poor family

Australia's economy is not unhealthy but it sits in a global context that's looking decidedly shaky. If there were another global financial crisis and it hit Australia, how would this affect families?

There are four indicators that we need to be alert to the possibility of recessions, both global and local:

  • Weak growth in China
  • Weakening US economy, possibly headed for recession
  • Minimal wage growth in Australia
  • Falling house prices

Australia had two thumping great recessions in the early 80s and 90s respectively. We had a bit of scare with the 2008 GFC but pretty much escaped that. Other countries, such as Greece, had such poverty and 'austerity measures' (health, welfare and superannuation cuts) that 400,000 simply emigrated. 

According to an Australian Institute of Family Studies report that aggregates research covering all three recessions, there are the multiple ways in which families are impacted:

  • reduced asset values (which we are already seeing as home values fall)
  • reduced demand and output leads to unemployment and underemployment
  • reduced capacity to manage living expenses and service debt
  • geographic concentration of disadvantage

Unemployment rates nearly doubled during the two big recessions, with the rate of long-term unemployed going relatively higher. The negative impacts on mental health from unemployment are highest at 3 months and after 30 months, which suggests that after the initial shock there is adaptation in the medium term, but cumulative effects in the long term.

Relationships are only slightly more likely to break up as a result of unemployment but more so where there were existing problems beforehand, and more so when unemployment becomes long-term.

The stress of poverty affects parenting and consequently child development, especially in poor families. Children of long-term unemployed parents are less likely to finish year 12 and get good jobs. Children of fathers who lost their jobs were more likely to have been expelled, suspended, kept back a year or dropped out. 

The average Australian household debt is $250,000. In the context of low interest rates, steady employment and rising property prices this is not such a problem. However, with so many mortgages being serviced by two incomes, if one of a couple loses their job then the impact can be disastrous. In a falling housing market supply exceeds demand, the home is sold off cheaply, significant debt may remain and rent still needs to be paid. 

Higher income families lose asset value through investments including shares dropping, further reducing consumption and economic activity in general. Higher income families actually lose more money, simply because they have more to lose. Assistance to the living, housing and education expenses of their children or elderly parents may be reduced.

Demand for services from the government and community sectors increases dramatically in a recession - how this might play out the context of a reduced tax base remains to be seen - it depends how austerity-inclined the government off the day is.

A major recession needs to be 'ridden out' by families. If they can avoid long-term employment they can probably maintain their housing, physical and mental health and recover financially eventually. If, however, a fall in income leads to a cascade of unmet living expenses they may well fall into a poverty trap that is potentially intergenerational.