Covid financial relief one year on: what comes next?

With the 12-month anniversary of the government’s historical Covid-19 financial rescue package approaching, it’s time to reflect. Did the measures work? What is the financial state of the nation? And more importantly, what comes next?

Plunged into economic shock

When the Covid pandemic hit in March 2020, we witnessed two waves of stress. The first was related to the health crisis. Who would catch the virus? How best to protect our parents and grandparents? What about our children? Would the health system cope? 

Quick to follow was the financial stress of being thrown into sudden lockdown. What would happen to jobs? How to pay bills and buy groceries? What about rent or the mortgage? How will businesses survive?  (Why is everyone buying toilet paper?) 

In just the first two months of the pandemic, 600,000 Australians lost their jobs. As of the most recent ABS data (December 2020), there are now more than 900,000 people unemployed.

Women and young adults have been among the hardest hit. They tend to be overrepresented in industries affected by Covid. They’re also more likely to be casual or contract workers, employment categories initially excluded from JobKeeper.

Women were also nearly five times more likely than men to be a main care provider to children (52% vs 11%) during the homeschooling period.

COVID-19 response package

In response, the government rolled out an economic rescue package, the likes of which have never been seen before. Initially intended to sustain the fight for six months, the major programs were extended to 12 months and are set to expire next month.

The total response package is valued at $198 billion:

• Coronavirus supplement: More than 2 million people qualified for this welfare payment top-up. Initially worth $550 per fortnight, the supplement was reduced to $150 a fortnight on 1 January and is set to expire on 31 March 2021.
• JobKeeper: The $100 billion wage subsidy program paid to eligible businesses has been received by around 3.5 million employees. The program finishes on 28 March 2021.
• Economic support payments: In April and July 2020, eligible welfare recipients and concession card holders received two one-off payments of $750. There is one more payment of $250 coming in March of this year.
• Early superannuation access: According to figures provided by the Australian Tax Office, 3 million people have taken a total of $36 billion out of their super accounts.
• Free childcare: The $1.6 billion temporary program provided free childcare for a period in 2020 to help keep beleaguered child care centres open.
• Rent relief measures: Rent relief laws were enacted by the states and territories. The responses included moratoriums on convictions, grant schemes and private landlord’s offering rent reductions.
• Utility bill relief measures: Utility companies rolled out hardship assistance measures, including no disconnections, debt collections, bankruptcy or late fees.
• Mortgage deferrals: Around 270,000 borrowers paused their mortgage payments during Covid. Originally slated to wind up in September 2020, home loan holidays are now set to end in the coming weeks.

Did the measures work?

To the government’s credit, the rescue package not only provided a shield against the financial fallout of the pandemic, it also underpinned Australia’s health response to the virus. In other countries, lack of income support has proven detrimental in spreading the virus. Lockdown is far less effective in places where people have needed to keep working in order to keep earning.

In terms of the financial impact on individuals, market research conducted by MyBudget in October 2020 found that 55% of respondents experienced negative financial outcomes as a consequence of Covid. 

On the other hand, 18.8% said they saw an improvement in their finances. This disparity is a tendency we also observed among MyBudget clients. 

When Covid hit, we reanalysed the majority of clients’ budgets and found that most were able to successfully balance their budget via a combination of spending changes, negotiating informal payment arrangements, and/or supplement income via financial relief measures.

Mandatory lockdown was an opportunity for many to experience dramatically different spending habits. Rather than resenting the changes, a significant proportion of clients saw the ‘lockdown lifestyle’ as an opportunity to financially reset.

We saw a lot of old budgeted expenses put on hold (eg. going/eating out, transport costs, hair cuts, gym memberships, holidays), which made room for new budgeted expenses (eg. pay TV subscriptions, higher grocery and utility bills).

For many clients, lockdown was also an opportunity to save more, reduce debt faster or focus on financial goals. Not surprisingly, home improvements and furniture purchases were particularly popular during the lockdown period. 

In terms of mindset, our market research reveals that very few people describe themselves as still in the initial shock phase of the pandemic (7%). Likewise, few report that they have fully resumed their pre-pandemic life (10%).

Instead, the majority identify with being in an adjustment phase:

• 19% are ‘coming to grips’ with Covid-induced financial changes
• 24% are ‘moving into recovery’ and expect to resume their normal lives at some point
• 40% are ‘living a new normal’ where lifestyle and financial changes triggered by Covid are starting to feel familiar

What does the ‘new normal’ look like?

