BEYOND REASONABLE DEBT
The extent to which financial behaviour can explain over-indebtedness amongst New Zealand families

1. Introduction

The purpose of this research was to find out how the Families Commission and Retirement Commission could help families avoid becoming over-indebted, by identifying what made some families more resilient to this situation.

The research followed an earlier literature and data review by both Commissions on the indebtedness of New Zealand families (Legge & Heynes, 2008). In that report a range of factors were identified that might distinguish families who used debt well from those who did not. Of particular interest was the association found between some behavioural traits and ‘problem debt’.

Both Commissions were keen to explore this association in a New Zealand context. Data from the Ministry of Social Development‘s Living Standards Survey (LSS) 2004 were found to provide some information on financial behaviour, in addition to information on family composition and financial circumstances.

The specific research question this paper addresses is whether it is possible to isolate the effect financial behaviour has on the likelihood of a family being over-indebted.

Section 2 defines what is meant by family over-indebtedness and how this can be measured using LSS 2004 data. Section 3 examines the relationship between financial behaviour and family over-indebtedness, based on international theory and evidence and bivariate regression analysis using LSS 2004 data. Section 4 looks at what might confound the relationship between financial behaviour and family over-indebtedness, based on international theory and evidence and multivariate regression analysis using LSS 2004 data.

Section 5 discusses the implications of the findings from this research for policy and Section 6 presents conclusions and suggestions for further research.