007 (3,593) to 1,936 in 2013.
  • People with six-figure incomes are now seeking out the budget advisors.