Beneficiaries are increasingly struggling to make ends meet, financial mentors say, and are spending more than they receive in benefits each week at a record rate.
Many are turning to KiwiSaver withdrawals as a short-term solution.
Fincap – a network that supports financial mentors and the MoneyTalks helpline – has released its latest Voices report. It shows that mentors dealt with 30,654 cases in 2025. The majority were people who relied solely on benefits.
Total client debt reached $933 million, up 121 percent in five years. Clients were spending a median $107 for every $100 they earned, a record deficit.
What if you don’t want a slice of the AI hype?
No Stupid Questions with Susan Edmunds
“This means that at the end of their time working with financial mentors… more than half of all clients still have expenses that are 107 percent of their weekly incomes… for those who are only receiving income from a benefit the median expenditure is even higher at 108 percent of median weekly income,” the report said.
Fincap chief executive Fleur Howard said the debt was increasingly for essentials, such as food, power and housing.
Clients were spending 38.1 percent of their income on rent or board, and 19.5 percent on groceries. They were also spending a median 14.2 percent on debt repayment, a significant portion of which was to the government.
Just over 50 percent of clients were relying on benefits. Another 17 percent only received a salary or wages and the remainder had a mix of incomes.
Fincap said the proportion of people who were recorded as receiving a part-time salary or wages had dropped from 20 percent to 16 percent over the past four years.
“There are not enough jobs, and the benefit is insufficient to live on as more households receiving the benefit are seeking the assistance of financial mentors.”
The report said people on benefits were affected by the rising of cost of living “in a far greater way”.
The median weekly income of financial mentor clients dropped from $765.32 in 2024 to $760.58.
Mentors said the price of power was a significant problem. The report noted that over the course of 2025, power prices increased by about 12 percent.
“The fact that clients’ median electricity spend as a percentage of weekly income increased by only 0.2 percentage points over this period again highlights the fact that many whanau are going without necessary power to cut costs.”
Howard said debt collection also remained a major concern. Eighty-six percent of mentors reported seeing debt collectors making repayment demands that would stop clients from being able to afford essentials.
Debt collection is a major concern
123RF
Fincap wants the government to license debt collectors, ensure regulators could monitor their activity and amend the Fair Trading Act to apply penalties for harassment and coercion.
Howard said it was still a “wild west”.
“If we can get effective debt collection regulation now that is going to minimise harm in the years to come because these debts have a really long tail and they’ll keep popping up into the future just driving people further into a debt spiral.”
She said mentors were swamped with requests for help with KiwiSaver hardship applications.
One in eight clients was seeking a withdrawal and mentors reported spending 40 percent of their time on them.
The amount that is being withdrawn for hardship reasons is up 1046 percent since 2015.
Howard said while the withdrawals were often necessary, they were a major source of concern because of the long-term effects they could have.
“The fact that there are now a greater number of hardship withdrawals than first home withdrawals means that more whānau are using their funds for short-term relief of financial stress rather than purchasing for an investment.
“FinCap is very concerned that it is becoming the norm that hardship withdrawals are a short-term solution for addressing pressure that would otherwise result in some households being financially excluded from essential services markets.
“Withdrawals are allowing systemic issues to be ignored, and intervention is needed to counter whānau increasingly being left with no option but to sacrifice any retirement savings they may have to afford the essentials now.”
Howard said the financial mentor sector was underfunded. Fincap was asking for at least an additional $5.5m a year.
“It’s becoming more and more urgent so that people can access that essential financial mentoring when they heed it and preferably as early as possible because the sooner they can work with a financial mentor, the more options they have in being able to stem the tide and move things around rather than waiting until it gets really bad and the options are so much more limited.”
She said KiwiSaver withdrawals offered an opportunity for mentors to work with people to help make their finances more manageable.
“But at the same time, 40 percent of their time is massive. We think if people are going to continue to have access to these markets then it benefits everyone if these markets can help contribute to the financial mentoring that support them.”
Fincap was also calling for work on a levy to be paid by KiwiSaver providers and lenders to help fund financial mentoring.
Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make and spend money
