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Big News: More Spending Money Or Higher Income?

Big News with Dave Crampton
What would you rather have: More spending money or higher income?

The recent living standards report from the Ministry of Social Development has indicated that beneficiaries and low income workers won’t necessarily have a higher standard of living if their benefit or salary is slightly increased. An increase in a benefit does not necessarily increase the amount of spending money one has after fixed expenses, but it may make a slight dent in any debt.

The report revealed that a beneficiary heads one in five families, with one in three families headed by a sole parent. A significant contribution is the high number of sole parent Maori families. Half all Maori families are headed by one parent and 36 percent of all Maori households with dependant children rely on a benefit.

The report identified two key indicators for living standards among low income people: Disposable income and housing costs.

Three quarters of low income families have disposable incomes of less than $10,000. Thirteen percent of these families have accommodation costs of $200 or more per week. .Accommodation costs are associated with living standards for low income people, which is why superannuants have a high standard of living. They can spend more on other things. Despite their low income levels, most own their own house freehold and have also paid off the kid’s education and living costs, and thus tend to have more money.

The MSD report also found that those who work have better living standards than those on benefits, even when their incomes are about the same. Idle hands spend money – and spend it more quickly, resulting in a lower standard of living and in some cases, poverty.

Yet Green Party spokesperson Sue Bradford considers a solution to poverty, particularly child poverty, is to increase benefits and raise the minimum hourly wage to 10 dollars as it will make a real difference to thousands of struggling families.

But would it make a difference, or would it merely minimise debt or give beneficiaries a little more to spend? Many low income people struggle to purchase assets to increase their living standards. Thirty-four percent of New Zealanders have assets of less than $10,000 and there is obviously a stronger relationship between living standards and financial position, as opposed to income levels. This is highlighted by the position of NZ superannuants, most of whom have modest incomes, but good or comfortable living standards. They don’t often run out of money. Likewise, in 2000 34 percent of 18-24 year olds lived with their parents. Although most had low incomes, they had high living standards due to parental subsidisation.

Predictably, the group that is less likely to have a great deal of disposable income, spending money or savings is sole parent families. Sole parents with children were four times less likely than any other family type to have a high standard of living. Perhaps this is why Maori fared the worst among groups surveyed as 81 percent of Maori sole parent households rely on a benefit to survive – and to feed their kids. Most disposable income is spent on fixed expenses.

Interestingly, having kids does not necessarily lead to poverty – unless you are a solo parent or Maori. Although there is an overall lower living standard for families with dependant children, this is due to the large proportion of sole parent families with dependant children. Many of them are Maori, who have more children than Europeans and tend to save less.

Some of the findings in the report have implications for Government social policy. Policies revolving around direct income support need to be replaced by initiatives that have regard for the role of parenting, educational development of children, and policies that address ways to provide income from secure employment and to reduce disparities.


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