“Long COVID” threats to financial security

Having a strong financial buffer, such as savings or other resources, is a vital protection against financial shocks and other risks. This is known as financial resilience.

Click image to zoom Tap image to zoom

Yet many people entered the COVID-19 crisis with poor financial resilience, leaving them especially vulnerable, according to research by the Brotherhood of St Laurence.

"The pandemic led the most vulnerable workers to drain their savings and superannuation, leaving them with even less financial security.”

Financial resilience is one of three dimensions tracked by the  ANZ Roy Morgan Financial Wellbeing Indicator, alongside level of comfort in one’s current and expected future financial situation (feeling comfortable), and the ability to meet everyday expenses (meet commitments).

The research explores these three dimensions of financial wellbeing, investigating how they interact with the structural drivers of inequality during the pre-COVID and pandemic periods. It highlights how vulnerable groups respond to financial shocks and the likely longer term consequences. With the pandemic far from over both globally and locally, and the impacts from climate change accelerating, the research provides a road map for enabling economic security in uncertain times.

Low income workers left exposed

Individuals with low or variable incomes generally struggle to make ends meet, making it hard to save and leaving them with limited options in the event of a crisis. For this group, having a car breaking down or an unexpected cut in work hours can have a large impact on financial wellbeing - even without a global pandemic. Because of this, financial resilience scores for workers in the lowest income quintile are 20 per cent lower than the Australian average.

This vulnerability was highlighted during the COVID-19 pandemic. Many workers faced a drop in income as employment and work hours plunged. For low income workers (in the lowest income quintile) this resulted in their ability to meet commitments falling by 21 per cent from the pre-COVID period (two years to March 2020) to the September 2020 quarter, compared with a 5 per cent fall across all Australians.

Low income workers were also more likely to use the early access to superannuation provision implemented in response to the crisis, with the proportion with any superannuation dropping by 3 percentage points. Low income women in work reported an even stronger 6 percentage point drop.

This suggests the pandemic led the most vulnerable workers to drain their savings and superannuation, leaving them with even less financial security. The coming years of low wage growth predicted in the recent budget suggest there will be limited opportunities to recoup these losses, leaving many exposed to future shocks in an increasingly uncertain world.

Short-term relief, long-term challenges

While low income workers struggled to make ends meet, others benefited from the temporary supports. Vulnerable groups such as unemployed workers and single parents entered the crisis with very low financial wellbeing. In the pre-COVID period, unemployed worker’s ability to meet commitments was 22 per cent lower than the Australian average. For single parents not in employment, ability to meet commitments was 42 per cent lower.

Despite this, financial wellbeing for these groups increased during COVID-19 where an individual was likely to have access to JobSeeker or parenting payments which, for that period, included the life-changing $A550 coronavirus supplement. Unemployed workers who were likely to have access to elevated JobSeeker payments reported a 10 per cent increase in their ability to meet commitments. In contrast, those not eligible saw an 8 per cent decline.

Single parents not in employment, who were more likely to benefit from the temporary coronavirus supplement, experienced a more modest 2 per cent improvement. The increased income support provided much needed short-term relief for those relying on income support, allowing those without work to meet everyday expenses.

Other responses to the pandemic will have longer-term impacts. The suspension of the liquid assets test allowed newly unemployed people to maintain their resilience. Pre-COVID, this test required the unemployed to run down their own savings buffer prior to accessing benefits. However, for those without any existing savings buffer, resilience declined by 5 per cent even with the increased payments. Single parents not in work were less likely to benefit from this change due to very low rates of savings and resilience prior to the pandemic.

For this group, changes in access to superannuation can be expected to bring long term challenges. This policy is likely behind the sharp 10 percentage point decline in the proportion of single parents not in work with any superannuation, leaving just 45 per cent of this group with retirement savings.

Click image to zoom Tap image to zoom

A fair way to recovery?

For some, the pandemic came with a silver lining. The coronavirus supplement made it easier to make ends meet but offered no long-term security. Even with this supplement, many drew on superannuation or savings. Opportunities to recoup these losses are likely to be limited, with low wage growth and a continued shift to part time work predicted in the recent budget. As such, ‘COVID-normal’ for many is likely to mean even greater financial precarity.

Addressing these challenges requires investment in secure, well-paid work and an adequate social safety net that allows people to build savings and live with dignity. Without these investments, we could be a long way from a fair recovery.

Dr Emily Porter is the ANZ Tony Nicholson Research Fellow working in the Research and Policy Centre at the Brotherhood of St Laurence.

Dr Porter is a social researcher with a PhD in the effect of recessions on youth employment transitions. Shocks and Safety Nets: financial wellbeing during the COVID-19 crisis is the second in a series of reports from the Brotherhood of St Laurence examining the impact of COVID-19 on the financial wellbeing of low income Australians.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

13 Jan 2021

All in it together?

Dr Emily Porter | ANZ Tony Nicholson Research Fellow

The COVID-19 pandemic exposed the dangerous gap in financial wellbeing for some vulnerable Australians.

04 May 2021

PODCAST: Financial hardship – lessons from COVID-19

Anna Stewart | Head of ESG Governance & Reporting, ANZ

Financial Counselling Australia’s CEO shares how we can best support those experiencing financial hardship.