Diana Clement: Higher they earn, the harder they fall

Have you seen all the unemployed dads around school?" a friend asked me last week. I'm afraid I'm too busy working to spend enough time at the school gates to notice.

But from what I hear from the parents who do have the time to talk is that the recession is starting to show in our decile 10 community, with erstwhile big earners suddenly without work.

Some will have never been made redundant before and many have huge debt that sometimes comes with the trappings of wealth.

If you suddenly become unemployed and have a $500,000 mortgage to pay and mouths to feed, emergency funds and other assets can run out very quickly.

Middle income and higher-earning Kiwis in recent years have turned to their mortgages to borrow more money when in need. But without a job that option isn't usually open.

And the traditional personal finance advice of having three months' rainy day money in hand to tide you over if you lose your job may not be enough in the current climate, according to recruitment agents - especially if you're in senior management.

Brien Keegan, in charge of the accounting, banking and financial services divisions at recruitment agency Randstad, says senior managers who may have picked up work in one to three months in the past are taking up to nine months.

That includes returning Kiwis from overseas as well as managers who have been made redundant.

Sudden unemployment leaves some people stunned and unable to know where to turn. Churches in affluent areas, as well as their less well-off brethren, have seen greater calls for pastoral care and in many cases assistance with food.

The Rev Charmaine Braatvedt, vicar of Holy Trinity church in Devonport, says there has been an increase in people coming to the food bank she runs, including neighbours and friends calling on behalf of others who need food parcels.

"We have quietly gone and dropped [a food parcel] on the doorstep with a little note."

Work and Income New Zealand can't accurately record the numbers of redundancies because many people don't apply for benefits.

The dole or domestic purposes benefit may simply not be enough for higher earners, or they may have partners earning - albeit low incomes - and not qualify.

The Household Labour Force survey from Statistics New Zealand says that there were 133,500 officially unemployed people looking for work at the end of June, compared with 87,500 a year earlier and 79,900 at the same time in 2007.

Workers made redundant are not the only group in financial difficulty. Older people whose incomes have dropped thanks to lower interest rates are also in need of help.

Speaking during the Institute of Financial Advisers' Financial Awareness Week earlier this month, Senior Citizens Minister John Carter urged older people to take control of their finances and get budgeting advice if they need it.

Both the Household Labour Force survey and Federation of Family Budgeting Services' (NZFFBS) annual figures, released this week, run from June to June. But things appear to have been getting worse since then, says NZFFBS chief executive Raewyn Fox.

Some budget services have already seen half to three-quarters of the numbers of people they would normally see in a year in the past three months.

Budgeting services and even food banks are seeing more employed people seeking help, says Pam Hughes, director of the Salvation Army's South Auckland Community Ministries.

Her organisation has seen a 50 per cent jump in requests for food parcels and has seen employed people seeking help, where one member of a couple is returning to the workforce to bring money in, as well as business owners who may be facing liquidation.

The fact that higher earners and people who didn't ever expect to need help are having to seek it could have a positive impact on society in the future, says Braatvedt.

"You don't wish [the recession] on your society but some good will come out of it if people realign their values. Hopefully there will be a resurgence of a simpler way of living."

Braatvedt, who has recently returned from a holiday in her native South Africa, where the recession is really hitting hard, says the reaction to the current crisis from members of her local community is reaffirming the need for the safety net New Zealand has.

"It is a marker of how civilised we are," she says.

Some redundant workers and even managers are trying to eke out a living in the land of the self-employed, according to Fox. Her organisation has seen 7 per cent fewer people who are receiving benefits from June 2008 to June 2009 and, of those, only 2 per cent have gone into employment. The remainder are either choosing self-employment or are finding other sources of income.

Even when people are returning to work they may find themselves with lower salaries, say both Fox and Keegan, which may squeeze them financially. Keegan says some middle and senior managers in his field are returning to the workforce on much lower salaries - which if they have too many financial commitments could be a problem. "For example I had one candidate this week who was on $160,000 in his last job and is looking for opportunities from $110,000 upwards," says Keegan.

Keegan says unemployed higher earners need to be prepared for a longer period of unemployment than they have experienced in the past and to brush up on their job-hunting skills. They should practise an elevator pitch, and "also speak to people who have been through a similar situation who have empathy".

He is also encouraging employers not to be biased against candidates who are currently out of work.

"It is not until you [become unemployed] that you realise how difficult it can be to find that next role and the pressure there will be on your personal financial circumstances."

Meanwhile, Fox is encouraging those who may be in shock after being made redundant not to stick their heads in the sand. She says mortgage and other lenders are leaning over backwards to be lenient and are accepting virtually any proposal put to them to pay - providing the loan isn't already in arrears. She says to act before it gets that bad.

One of the trends that has led to the current situation of higher earners finding themselves in financial trouble is the high living and mortgages costs baby boomers - those born from 1946 to 1964 - have become accustomed to.

This generation, which is on the home run for retirement, has shown the biggest jump in financial defaults this year - with a rise of 17 per cent for the January to June period when compared to the same period last year, according to credit reporting agency Veda Advantage.

Veda Advantage managing director John Roberts says that baby boomers used to be the financially stable generation - the savers - but the recession has seen their lifestyles come home to roost with many of them defaulting on loans and debt.

However difficult people are finding sudden unemployment and resulting arrears, they should avoid the option of bankruptcy, says Fox. She believes that paying back debt, however slowly, teaches them about money management.

The NZFFBS recommends instead of bankruptcy getting summary instalment orders, which are formal arrangements with creditors that allow you to pay back all, or an agreed part, of your debts by instalments, and preventing creditors from taking action to recover debts.