Your pandemic 'money bubble' is there to help in a financial crisis

Thursday, 7 May 2020

Everyone needs a helping hand from time to time.

OPINION: We all have lockdown bubbles; small family or friend groups we've cocooned with during the fight to stop Covid-19 running amok.

It's been an anxious period for household finances, and so far banks have allowed over 105,000 people to either reduce their loan repayments (home loans, credit cards, personal loans, etc), or temporarily stop making repayment at all.

Over 17,000 businesses, including many secured against owners' homes, have also been given similar deals to give them the best chance of surviving.

Banks are in the process of earning their 'social licence ' to do business for the next century, and households needing support are able to ask for it with head held high, instead of cap in hand.

* Loan shark clampdown fast-tracked

* Loan repayment 'holidays' top 100,000, but home loan 'discounts' disappear

* How to cut household expenditure by $3000-$8000 a year

In an economic crisis caused by a pandemic, and our lockdown response to it, empathy has replaced blame as the natural human response to another household struggling to make ends meet.

The future looks challenging for many households, to say the least, and we are all in the process of learning that we not only have social and family bubbles, but money bubbles too.

The bank's loan repayment suspensions, and those of other lenders, are only the tip of the iceberg of financial assistance taking place.

In crises families, and friend groups rally round. It's not entirely selfless. Such behaviour is also a form of social insurance against financial hardship in their own lives.

Despite the individual-focused rhetoric of the modern capitalist age, money has never been a purely individual affair.

There will be large flows of money within household bubbles.

There will be offers of help by mothers, fathers, sisters, brothers, cousins, grandparents, will be reducing anxiety for people who fear they will lose their jobs, or see their incomes drop dramatically.

Younger people, and aged parents, will have weathered the lockdown in the homes of other family members.

These money bubbles have always functioned, underwriting home loans, paying off debts, bailing out loved ones after calamitous decisions, or accidents of fate.

Before helping others out of their financial holes, make sure you're on solid ground yourself.

When providing, or receiving financial help from loved ones, Moneyhub's Christopher Walsh advocates being very clear about whether it is a gift, or a loan.

If money is loaned, then everyone needs to be clear about how and when it is repaid, he says.

Older generations helping younger family members may require no repayment at all, but may choose to reflect gifts in their wills, leaving less to those who recieved money from them before they died.

Regardless, within money bubbles misunderstandings should be avoided, says Walsh, and his guide to lending/giving to loved ones, is worth a thorough read.

The biggest challenge within money bubbles will be providing additional longer-term support for family over and above what the state provides through welfare. One-off gifts or loans are easy. Long-term support, other than having a loved one move in with you, is less straightforward.

When deciding whether and how generously to help someone in your money bubble, people should first look at their own financial stability.

Just as rescuers in mountain and ocean settings must keep themselves safe in their bid to help others, or risk needing rescuing themselves, so households must think carefully about the impact their generosity could have on them.

GOLDEN RULES:

* Remember, everybody needs help sometimes

* Be generous, but be careful

* Protect your income