COVID-19-hit employees increasingly relying on personal debt

According to AMP’s 2020 Financial Wellness Report, which collected insights from 2,131 Australian employees over June and July 2020, 14 per cent of Australians have been unable to pay one or more bills on time over the past year.

It found that, in 2020, around one in seven (14.5 per cent) of survey respondents reported moderate or severe levels of financial stress. This rose markedly for those whose finances have been negatively impacted by COVID-19, to around a quarter (23 per cent).

The report found that many of those impacted by COVID-19 now report relying on credit cards and personal loans to cover expenses and said that they were increasingly using them to pay off debt, too.

AMP’s data found that 11 per cent of Australian workers whose working hours had been slashed due to the pandemic had agreed with the statement “I am increasingly relying on credit cards to pay for expenses”.

Seven per cent also revealed that they had taken out a personal loan since their hours were impacted.

This compared with just 3 per cent of those whose hours were not impacted who had taken out a credit card, and approximately 1 per cent taking out a personal loan.

Additionally, the data shows that Australians negatively impacted by COVID-19 are almost three times more likely to feel anxious about their finances. 

Almost a quarter of Australians abandoned their pre-COVID plans to pay off personal loans and credit cards, with two in five Australian workers who accessed their super as part of the early access scheme using the funds to pay off debt. 

Speaking of the findings, Andrew Heaven, a financial adviser at AMP, stated: “It’s clear from the research that those whose working arrangements have been directly impacted by COVID are relying more on credit cards and personal loans to meet day-to-day needs.

“As we enter the Christmas period – a time when we typically spend more – there’s added risk already financially stressed Aussies will face mounting credit card bills in January,” he said. 

“It’s important they think carefully about their spending and use of credit over the Christmas break to avoid amplifying anxiety in the new year.”

Mr Heaven suggested that those who have been impacted ensure they are “aware of the type of credit used”, stick to a Christmas budget and avoid spur of moment purchases to help achieve more savings and reduce interest payments down the track.

In addition to the dataset, AMP compiled financial advice for those heading into Christmas financially distressed, including advice on a Christmas savings plan and debt consolidation options.

The silver lining

While the report shows that employees whose working hours were impacted by COVID-19 are reporting increasing financial stress, faced with the possibilities of increasing job insecurity and reduced income, many employees said they had also started implementing healthy financial habits this year.

Compared with before the initial lockdown of COVID-19, there has been a 6 per cent increase in the number of employees establishing a financial plan, AMP found.

There was a similar increase in the number of employees (5 per cent) who this year took action to start saving, putting money away for a rainy day. Those impacted by COVID-19 were 9 per cent more likely to do so than those not impacted.

Moreover, one in 10 Australian employees (11 per cent) said 2020’s unusual economic circumstances have had a positive impact on their finances.

Indeed, more recent figures from the Australian Bureau of Statistics show that household wealth increased to a record high of $11.4 trillion in the September quarter, driven by record growth in deposits and an increase in residential assets.

Household liabilities increased by $5.0 billion in the quarter (0.2 per cent), driven by a $12.5 billion rise in home loans. This was partly offset by a $4.4 billion reduction of short-term debt, such as credit cards and personal loans – as borrowers continued to pay down their debts and spend less.

[Related: Home owner, renter financial stress spikes]