MyBudget’s general population research suggests that financial stress and uncertainty is a prevalent feature of the “new normal:”

• 49.1% agreed that ‘I feel a lot of financial pressure’
• 41.8% agreed that ‘I think I could be smarter with my money’
• 34.4% agreed that ‘I have more debt than I feel comfortable with’
• 28.2% agreed that ‘I find it hard to manage my money’

Debt and rising household expenditure were the commonest financial stressors, along with the overarching sum effects of financial commitments and constraints. Further to this point, 48.3% of respondents reported that their top financial goal was to reduce either a personal debt or mortgage.

If we look at mortgage stress rates during the pandemic, we see that the number of overstretched borrowers was at a record low 660,000 mid last year. That’s when financial relief measures were at their maximum. 

However, Roy Morgan research shows that the number of ‘at risk’ mortgages has grown by nearly 25% to 783,000. That’s one-in-five Australian mortgages where the repayments represent an ‘at risk’ proportion of household income.

Living against a backdrop of financial stress

My observations point to two features of the “new normal.” The first is the constant white noise of financial stress.

If anything has been normalised, it is the looming weight of financial commitments and uncertainty. These pressures are not isolated to those heavily in debt, but cut across nearly every segment. 

The second feature is that the “new normal” is based on an exceptionally abnormal set of conditions. As financial rescue measures are withdrawn, we will see how long the “new normal” can be sustained.

The government’s relief package may have been designed to get us through Covid, but it also stuck a Band-Aid over a host of pre-Covid ailments: mortgage stress, housing affordability, utility costs and wage stagnation, to name a few.

The government has been removing the Band-Aid slowly. This is why we haven’t seen an avalanche of loan defaults or evictions or disconnections. And fingers crossed we won’t. However, the steep rise in mortgage stress in the last few months can be seen as something of a precursor.

What comes next?

We know how easily Covid escapes quarantine. How quickly communities can be plunged back into lockdown. How long it takes to roll out a vaccination program.

The wind up of financial relief measures, therefore, are not a sign that the crisis is over, but a signal that we’re heading into the next phase of the pandemic. 

This next phase is one where businesses and individuals will need to be more self-reliant—where one’s own safety net (or lack thereof) will become more detrimental than ever.

If you are one the millions of Australians relying on financial relief, that doesn’t mean you’ve run out of options. But it does mean that your options are changing.

Model all of your options

If you or someone you know is facing questions like: Can I afford my mortgage? Which bill should I pay first? Or you have no savings in the bank or your debt levels are making you feel uncomfortable, now is the time to come up with a plan, before financial relief measures disappear.

Missing a payment and waiting to see what happens when your bank or landlord calls, rarely results in a positive outcome. As well as bringing on stress, it weakens your negotiating power.

The stronger approach is to be proactive. That being said, your plan doesn’t need to be complicated. It can be as simple as creating a budget. 

Having a budget helps you see the big picture as well as the granular details of your finances. Budgeting is really the only way to test different scenarios and work out what is and isn’t affordable for you.

Armed with a budget, when you talk with your bank or creditors, you are presenting them with a strategy. You are saying: “This is what’s possible. This is what I can commit to.”

What about the 20% of people who are doing better financially?

Nobody has a crystal ball, but it’s logical to think that the wind up of financial relief is going to be felt throughout the economy. Therefore, if you’re among those doing better financially since Covid, this is not the time to rest on your laurels. This is your opportunity to stay ahead of the curve.

Remember, your money has three jobs to do:

1. Day-to-day jobs – This is the everyday work of money (paying bills, making loan payments etc.), plus the financial habits that help you live within your means and get ahead.
2. Future-proofing jobs – It’s a responsibility of your money to provide a safety net and the right coverage to protect you and your family from unplanned expenses and ‘what ifs’, and finally;
3. Goal attainment jobs –  It’s the task of your money to help you experience future events and milestones, such as buying a home, starting a family, going on holiday or whatever goals are important to you.

Budgeting ensures that your money is doing jobs 1 and 2 efficiently and then helps you plan the shortest path to job 3, your financial goals.

Final thoughts

I’m always an optimist. I started MyBudget 21+ years ago and I’ve never come across a situation that can’t be fixed. I truly believe that every problem has a solution, especially money problems.

That being said, I think a lot of people are in for a bumpy ride. As the umbrella shade of Covid financial relief gets smaller, it will increasingly bring to light the true state of the economy and the financial position of individuals and households.

Whatever happens, you must not give up hope or hide your head in the sand. Every proactive step, such as creating a budget, puts you in control. 

And you must not think that you are in this alone. These are unprecedented challenges that you cannot be expected to navigate by yourself. Do not hesitate to ask for help!

About the writer

Tammy Barton

Tammy Barton is the founder and director of MyBudget, the business she started in 1999 and which has grown into Australia’s largest, trusted personal budgeting service. Tammy is recognised as one of the country’s leading personal finance experts and has won numerous awards, including South Australia Telstra Business Woman of the Year twice (2007 and 2017).