“Long COVID” Threats to Financial Security
Yet many people entered the COVID-19 crisis with low financial resilience, leaving them particularly vulnerable, according to a study by the Confrérie de Saint-Laurent.
“The pandemic has led the most vulnerable workers to drain their savings and retirement pensions, leaving them with even less financial security.”
Financial resilience is one of the three dimensions monitored by the ANZ Roy Morgan Financial Wellbeing Indicatoras well as level of comfort in one’s current and expected future financial situation (feeling comfortable) and ability to meet day-to-day expenses (meeting commitments).
The research explores these three dimensions of financial well-being, investigating how they interact with structural drivers of inequality during the pre-COVID period and pandemic periods. It highlights how vulnerable groups react to financial shocks and the likely longer-term consequences. As the pandemic is far from over, both globally and locally, and the impacts of climate change are accelerating, the research provides a roadmap to enable economic security in these uncertain times.
Low-income workers exposed
people with low or variable income usually struggle to make ends meet, making it difficult to save and leaving them with limited options in times of crisis. For this group, having a car break down or an unexpected reduction in working hours can have a big impact on financial well-being – even without a global pandemic. For this reason, the financial resilience scores of workers in the lowest income quintile are 20% below the Australian average.
This vulnerability was highlighted during the COVID-19 pandemic. Many workers have faced a drop in income due to falling employment and working hours. For low-income workers (in the lowest income quintile), this resulted in a 21% decline in their ability to meet their commitments between the pre-COVID period (two years to March 2020) and the quarter of September 2020, against a decline of 5%. on all Australians.
Low-income workers were also more likely to use the early access pension provision introduced in response to the crisis, with the proportion of people receiving a pension falling by 3 percentage points. Low-income working women reported an even steeper decline of 6 percentage points.
This suggests that the pandemic has led the most vulnerable workers to dip into their savings and retirement pensions, leaving them with even less financial security. The next few years of weak wage growth predicted in the recent budget suggest there will be little scope to recoup these losses, leaving many people exposed to future shocks in an increasingly uncertain world.
Short term relief, long term challenges
As low-income workers struggled to make ends meet, others were on temporary supports. Vulnerable groups such as the unemployed and single parents entered the crisis with very low financial well-being. In the pre-COVID period, the ability of the unemployed to meet their commitments was 22% lower than the Australian average. For unemployed single parents, the ability to meet commitments was 42 percent lower.
Despite this, the financial well-being of these groups increased during COVID-19, where an individual was likely to have access to JobSeeker or parental payments which for this period included the A$550 coronavirus supplement which life changing. Unemployed workers likely to have access to high JobSeeker payments reported a 10% increase in their ability to meet their commitments. On the other hand, those who were not eligible saw an 8% drop.
Unemployed single parents, who were more likely to get the temporary coronavirus supplement, saw a more modest 2% improvement. The increase in income support provided much-needed short-term relief to those who depended on it, allowing those who were out of work to meet their daily expenses.
Other responses to the pandemic will have longer term impacts. The suspension of the liquidity test has allowed the newly unemployed to maintain their resilience. Before COVID, this test required unemployed workers to deplete their own reserve of savings before accessing benefits. However, for those without an existing savings pool, resilience decreased by 5% even with the increase in payments. Unemployed single parents were less likely to benefit from this change due to very low savings and resilience rates before the pandemic.
For this group, changes in pension access can be expected to pose long-term challenges. This policy is likely to be behind the sharp 10 percentage point drop in the proportion of unemployed single parents with a retirement pension, leaving only 45% of this group with retirement savings.