As the number of people seeking financial mentorship rises by the thousands, funding for the sector has fallen by $7 million, according to a new report from financial services charity FinCap.
FinCap offers free financial mentoring around New Zealand and released its second annual FinCap Voices report on Friday which details yearly findings from the financial sector.
The report shows the high cost of living environment has caused the number of people supported by financial mentors to soar from 49,568 people in 2022 to 69,807 in 2023 – a 40.8% increase.
In 2023, the number of financial mentors decreased to 808, a decline of 31 from 2022.
This huge increase in clients for financial mentors has coincided with a decline in the number of financial mentors and financial mentoring services altogether in the sector.
“This is causing strain and stress,” the report said.
'Challenging time'
FinCap Chief Executive Ruth Smithers said although resourcing for the sector remained “constrained”, its financial mentor network had managed to support the larger number of people who sought financial mentorship.
“This is evidenced by financial mentors having helped whānau increase their income by around $200 in the time that they work together in every year we have reported on.”
The charity said its latest FinCap Voices report had come at a “challenging time” for financial mentoring services.
Alongside a $7 million funding reduction for the sector, dozens of financial mentoring services have recently learned they will no longer receive funding from the Ministry of Social Development.
FinCap’s report said the amount of debt owed rose significantly in 2023, with the median debt level reported to a financial mentor of $14,096, $429 more than in 2022.
“Unsurprisingly, one of the biggest challenges in 2023 was the increased cost of living, which intensified financial stress and drove many whānau further into unaffordable debt,” Smithers said.
'A drowning in debt crisis'
The report found debt didn’t affect everyone equally either; some of the most indebted were Māori and Samoan clients, women, and young people.
FinCap’s report noted the high cost of living environment had also made food unaffordable for many people.
“While incomes increased for clients of financial mentors, the cost of living rose at the same rate, leaving whānau in a worse position overall,” the report said.
An unnamed financial mentor from Wellington in the report described it as not a cost of living crisis but “a drowning in debt crisis”.
Despite an overall increase in incomes in 2023, FinCap said the median client faced a larger weekly deficit compared to 2022.
“The median weekly deficit increased to 6% as financial mentors supported whānau who were progressively struggling to cover bare necessities amid the increases in the costs of living.”
In 2023, 33% of FinCap’s clients relied solely on income support, such as JobSeeker benefits or Superannuation, while 39% received a mix of salary or wages and income support and 28% relied on salary or wages only.
This indicated that many clients were trying to find work or boost their incomes, the report said.
Recommendations
FinCap said it would continue to advocate for greater funding and acknowledgment of the financial mentoring sector.
In 2023, the number of clients significantly increased across services, but funding for the financial mentoring sector remained “insufficient”.
“Communities will always need financial mentors, and without an increase in funding the services will face continued strain,” the report said.
FinCap also wants the development of NZ’s safe-lending laws to remain “maintained”.
“Vulnerable borrowers are not a small or fixed group of our population. Borrowers can be vulnerable when the lending being offered does not properly consider their situation. Overdrafts and lower interest or buy now, pay later lending, just like higher interest lending, can be the tipping point that plunges a borrower into a vicious cycle of increasing debt,” the report said.
FinCap said it was dedicated to working with the Government until the Credit Contracts and Consumer Finance Act (CCCFA) benefited all consumers.
Minister of Commerce and Consumer Affairs Andrew Bayly announced in January earlier this year that he wanted to reform the levers of the country’s financial services regulation inherited from the previous government rather than start from scratch.
He then revealed in April that he was revoking the affordability regulations introduced by the previous government into the CCCFA in 2021.
Bayly said at the time that Labour’s affordability regulations had thrown a “bucket of cold ice” over banks and financial providers by mandating minimum steps to assess loan affordability and the time it took to process loans “dramatically increased”.
4 Comments
People needing financial mentorship are probably the last to be able to afford it. Seems like a strange industry. Like "life coaches" or something.
Money's actually pretty simple, if you don't need to spend it. Don't. If you view money in a light of how long it takes you to earn it, you very quickly start to value it appropriately.
Ocelot, there is no cost to see financial mentors in NZ as many times or for as long as an individual require. Financial mentors were previously known as budget advisers.
Banks and other credit providers including telco and a huge range of support services refer people to Money Talks when clients fall into arrears, distress, "non performing loans", from which a triage service then assigns them to work with a financial mentor in their community. Mentors can help negotiate credit reductions or write offs.
Many Kiwi kids are illiterate and innumerate now so that makes getting a grip on budgeting and cashflow near impossible. Likewise many parents lack understanding of these principles.
Many families live on benefits with or without paid or cash work. Many children go without regular basics such as food, clothing and attention on a regular basis and parental neglect, addiction and mental health is common. Teachers are under strain.
To reference the second commenter, budgeting skills are taught in some schools but are not compulsory and are often taught in a way that is not relatable to real life. Due to the fact that schools are essentially indoctrination centres and have been invaded by extreme left woke ideology this lack of focus on the basics has let down more than an entire generation of learners.
30 years in education and financial services education has demonstrated and research backs it up that parental engagement with schooling is critical rather than socio economic background, although being poor sucks and makes difficult situations harder.
NZ is in a severe crisis at present in my opinion with a range of factors intersecting and not in a good way. The economy is pretty f especially in Wellington and many regional areas. Families already on the brink have now been pushed over the edge. The children of those parents unfortunately bear the brunt of poor choices and bad luck.
I'm pleased attendance is now reported. There is so much the education system and leftist policies have done to let kids down.
I agree with much of your largely insightful comments, schools not teaching practical budgeting in a way that is relatable to life is a problem. Seems like a major problem with education in general.
Bad choices from individuals is surely a factor but the bad choices from our so-called "leaders" is another big factor.
The banks, media, government created the environment for a house price bubble and subsequent high inflation and bad economy we have. Through high immigration, low interest rates and easy money which suckered people into big mortgages in 2021 even as it set the stage for high inflation. The RBNZ plans to resolve inflation through raising interest rates, mass layoffs so that people are fearful of their jobs and will accept lower wages.
That effects people at the margins the most, if they don't have a mortgage their rent has gone up from the housing shortage, inflation hurts people on low incomes the most and creating lots of new money is a factor.
The high wages are a symptom of capitalists doing a bad job at capital allocation and overinvesting at the peak of the cycle, when they do that they transfer their capital to their workers. The government shouldn't intervene in this process to tilt the scales always on the side of business anymore than taxpayer money should bail out private banks, insurance companies,or airlines as we have done in NZ.
If there's no consequences when you make a mistake then you will never learn how to invest wisely, if you're constantly laying off and re-hiring staff you'll never have the skilled workforce with high morale that you need.
It really sucks to see people suffering though and it's unneccessary, it's absolutely a result of poor understanding of how the economy works among those with no education and those phds with their heads in models and abstractions that have little relation to the real world.
I don't see how this is a left/right thing, for those who are interested in the history there's a lot to learn in both Adam Smith and Karl Marx's perspectives on the world without neccessarily agreeing with everything they said and certainly without becoming dogmatic and ideological.
If you think the worlds problems are that you have the right 'ism and it's those others that are wrong I'd suggest that human societies are more wonderfully complicated and frankly weird than you can imagine and that's OK. It's only through the synthesis of diverse perspectives that we are at our best.
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