Growing inflation will increase personal debt in New Zealand
For the past decade New Zealand has had relatively low inflation, with previous peaks occurring after the 2008 global financial crisis, the 2011 GST changes and Christchurch earthquakes. Therefore, it’s not surprising the Covid pandemic is another major economic event that is creating an increase in inflation in New Zealand.
Since 2000, inflation averaged about 2.2 per cent per annum, which means sudden price rises and short-term inflation peaks cause a media frenzy, but the rate tends to even out throughout the year. The reality is Covid is significantly different, and nobody really knows exactly what will happen to New Zealand’s economy.
The cost of living has increased about five per cent throughout the last year, which we have all seen when we do the grocery shopping. Plenty of economists are talking about the causes; the cost of house construction, problems with the supply of imported items and the increased cost of food and goods grown or made in New Zealand.
At Debtfix we’ve had a look at the possible impact higher inflation will have on New Zealanders’ personal debt, and what can be done to prevent problem debt.
Increased rent and mortgage interest rates
The cost of living has increased more for New Zealanders living in rental accommodation than those living in their own home and paying off a mortgage. This is because rents have increased more than mortgage interest rates.
Therefore, tenants need to review their options to minimise the impact of inflation. Possible actions for renters could include:
1.1 Approach their landlord or property manager and request a delay to rent increases.
1.2 Contact Work and Income to see if you are eligible for increased hardship support that commences from 1 November, 2021. Work and Income can assist people who are employed, as well as those who are not. You can check what you may be eligible for here.
1.3 Check with the Ministry of Social Development to see if you are receiving the correct amount for accommodation supplement. (check.msd.govt.nz)
1.4 Move to cheaper accommodation, which Debtfix accepts is a difficult option.
As inflation increases, mortgage interest rates increase, and homeowners may need to consider how they will cover payments when their mortgage payments change.
The golden rule of sorting out all debt problems is to talk to the organisation you owe money to and let them know you are struggling to make repayments. Mortgages are no exception to the rule.
Have a look at the Debtfix blog What to do if I can’t pay the mortgage?
2. Defer buying an expensive imported item
The cost of imported items has or is going up. In New Zealand, this is almost anything you buy from a shopping centre, big online retailers, and even car yards. Rather than getting into more debt to buy an expensive item, is it possible to delay buying it until you have saved more money?
3. Can you buy second-hand?
Buying used items such as appliances, furniture or bicycles could be a good way to save money and beat inflation. Buyers must beware and check the goods and the seller before handing over any money.
4. Can you borrow something you need now?
It is nice to own stuff but maybe when prices are skyrocketing, you may need to think about borrowing something, especially if you only need it for a short time. A great example of this is baby gear, from clothing to strollers, which are often only used for a few months. Please make sure everything meets safety standards.
5. Get to the op shop
For those not currently in lockdown, you can beat inflation by browsing and finding a bargain at op shops. Finding vintage clothing, fashionable labels, and even brand new apparel is a fun and satisfying way to shop. Those who are restricted by Covid alert levels can check out some bargains at an online directory here.
6. Avoid borrowing to buy food
Everyone has noticed the cost of food has increased since the start of the Covid pandemic. We all must eat, and we need to eat good food to stay healthy but it’s not always easy when there are mounting bills and no money left at the end of each week.
The Ministry of Social Development can help you if you cannot afford food.
If you have room around your home for a vegetable garden, spring is the perfect time to get planting. Some items like spinach, lettuce, radishes, and beans are easy to grow and produce crops quickly. Growing vegetables from seed is the cheapest method and you can share seeds and produce with the neighbours. Get them growing, too.
Take advantage of bulk deals and share them with friends and whānau.
Plan meals and take a list to the shops to avoid buying unnecessary items.
Get vaccinated so the kids go back to school and stop eating so much.
The family services directory has useful information about food banks and support throughout Aotearoa.
7. Review your budget to beat inflation
With the cost of living increasing, you may need to review your budget. Debtfix can help you with this or contact MoneyTalks for financial mentors and budgeting services.
8. Make your whānau money smart
Teach your children to save for the future so they have something to fall back on when times get tough, which happens to everyone.
Debtfix does not have a position on Covid policy and vaccinations. However, when reviewing the current rise in inflation, the nation’s economists tell us a highly vaccinated population should moderate the fallout. It’s your choice.