Supporting consumers as post-Covid debt begins to rise

When giving a talk at the Policy Influence Reform (PIR) conference last year, Dr Jeffrey Wilson, Ai Group’s director, outlined the myriad of challenges facing the Australian economy. 

From the COVID-19 pandemic and public health measures introduced to curb its spread, to the closure of borders and subsequent collapse of migration, the nation’s financial resilience has certainly been challenged. Unfortunately, this was followed by spiralling inflation, as well as geopolitical tension. 

Now, many are questioning whether there will be a tidal wave of debt and how the industry should respond. 

Financial support programmes 

Like many nations, the Australian government implemented a number of financial support programmes in 2020. In fact, according to the Australian Bureau of Statistics (ABS), in 2019-20, households received $146.0 billion of social assistance benefits. 

With these programmes having now ended, it’s perhaps no surprise that consumers are concerned about the economic outlook. The ABS also reported that average household debt currently stands at $261,492 - a figure that they are expecting to rise over the coming months. 

Increasing insolvencies

Insolvency volumes hit a record high of 37,263 in 2009-10, following the 2008 global financial crisis. This is something that the industry must keep in mind, with figures released by the Australian Financial Security Authority (AFSA) at the start of 2023, indicating a similar situation might occur in the coming months.  

Despite personal insolvency volumes being at a historical low between 2021-22 (9,545) they are expected to rise towards - and potentially surpass, levels seen in 2019, pre-pandemic. 

There are several reasons for this. A growing number of Australians are relying on their savings to manage the impact of rising costs, energy prices and the potential lost income as a result of the pandemic. This has left them with lower financial resilience. 

Similarly, with the number of fixed interest periods coming to an end in the first half of 2023, a large number of people will experience an increase in their mortgage and loan repayments. At a time when prices are rising, even the smallest increase in monthly expenses can push a household into financial difficulty.  

Understanding the consumer

This challenging economic backdrop makes understanding a person’s individual circumstances even more important, with a number of tools available to help banks, lenders and utility providers to deliver good quality support for consumers. 

The ability to access a clear and accurate overview of a person’s financial situation is crucial. Without this, there’s a risk that they may end up tied into an unaffordable repayment plan, which can be detrimental to their long-term financial wellbeing.

However, for those reliant on siloed data or manual processes, this can be challenging. By digitally collating credit reference information and information provided by the consumer, digital solutions such as Aryza Recover can generate an accurate view of a person’s financial position.

Once collated within a single system, it’s easy to view the options available. Depending on the outcome of the affordability calculator, a decision can be made to either continue with an existing plan or consider alternative options, such as a payment break. Once this process is complete, customers can access an overview of their finances and a summary of the actions they have chosen, in an intuitive and easy to understand format. 

With debt anticipated to rise, there’s a real opportunity for the industry to take decisive action through the deployment of user-friendly, digital solutions. Not only will this improve the support they are able to offer, it can also drive operational efficiencies.