Q&As
- Should man, 64, get student loan for the income, given that he probably won’t ever repay it?
- Passing shares down the generations has good and bad points.
- Why did GPG get an exemption from the new international share tax rules?
- Woman makes great progress in one short year.
- New charity aims to help children help themselves.
QMy father is 64 years old, unemployed, and cannot get a benefit because his partner works. A friend has advised him to enrol as a student and go onto the student loan scheme for the $150 weekly living cost.
Because he will receive under $17,000 a year when he retires, he does not have to pay back his student debt. Is this correct? What would your advice be for my father?
AThat depends on whether he plans to genuinely study.
If yes, then I would say, “Go for it.”
Keeping in mind that the government heavily subsidises tertiary education, some people argue that taxpayers shouldn’t support older people’s education as the economy is unlikely to benefit much from it.
On the other hand, your Dad has probably paid taxes for many years. Why shouldn’t he get something back? And in any case, he might turn around and do something extraordinarily beneficial with his new education.
If, however, he’s planning to take the money and snooze, I don’t recommend that.
The student loan system is open to people of all ages. “It is not, however, as easy as just filling out a form and collecting the money,” says Merv Dacre, general manager of StudyLink, which runs the loan scheme.
He continues: “To be eligible for the living costs component of the student loan scheme an applicant must be enrolled full-time on a tertiary course approved by the Tertiary Education Commission, and must attend the course for the loan to continue.”
The education provider has to confirm that the student is fully enrolled.
“If an applicant borrows with no intention to study, that is fraud,” says Dacre. “They will have to repay the money, including the fees paid to the education provider. They can also have other financial penalties imposed. They may also be prosecuted.”
Of course, your father might never be caught. But does he really want to spend his retirement worrying that he might suddenly be nabbed for breaking the law?
Far better to take a more positive attitude and either genuinely study or look harder for work.
At the risk of attracting lots of letters from readers saying how hard it is for over-60s to get work — and I’m not arguing with that — could I suggest your Dad visits Work and Income?
They offer help to anyone looking for work, not just those who are eligible for benefits.
By the way, you note that people don’t have to start repaying student loans until their income is more than $17,000 — actually, $17,160.
Did you realise that NZ Super is included in that calculation? While no individual gets as much as $17,160 from NZ Super, if your father has some other income he might top the threshold.
For more info on student loans see www.studylink.govt.nz and www.ird.govt.nz.
QMy grandfather bought some BHP shares as a “rainy day” investment as a young man (he was born circa 1880). He always re-invested the dividends to increase the holding.
On his death, the shares were divided equally four ways. My father continued to re-invest the dividends from his entitlement until his death in 1989. These shares were then divided equally among the five of us.
I decided that as there were already sufficient shares to divide among my three children without adding any more, and, as for two generations there had been no dividends taken, I would break with this tradition, and take the income.
Not long after I inherited them, a broker from a well known firm urged me to sell most of my parcel as I “was overexposed in BHP.”
Fortunately, selling them was not something I would ever have contemplated (except for the “rainy day”).
I think this demonstrates the wisdom of your advice to hold shares for the long term!
AIt certainly suggests that a parcel of shares can grow lots, over the decades, especially with dividends reinvested.
However, another key point about share investment is the importance of diversification — owning a wide variety of shares. If you don’t, and the one or few shares you hold happen to do badly, you can lose most or even all of your investment.
So I’m afraid I’m on the broker’s side. Assuming you don’t own lots of other shares, you were and still are overexposed to BHP.
So far, as it has turned out, that has worked fine for you. There will always be examples like this, where lack of diversification pays off. Too often, though, it doesn’t.
Generally, in investment, the higher the risk you take, the bigger your expected reward. But the risk you take when you don’t diversify does not come with a higher expected reward.
I can understand why you don’t want to break the family tradition. But I would rather see the money moved into a wide range of shares or a low-fee share fund.
Otherwise, there’s always the possibility that when a rainy day comes, the shares won’t help much.
QYou have discussed at length the issue of the new investment tax changes that were endorsed by the MP’s panel this past week.
