Financial hardship and assistance in times of change

Cost of living and financial hardship

Like many other Australians, you may have noticed that your household costs have risen, quite significantly at times. With prices increasing in the grocery store, at the pump, and on your home, it’s not surprising that a rising number of people are struggling to make ends meet.

With cost of living expenses increasing, now may be a good time to see how your city compares against others in terms of standard of living and living costs, and to learn more about what kind of assistance is out there if you are struggling to fulfil your repayments.

What is the cost of living?

The cost of living is an indicator of how expensive it is to live in a certain place.

There’s no one set way to calculate this, but one way to compare the cost of living between different cities is to compare the average cost of necessities such as housing, food, transportation, health, and education. The Australian Bureau of Statistics (ABS) uses the Consumer Price Index (CPI), which measures the changes in cost of necessary goods and services over the year.

The ABS reported that the national CPI rose by 7.8% from December 2021 to December 2022, which is a big jump compared to previous years.

When comparing some of those costs we mentioned earlier, such as housing, Sydney is the most expensive city to live in in Australia on average, with Melbourne following close behind. While some costs, such as utilities, may be higher in Adelaide and Hobart, they tend to have the lowest costs of living in the country.

Australia is not alone when it comes to cost of living increases, with inflation and rising energy costs affecting countries all over the world. 

Standard of living and wages

While the cost of living measures the cost of necessities, the standard of living measures the level of wealth and access to material comforts. When assessing the standard of living, factors such as life expectancy, socio-economic status, involvement in community or political life, and access to infrastructure may be taken into account.

According to the OECD’s Better Life Index, Australia performs very well compared to other countries, particularly in areas such as employment, health, and education. According to the index, we also have relatively high wages on average compared to other countries. Rising cost of living expenses can impact the standard of living, but having a good standard of living can help ease the effect of these increases.

What is financial hardship?

Financial hardship occurs when you aren’t able to meet your repayments, or are struggling to do so. It can be caused by a variety of different factors and may be temporary or long term, which we’ll talk more about a bit later.

If your expenses or repayments outweigh your income, or you can’t afford your necessities, you may be suffering from severe financial hardship.

What can cause financial hardship?

Financial hardship can be caused by a variety of factors, many of which are hard to plan for. Here are some examples of situations that may cause financial hardship:

• Unemployment
• Illness
• Natural disaster
• Caregiving responsibilities
• Coronavirus
• Domestic violence

Experiencing any of these situations can be stressful enough, but when they escalate to the point that they are causing financial difficulties, it can feel very overwhelming.

Financial hardship assistance

Hardship can happen to anyone and may temporary, but sometimes it can have long lasting effects. Payments that accrue high amounts of interest, such as credit card debt and car payments, can build up quickly, and may impact your ability to secure credit in the future.

Depending on your needs and your lender, you may have a few different options when receiving assistance. Your circumstances will usually be assessed on an individual basis, so having a chat to your lender is a must. 

Some options that may be offered are:

• Deferring or reducing payments for an agreed period of time;
• Converting to interest only; or
• Creating a payment arrangement

Assistance can be short term, or you may need assistance for a longer period of time. The earlier you talk to your lender, the more options you’ll have for hardship assistance, so be sure to reach out as soon as possible.

Can claiming financial hardship affect my credit rating?

Claiming financial hardship, or entering into a financial hardship arrangement, won’t affect your credit score, so don’t be afraid to reach out for help. If you’ve claimed hardship after 1 July 2022, it will be recorded in your credit report, and removed after 12 months. This may sound scary, but the main reason for this is so lenders or potential lenders can see that you are getting your finances back on track and are meeting the payments on your hardship agreement.

Tools and tips for managing money

Hardship is often unexpected, so planning for it may be difficult. However, there are a few things you could do to better manage your money and prepare for change. We’ve collected a few tools and tips that you can use to get started:

• Ensuring your mortgage stays on track now can reduce a lot of stress later. A repayment calculator can be a helpful tool, as it allows you to visualise and plan out your future payments. You can also use it to see how a change to your rate or the length of your term can affect your repayments, which is useful if you’re considering a refinance.
• Saving for emergencies is the best way to prepare for hardship. Having a safety net can help immensely if you run into financial difficulties. You can use a savings goal calculator to see how long it will take to save up to your goal, and to plan out your deposits.
• If you haven’t created a budget before, a budget planner calculator is a great way to start. Creating a budget can help you identify where your expenses are going, and may help you identify areas where you can save.

Our best tip, though, is to reach out to your lender or credit provider if you are struggling. This can alleviate a lot of stress, and the sooner you reach out the easier it is to get back on your feet.