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.