So much for the “can’t afford to save” excuse
Practically all New Zealanders can save. If they want to. In the wake of the release of the Savings Working Group (SWG) report on February 1, various people have been saying that many New Zealanders just can’t afford to save. I don’t buy it — or should I say save it.
It started after Kerry McDonald, chair of the SWG, said at a press conference, “If you’re an average New Zealander, your income is not going to let you do much saving anyway.”
That single sentence, taken out of context from a press conference, was used in various broadcasts and articles, often accompanied by “ordinary” people saying they couldn’t spare any money. You could almost hear non-savers around the country saying, “Phew, that lets me off the hook.”
As a member of the SWG, I know what McDonald meant — that we don’t expect the person in the street to start stashing away thousands of dollars. That’s why the country needs to come up with other ways to quickly make our economy less vulnerable.
However, that doesn’t mean non-savers cannot set aside a dollar a day, and increase the amount whenever their income rises or their expenses fall. Over the long haul — with interest or other returns compounding — they could noticeably boost New Zealand’s total savings. And in any case they will boost their own wellbeing.
I should note here that some experts say the only people saving too little for retirement are middle-income New Zealanders. The rich can look after themselves, and the poor earn less than NZ Super, so their income will actually rise when they qualify for Super.
But the question every non-saver might want to ask themselves is: “Do I want to be in that last category — looking forward to a retirement with no luxuries?”
If not, the wise thing to do is join KiwiSaver. If you are an employee, you contribute at least 2 per cent of your pay a year — for many, not much more than a dollar a day. On $30,000 a year, it’s less than $12 a week. On $50,000 it’s less than $20 a week.
And you have to contribute for only a year. After that, you can take contributions holidays all the way through to retirement.
What do you gain from a year of doing without a bit of change? A $1000 kick-start; a contribution from your employer equal to what you contribute; plus a government tax credit that also equals your contribution, up to $1043 a year.
Someone on $30,000 a year puts in $600, their employer puts in $600, and the government puts in $1600, for a total of $2800. On $50,000 it’s $1000 plus $1000 plus $2000, totalling $4000.
After the first year, it’s not quite as good because there’s no kick-start. Still, everyone earning less than $52,150 will see their own 2 per cent contribution tripled year after year. On higher incomes, their contribution is way more than doubled.
What about the self-employed, beneficiaries and other non-employees? You can contribute zero with some providers, and still get the $1000 kick-start. But it’s wiser to contribute up to $1043 a year — or $20 a week — to get the maximum tax credit.
While you miss out on employer contributions, your money is still doubled — still well worth doing.
Two or three times as much money going into an account means two or three times as much coming out the other end. It’s a terrific boost to savings, and I hate to see those on lower incomes, in particular, missing out.
Rather than being unable to save, non-savers can’t afford to miss out on KiwiSaver.
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.