However, one aspect mystifies me as to why GPG gets an exemption. I thought tax laws applied equally to all companies. Why is this different?
Can I get an exemption to tax laws too?
AYou can always try.
GPG got its five-year exemption because the government is carrying out a review of what are called the controlled foreign company tax rules.
Depending on the outcome of that review, GPG says it may move to New Zealand, in which case the new investment tax changes wouldn’t apply to it.
The government decided there isn’t much point in having the new rules apply to GPG for just a short time.
An official says no other companies approached Inland Revenue to ask for a similar exemption. If they did, their request would certainly be considered.
QI am writing to update you on a letter I sent to you in late December 2005.
In it, I said I was recently separated, no children, employed full-time and living with friends. This was mainly due to paying off a credit card debt of $10,000, that I had so far reduced to $7,500.
I was wondering whether I should buy a home or rent, noting that I would have to borrow 100 per cent to buy.
Update: I am now 38, with no credit card debt. I pay off any monthly amount in total and have savings nearing the $5,000 mark.
I have also managed to pay for large purchases either with cash or under the credit card scheme above i.e. payment in full every month.
I have bought back my old car from my parents and am now living on my own in the family home (as my parents have moved to Australia) but am looking for a flatmate. This allows me to live at reduced rent and actively save for the next 2–5 years if need be.
My goals are to actively save for a deposit for my own home with a view to buying in 2008/9 and also travelling to Italy to celebrate my 40th with friends in 2008.
Thanks so much for all your help. It was an eye opener to realise that money does not grow on trees and that if you use credit you have to pay it back!
However, with a lot of love and support from friends and family anything is possible.
AWhat a wonderful letter to receive.
I suggested, a year ago, that you get rid of the credit card debt before anything else, and then save for a home deposit. And you’ve made great strides in just one year.
Just as important as repaying the debt is your change in habit. Anyone who pays for large purchases with cash or repays their credit cards in full each month will end up with much more wealth than those who regularly run up long-term credit card debt.
That’s a timely message as last-minute Christmas spending looms.
Retirement Commissioner Diana Crossan recently noted that, while more than half of credit card holders pay their bills in full each month, 68 per cent of New Zealand’s total credit card balance is interest-bearing.
“People may not realise that if even a dollar is left on the card, next month’s purchases attract interest immediately,” says Crossan.
Getting back to you, it feels as if you are much more in control of all your finances, not just your credit card.
And I like your goals. Buying a home is a great move for most people. And who can criticise turning 40 in Italy? You deserve a reward.
QIn a recent column a reader questioned whether there were charitable institutions that use very little of their donations to cover overheads.
Some friends and I recently formed the Homeless Children of India/Tejaswi Trust Board, an incorporated society which is indeed such an organisation.
Our object is to help a group of homeless children in Mumbai, India through education. We do not propose to help them by giving them money for food but rather by paying for their education in boarding schools.
This will provide these children with education, food, accommodation and health, so that they can help themselves have a future. NZ$350 per child per annum provides this.
Our hope is that these children may then in turn help others, based on the philosophy of a ‘hand up’ rather than a ‘hand out’.
All overheads of the trust, including all of the advertising and publicity, are separately paid for by the trustees and other supporters.
Our contact details are: Homeless Children of India/Tejaswi Trust Board, C/- PO Box 461, Auckland, or a $20 telephone donation through 0900 44 000. See further details on our website: www.tejaswi.co.nz.
Mary, we would appreciate you publishing this letter to help us get our message out. The trustees are a solicitor, associate High Court judge and three Auckland businessmen.
AAnd now you’ve got some publicity that nobody has to pay for!
A couple of weeks ago, I said: “This column is not a noticeboard about charity events.” Nor is it a noticeboard about charities. So, readers, please don’t send in more letters like this.
I was actually all set to reject this one. But as the charity is locally run and seems to have a good approach, I decided to let just this one letter sneak in. With Christmas so close, it seemed wrong to be mean.
Speaking of Christmas, this column is now on holiday until January 13. Do have a warm — in every sense of the word — and restful holiday, everyone.
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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.