Mary's Money column appears in the
Business section in the Weekend Herald.
NZ Herald May 26 2007
Q&As: The inter-generation battle rages on in six Q&As, and we also get several readers' ideas on how Gen Xers can cope with high house prices.
Succinct advice from a reader's Dad who suffered in the Depression.
Question: There is something irrational about the intergenerational mudslinging. It basically amounts to a moan about having been born at a particular time in history.
Getting stuck into your parents' or your children's generation because you believe they had/have it better than you is somewhat pointless. The world changes constantly and the period in which each of us lives has its own pros and cons.
For example, young people of today have access to digital electronic technology that the baby boomers (in their youth) could not have even imagined. There is no doubt that the generations to come will enjoy even more advanced technological benefits.
But we cannot "blame" anyone for this. It is just how it is, and the prevailing tax policy and economic climate in our own time is also just how it is.
Working to change poor policies is a useful response - but simply railing against those born during "better" times is unhelpful.
It reminds me of a grumbling comment I once overheard a man make about a period of bad weather: "It wouldn't know how to stay fine if it tried."
Personifying the weather is quite meaningless, but I guess it satisfied his need to have a moan.
Have still enjoyed the debate though!
Answer: I agree with everything you say.
I also think that, if we think our parents had a better deal than we have, isn't that nice for Mum and Dad? And if our children had a better deal, isn't that nice for Susie and Sam? Other generations are not just "them" but our own kin.
Question: Much has been said about the expenses of today that we baby boomers did not have when we bought houses two or three decades ago.
Some of the other things we didn't have were: cellphones, credit cards that let you buy with money you don't have, seven-day-a-week shopping, cafes, restaurants and takeaway outlets that invite you not to cook, and entertainment venues that are open day and night. Fewer of us took OEs and owned cars.
We had to make sacrifices too to save a deposit. We lived on one wage and saved the other. With a good deposit, repayments were easier to make on one income.
However, I would not like to have to repay a big mortgage on a single income now. Even a one third deposit on a $400,000 house leaves a large mortgage.
Many baby boomers are finding themselves in just that situation now after marriage separations. And the expectation that one should continue to be a homeowner can exert big financial and emotional pressures on a newly single person whose quality of life might be much better if they rented.
Answer: Your list brings up the point that it's harder to be disciplined about spending nowadays. Boomers didn't have to avoid weekend shopping. There wasn't any in most places.
What's more, marketing is more persuasive than it used to be.
Sadly, it's also true that divorce puts many boomers back in the same position as people much younger.
On your point about being better off renting, our next correspondent agrees.
Question: Gen Xers are being accused of being greedy in complaining about house prices. But keep in mind that recent house price increases have been extraordinary.
Just a couple of years ago, with the deposit we've saved and a 20-year mortgage, we would have been able to buy our first house in Whangarei for around $300,000.
We weren't ready then, but have starting looking again recently. A similar house is probably in the $400,000 - $450,000 range or more. We'd have to take on another $100,000 - $150,000 in debt to buy the same place.
And who benefits if we do pay these high prices for our first house, and load ourselves with debt, supporting the current round of house inflation?
Probably the baby boomers writing in to you and bragging about their net worth. I don't think we would be the winners, with low inflation, a huge amount of debt, and the distinct possibility of a house market crash.
Like many others, we're considering opting out of house market for now. It seems silly to buy when we can rent for half the interest cost of a mortgage, and simply earn interest on the deposit till things cool down.
Answer: Sounds like a good idea. We can't be sure that house prices will fall, but they seem certain to at least slow.
And in the meantime, you're benefiting from rents at record lows relative to house prices. In the last year, rents grew 3 per cent while house prices grew 12 per cent. And that's on top of similar trends since 2002.
I suggest you look into joining the KiwiSaver retirement savings scheme. First home buyers with annual income of less than $100,000 per couple can receive a subsidy of $6,000 per couple after three years in KiwiSaver, ranging up to $10,000 after five years, if you buy a cheap house for your area.
