Preface
Until fairly recently, indebtedness has not been considered a problem worth exploring on its own merits. Indebtedness is often regarded as a symptom of a much bigger problem, such as inadequate income or inadequate savings, or a combination of the two.
Increasing levels of household indebtedness (in New Zealand and abroad), however, have prompted a closer examination – is the way in which families use debt something we should be concerned about?
Increasing indebtedness is largely a modern phenomenon: deregulation, coupled with technology, has made access to debt widely available. In many cases, little or no financial security is required to access funds. This provides opportunities that might not otherwise have existed for many people to get ahead financially or ‘weather storms’. However, the cost of this access is greatest for those who can least afford it, creating a potential debt trap if unexpected events occur.
This is an area in which the Families and Retirement Commissions share a mutual interest. Both agencies want to ensure families are aware of the risks of using debt and recognise the warning signs before debt becomes a problem.
In order to use indebtedness as an indicator of financial strain, however, we need to be able to isolate those who use debt well from those who do not. This report provides a preliminary examination of a range of factors that may help us distinguish these two population groups.
This paper does not undertake any multivariate analysis of families’ indebtedness, but recognises that the way in which variables interrelate is critically important. The Commissions plan to undertake some multivariate analysis with the Livings Standards Survey dataset to examine this further, and are also considering some primary research to improve our understanding of families’ knowledge of, attitudes to and behaviours around debt.
Our intention with this report is to raise awareness of the complexity of families’ financial decision-making and the fact that families have more financial responsibility in a deregulated financial environment. We want to be able to address the following questions:
- How can families operate better in a financial environment with fewer borrowing constraints?
- What lessons can we learn or have we already learnt from recent market fluctuations?
| Dr Jan Pryor Chief Commissioner Families Commission |
Diana Crossan Retirement Commissioner |