The Experience of Financial Hardship in Australia: Causes, Impacts and Coping Strategies

Abstract

This article outlines the findings of Australia’s first large-scale study on the experiences of people who have recently been unable to pay a debt when it fell due. The study builds upon empirical research on the causes and impacts of financial hardship in the United Kingdom and the United States, and examines the coping strategies that debtors employ to deal with their predicament. The study shows that although an overall increase in economic insecurity since the 1980s – together with rising living costs and rapid growth in household debt – have created a situation in which financial hardship can happen to almost anyone, people who are already in a position of socio-economic disadvantage are especially at risk. Debtors at all levels of income in the study favour individualistic strategies for reducing their expenditure – for some, to the point of foregoing essential living needs. However, for debtors on social security incomes, financial hardship has particularly serious consequences, impacting negatively on health, relationships and social inclusion, and undermining their ability to afford necessities such as food, heating and medical care. Consumer protections have been enacted to allow Australians in financial hardship to negotiate payment plans and other arrangements (sometimes known as “hardship variations”) with creditors including banks, utility and telecommunications companies. Consumers struggling to pay utility bills may also be eligible for additional assistance through a company “hardship program”. These protections aim to enable debtors to avoid enforcement action, energy disconnection, and in the most serious cases, bankruptcy. However, only a minority of debtors surveyed are actually using these protections. This article undertakes an analysis of these findings in the context of the literature on economic insecurity, disadvantage and the growing financialization of everyday life in Australia and overseas.

Keywords: financial hardship; consumer protection; consumer credit; telecommunications