You can also put towards your house all of your own and your employer's KiwiSaver contributions, plus all the growth on your money. That would be a great way to boost your deposit considerably.
While we're on KiwiSaver, thanks to all readers who have sent questions about the scheme. Many will be answered in three special sections I've written that will run in the Herald on June 6, 7 and 8, and will be published in a small book in mid-July.
Question: We are in our mid thirties. For us the only way to get ahead was to go to a high-wage economy i.e. the UK or US, and save for seven years, then return to New Zealand.
In doing so we accumulated $NZ1.5 million, which we funnelled back home and invested in low-risk bonds and commercial property trusts.
We didn't purchase property overseas, although wish we had, and both held ordinary 9-5 jobs, not in management or anything high level or stressful. Plus we did lots of travel and generally had a blast.
That was five years ago. We now have a mortgage-free house worth $700,000 and the investments have grown to $1.5 million.
Had we stayed in New Zealand we would be struggling like most other young families.
New Zealand is a very low wage economy compared to other OECD countries, and the cost of goods in New Zealand is generally higher than overseas due to our lack of buying power.
I hesitated before sending this as I didn't want to come across as being smug. But just complaining about the costs of housing will do nothing to decrease the prices or increase your ability to afford one.
If people want to get ahead they need to come up with their own plan and execute it. Generally where you are in life is a result of the choices you have made.
Answer: There's an element of luck in there too, with timing and so on.
Still, going overseas to earn big bucks is another good way to cope with the house price crunch.
OE is good for everyone - those taking it and New Zealand in general, as long as you return. Many who have lived overseas bring back great ideas.
Question: Whilst I sympathise with the 30 and 40 somethings with a family to raise and seemingly no way to get their foot on the property ladder, for those a little younger and with no kids things may not be so grim.
Invest in a humble one- or two-bedroom apartment in a suburb that borders suburbs of much higher market value (think Point England, Mt Wellington).
Rent out or live in and get in a flatmate, and subsidise the shortfall between the rental income and the mortgage from your salary. Be conservative and always have a contingency fund for emergencies. Hold on to the property for ten years.
When a young family necessitates a family home and garden, chances are you will be in a strong position to move on up that ladder and/or buy a second property. The key is to start young and think long term.
Answer: Yet another good strategy.
As we noted above, this might not be a great time to buy property. But if you are conservative - so you never find yourself forced to sell - and hold on for ten years, you should be fine.
Question: No one says baby boomers are not hard working people, but that's not the question.
Ten to 15 years ago, you could buy a modest full-section house in Mission Bay for $300,000 to $350,000. Family income of two educated ambitious baby boomer professionals would have been around $90,000 to $100,000. Now that same do-up is $700,000 to $750,000, and income would be around $120,000 to $130,000. Is the affordability the same?
Sorry guys, but "Sold car to buy quarter-acre bush section" - where can you do that these days? Even to use the money as a deposit?
My wife and I were extremely lucky to buy our first house when we were 23 (seven years ago), and we consider we got it much easier than today's 20-plus first-home buyers.
But hey, a good size two-bedroom apartment with car park for $280,000 to $300,000 doesn't sound bad at all! Stay positive.
Answer: That apartment idea keeps popping up.
The car price comparison doesn't quite stack up. True, land prices have gone way up, but car prices have probably also fallen. They have certainly fallen relative to inflation.
That's one thing you younger ones have to acknowledge. Buying a car - and for that matter flying overseas - takes up a much smaller chunk of your pay than it did when we were young.
Still, you're quite right, the reverse has happened in recent times to house prices.
Question: One piece of advice that I learnt from my father, who lost a business during the depression years, was "If you want to save -don't spend". It is very simplistic but oh so very true.
* Mary Holm is a seminar presenter, author and publisher. Her website is www.maryholm.com. Her 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 firstname.lastname@example.org or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.