New type of poverty hurting middle class


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Fourth, middle income people are under-insured or, in financial terms, unhedged. Their insurance isn’t keeping up with their borrowing. Low income people are relatively well insured. They face compulsory insurance, such as for cars and health. High income people have also not increased their insurance, but their need is less because they are more diversified and have more discretionary funds.


In a commercial setting, financial units that are highly leveraged, undiversified, illiquid and unhedged are considered to be high risk.


So who is advocating for the interests of this cohort? Not the regulators. Their mandate is to ensure that households don’t default at unexpected rates and create problems for financial institution solvency (APRA’s concern) or for wider financial stability (The RBA’s concern). The fact that people are living on the Henderson poverty line is not a concern in itself to the regulators; it only matters if they stop paying their bills.


So Australia’s regulatory framework is vigilant in ensuring that households don’t create stability problems for the financial system, but no regulator has a mandate to ensure that the financial system doesn’t create stability problems for households. Someone or something has to assume this mantle, for mounting poverty and default risk is surely going to play out as a social crisis, not just a financial one.


Dick Bryan is an emeritus professor of political economy at the University of Sydney. With Mike Rafferty he is the author of Risking Together: How Finance is Dominating Daily Life in Australia. 


Article source: https://www.smh.com.au/sport/racing/shazee-lee-at-home-at-hawkesbury-and-hopes-the-crown-fits-20180426-p4zbse.html?utm_medium=rss&utm_source=rss_feed

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