2.1.

2 Income Shock

According to (Ajefu, 2017), over time, changes in households’ welfare may be related to

incompetence or undesirable consumption in the face of income shocks. Households may be

restrained. Studied by (Loke, 2016) mentioned that if the main earner is unable to work or the

main earner dies due to furloughs, salary cuts, or illness, it is considered an unplanned event

and requires restructuring of the household’s financial resources. Affected households may

resort to high-interest unsecured loans if their household are not liquid enough to survive a

sudden income shock. As a result of that, unprepared individuals and households may fall

into a dangerous debt circle.

Studies by (Steven, 1997) said that the impact of unemployment income shocks may be faced
by individual’s multiple times during their life cycle. In the future, due to the increase in debt
burden and expenditure, it will suffer greater losses. The unemployed also suffer income
shocks. (Farrell et al., 2016) mentioned that the major impact of lower income and
unemployment is lower spending. Another lack of financial readiness that caused the income
shock was salary cuts. (Reuter, 2020) stated that the employees and management have jointly
agreed to reduce employee salaries by 15% to 75% based on seniority during the outbreak.
This has a negative impact on the income and expenditure of people who are vulnerable to
income