Purpose and scope of report
The purpose of this report is to provide the Families Commission and the Retirement Commission with a sound basis for any future work on the issue of families’ indebtedness. Neither Commission wants to discourage the positive use of debt. Both want to understand how New Zealand families approach debt and determine factors that influence whether the experience will be positive or negative.
Both Commissions are broadly interested in the financial wellbeing of New Zealanders. The Families Commission has a particular interest in their ability to ‘make ends meet’, while the Retirement Commission has a particular interest in individuals’ ability to save for their retirement.
As a group, New Zealand households have been spending more than they have been earning for some time and the Reserve Bank has cautioned that this may not be sustainable in the long term. Increasing household indebtedness is a trend amongst developed countries and New Zealand is no exception (Goh, 2005).
Aggregate figures, however, do not tell us much about how individual New Zealand families or households are faring. Anecdotal evidence, which is receiving considerable media attention at the time of writing, suggests that increasing numbers of New Zealand families are using debt to ‘make ends meet’. There is also some anecdotal evidence that the use of debt may be contributing to the growing gap between rich and poor (Skilling & Waldegrave, 2004). The Reserve Bank has speculated that there may even be a net transfer of wealth from young to old (Bollard, Hodgetts, Briggs & Smith, 2006).
These issues are complex and require considerable research effort to validate, which is well beyond the scope of this report. This report does not attempt to measure problem debt or to define families who are in or close to a problem debt situation. However, the report does provide a framework for doing this in the future.
This report reviews a range of New Zealand and international literature and New Zealand data sources for the theory and evidence about why people use debt and why indebtedness might be a problem for some New Zealand families. The report identifies avenues for further work.