One in five households experienced financial stress last year

One in five households experienced financial stress last year, according to new research. This figure comes from tracking failed direct debit payments, which can show urgent signs of hardship. Nick Garvin, a research manager at economic think tank e61, analyzed millions of bank transactions for the study. Garvin explained that failed payments indicate households struggling to pay bills. If a household cannot cover expenses like electricity or gym memberships, it signals financial difficulty. Failed payments increased after the government ended support measures that were put in place during the COVID-19 pandemic. Banks usually look at late payments and spending habits to assess financial stress. Meanwhile, governments often rely on unemployment and inflation data. In September, the Reserve Bank noted that less than 1% of homeowners were behind on their mortgage repayments by 90 days or more. However, Garvin believes that failed direct debit payments provide a clearer and more immediate picture of financial hardship. Garvin also mentioned that these payment failures can help policymakers respond more effectively to financial stress. He noted that support measures like JobKeeper and JobSeeker had temporarily reduced failed payments but that the situation worsened after their removal. By late 2021, inflation increased sharply as these policies ended, leading to more accounts having failed payments. While renters exhibit higher failure rates in payments, the gap with homeowners has narrowed as interest rates climbed. Recent data shows that one in five accounts failed to make a direct debit payment last November, indicating ongoing financial challenges. Additionally, a report from CreditorWatch showed that businesses were also under financial pressure, particularly in the hospitality sector, which saw a record number of closures due to rising costs and decreased consumer spending.