This article was published on 28 March 2006. Some information may be out of date.

What we don’t know CAN hurt us

One of the first things journalists are taught is to make the first sentence of an article a “grabber”, something that will perhaps surprise readers and make them read on.

So this column is officially starting now: Every New Zealander over 65 gets NZ Super, no matter how rich they are.

Until a few days ago, I wouldn’t have dreamt of using that as an intro. I thought everybody knew that.

Then came the results of an in-depth survey of 856 adults by the Retirement Commission, ANZ and the Ministry of Economic Development on New Zealanders’ financial knowledge.

More than 60 per cent of respondents either thought NZ Super is income tested — meaning that higher income people don’t receive it — or didn’t know if it was. And more than half either thought it was asset tested or didn’t know.

And it wasn’t just the young who were ignorant. A quarter of 55–64 year olds, a fifth of 65–74 year olds and a third of the over 75s thought the payment is income tested, with similar numbers for asset testing.

Does this really matter? For retired people, perhaps not. They probably don’t care what their wealthy mates get.

But for those yet to retire, the mistaken idea that rich retirees don’t receive a government handout might put some people off saving. And that could lead to a less comfortable retirement.

Answers to other survey questions revealed further widespread misunderstandings. Let’s put them right:

  • You get more interest if it is compounded quarterly than if it is compounded annually. That’s because in a given quarter you also earn interest on the previous quarters’ interest.
  • If you want to invest in a property and own your own home, your best source of finance is usually a mortgage on your home.
  • If you have lots of debts, you will probably get rid of them faster by grouping them together in one low-interest loan.
  • Your net worth is your total assets minus all your debts, including mortgages. It measures your wealth.
  • If an investment is advertised as having a return well above market rates, don’t touch it.

Three readers emailed me after a recent column in which I asked Michael Cullen not to take away our “chewing gum tax cut”. I had the tax rates wrong, they said.

The paragraph in question read: “Currently, we are taxed 15 per cent on the first $9,500 we earn, then 21 per cent up to $38,000, 33 per cent up to $60,000 and 39 per cent on all income above that.”

One emailer’s message: “In the article you list the second tier of tax as being 21 per cent whereas it is, and has been for some time now, 19.5 per cent. I am surprised that a person who gives lectures and has written a book ‘Investing Made Simple’ would make such a basic error.”

Ouch! He’s partly right, but only partly.

The basic tax rate on income up to $38,000 is indeed 19.5 per cent. But earners of wages or salaries — the majority of taxpayers — get a “low earner” rebate that lowers the rate on their first $9500 to 15 per cent. They then pay 21 per cent on earnings between $9500 and $38,000.

I considered going into all that in the column, but it was already crammed with numbers, so I went with the majority situation.

Besides which, Cullen used 21 per cent in his press releases about the chewing gum tax cut at the time of the 2005 Budget. If it’s good enough for the minister of finance…

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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.