Horrifying news has broken this week that some 300,000 young Australians, aged 18 to 34, have turned to payday lenders in the past three months to manage basic household expense
The figures, from the Consumer Policy Research Centre, speak of the economic trauma our youth are facing in this – not just health but – wealth crisis.
A full two-thirds of young Australians are now concerned about their financial well-being.
Compared to the general population, young Australians are subsequently three times more likely to have taken out a payday loan or consumer lease and twice as likely to have signed up for a personal loan in July, just to make ends meet.
Of these, a personal loan is the best, because at least there is a finite repayment period and a low-ish interest rate. The worst is arguably a payday loan – this could have an effective interest rate of more than 400 percent.
But a consumer lease could end up being crazy costly as well, as you could pay many, many times the price of the product over which you take it (washing machine, fridge, whatever) over the years.
Yet the government is sitting on its hands. In fact, it’s sitting on a bill that would crack down on both payday loans and consumer leases. And it’s still doing this despite COVID economic upheaval.
Here are four better ways to weather the financial storm.
1. Go to your every bill provider and explain you’re struggling
Every single lender, utility, insurer and telco is being lenient with payments right now. I’m talking reducing and even waiving them for a time. Of course, for mortgages, you can get repayment holidays... for an extra four months now.
The government is leaning hard on providers to help people get through this period of (in many cases) extreme income disruption.
It sounds counter-intuitive, but go to them and confess you can’t cope. Then see what they offer you.
IF they don’t offer you much...
2. The next step is to escalate your problem to a free financial counselling service
These are legit, if you find them through Australia’s central National Debt Helpline register: ndh.org.au or on 1800 007 007.
The government has also dramatically increased funding as part of stimulus spending, to try and help people deal with the financial fallout.
A counsellor will go through your finances forensically, analysing the income you still have against your expenses.
They will then mediate and advocate for you with everyone from your bank to Centrelink.
Speaking of which…
3. Accurately know your government income entitlements
Now, for many people who have lost hours or been laid off, this is going to change in late September.
On JobKeeper, the rate for full-time workers decreases from $1500 to $1200. Part-time workers, though, will see a dramatic halving of the income replacement they have been enjoying… because this will likely have been more generous than what they were previously earning anyway.
On JobSeeker, there will be a commensurate $300 drop in the coronavirus supplement.
However, don’t miss the fact that it will be possible to claim both of these. You’ll have to report JobKeeper income to Centrelink (like all other income), but the government has confirmed to Yahoo Finance that it is completely OK to receive both JobKeeper and JobSeeker.
You will also be able to earn an extra $300 in external income before losing JobSeeker money.
So the income outlook may not be as dire as you fear.
4. Access your super under temporary hardship provisions
Now I hate this one, but tough times call for tough responses.
The government allowed people to access up to $10,000 of their superannuation last financial year and, from July 1 this financial year, you can get at another $10,000.
As an employee, you must be able to show that you’ve lost 20 percent of your work hours or that you’ve been made redundant.
But before you do this, please think carefully about whether there’s an alternative measures you could take. Modelling by Industry Super Australia shows that if you take the full $20,000 in your 30s, it will end up costing you five times that amount: $100,000
And that powerfully demonstrates the detriment when you lose money you’ve contributed early. The older the money, the bigger it grows.
But if things are desperate, this is still a far better prospect than falling prey to a loan shark.
Are you a millennial or Gen Z-er interested in joining a community where you can learn how to take control of your money? Join us at The Broke Millennials Club on Facebook!