Mary's Money column appears in the
Business section in the Weekend Herald.
NZ Herald 14 April 2012
Q&As: Should reader buy a NZ house now - while still overseas - or later?
- 3 readers' varying views on student loans
- 2 readers seem to be a bit muddled about the new KiwiSaver tax credit
Question: I am 28 years old and working in the US on good money, so I save $2000 US a month.
By my calculations I will be able to pay cash for a $320,000 house in New Zealand in five years time when I want to go home.
My family have told me I should just buy the house now and rent it out until then. I'm not sure that the capital gain is worth being an international landlord in that period, and in general I've always been anxious about owing a bank a mortgage.
Should I listen to my property-biased family or keep saving and use term deposits as I do now?
Answer: I wonder if there's more to this than meets the eye. Is it possible that your family is keen for you to buy here now, out of fear that you may later decide to stay in America? Obviously, that would be less likely if you own a home here.
If so, I don't blame them. But my role is not to promote family reunification. You're the one who wrote, so you're the one to consider. And, on balance, I think it's probably better if you delay your house purchase.
The decision is complicated because of several unknowns: what will happen to foreign exchange rates, house prices, rents, mortgage interest rates, and term deposit interest rates in New Zealand and the US over the next five years.
And that's not all. If insurance, rates or maintenance costs rise a lot, that could affect your outcome.
It's easy to do a scenario with reasonable assumptions that would show you are better off buying a house now. But change some of those assumptions - still keeping them reasonable - and you would be worse off.
More often than not, house prices trend upwards, but the market these days is really hard to predict. In any case, you might earn higher returns on your savings than the increase in house prices - especially if it's offset by landlord expenses that exceed the rent you receive.
What sways me is your reluctance to be an international landlord and to take on a mortgage. The latter might seem a bit silly to some people. If you have a large deposit, which sounds likely, a mortgage shouldn't be too risky. But nobody can rule out a sizable increase in mortgage interest rates over five years.
And being a landlord from afar can be a big worry. You would probably have to recruit your family or pay a manager to be Johnny on the spot, but that wouldn't solve every possible problem.
One step I would suggest, though, is that you save your money in New Zealand term deposits. That way you will transfer the money at various exchange rates. It's quite possible that if you leave all your money in the US for five years, the exchange rate will be more favourable then than now. But the reverse is just as possible. Gradually moving your money is the low-risk option.
What's more, if my hunch is right about your family, they may feel a bit comforted by the idea that your savings are sitting in New Zealand waiting for the Big Return.
Question: As an ex-student who is living and working in New Zealand and a regular reader of your column I felt I needed to weigh in on the discussion on student loans.
While I appreciate the necessity of collecting all money owed on student loans, I find it frustrating that many in the older generation point the finger and say, "Take fiscal responsibility." Yet Baby Boomers (and older) are the most reluctant to turn that finger inwards facing.
Sure interest-free student loans are expensive, but so is superannuation! It's time for older generations to take responsibility and say "no". When older generations start calling for means tested superannuation and taking responsibility for the ever growing burden they will be placing on New Zealand society, I will become the biggest supporter of hard nosed collection policies and penalties on student loan defaulters.
As a side note myself and many others feel embittered at the inherent inequalities in the student loan/allowance system, where business savvy parents structure their income to allow their children to make use of free allowances, totaling tens of thousands, while the children of average income parents get straddled with additional debt by having to take loans.
Answer: What you say sounds fair enough, but there's a wonderfully ironic twist.
It certainly does seem unfair that some wealthy parents set up their finances so their student children receive allowances - which don't have to be repaid. But that's exactly the sort of thing that would happen if NZ Super were means tested. The same wealthy people would make their assets or income look low, through the use of trusts, gifts or what have you, so they would receive NZ Super.
Experts from around the world have applauded our superannuation system because it avoids the whole issue of cheating, and the complex rules set up to eliminate cheating - which never seem to fully work anyway.
Still, the cost of universal NZ Super is high, as you say. It seems inevitable that there will be changes, such as a rise in the age when people start to receive it, and/or smaller increases in payments over the years.
Beyond that, though, changing rules that affect people late in their lives, when they no longer have a chance to earn more or save more, seems pretty harsh.
And that's really the point about student loans, too. The rules about repayment were there when students took out the loans. They need to stick to the deal they made.
But I must say it would be great if we could just get the economy rolling along fast enough so the government could also offer universal student allowances.
Question: Just a thought about the tardiness of students' repayment of loans.
Give them five years to repay, or the amount will be debited to their future superannuation - with the amount owing to be inflation adjusted to the value at the then period.
Assuming a 20 per cent mortality rate, the government of the day will still win.
Answer: Something tells me we'd better not get you and the previous correspondent to exchange views in person!
Still, yours is an interesting thought - with a bit of a flaw. Most students who live in New Zealand do repay their loans, at the rate of 10 per cent of each dollar they earn above $376 a week.
It's students who have moved overseas who are the problem. And they might not be planning to live back here in their old age anyway, especially if their NZ Super is going to be docked.
Question: Last week I was fascinated to read letters from parents who were in the process of paying off student loans for their kids.
We are going through the same process for two daughters for much the same reasons; ie our government's straitened circumstances requires those in a position to, to pay back their debt. We did so late last year for daughter Number One, and have waited until this month to repeat the process for daughter Number Two.
Why did I wait until April? Well, I read the paperwork that the IRD (and possibly StudyLink) send out with their quarterly updates. In March '12 the correspondence from the IRD made the following points:
"Your 2011student loan has been transferred from StudyLink to Inland Revenue...You may be entitled to a 10 per cent voluntary repayment bonus if (etc. etc.) Please note voluntary repayments made to StudyLink don't qualify for a voluntary repayment bonus."
In relation to the other daughter, whose student loan was repaid late in 2011, we received the following correspondence from the IRD:
"Student Loan Repaid. You've paid off your student loan balance (etc. etc.) We have a couple of important points we'd like you to know about: Stopping Repayments. If you've been repaying your loan through salary or wage deductions, you'll need to change your tax code by filling in another Tax Code Declaration (IR330) and giving it to your employer".
It's just a matter of bothering to read the attached paperwork.
Answer: Your comments are not entirely fair to last week's correspondent. She repaid her son's loan too early to get the bonus, but it wasn't because the loan hadn't been transferred from StudyLink, it was because the bonus hadn't started yet.
Still, you're quite right, it pays to read the info. Whoever said that most people spend way longer researching which car to buy than researching financial matters is dead right. Now, if we could just get the financial info to be half as sexy as the car info ...
Question: I am contributing $1043 a year each into my two uni sons' KiwiSaver accounts. Am I able to reduce that to $521 each, or do I still need to keep those deposits at $1043 to get the $521 tax credits for them?
Answer: Lucky sons. This is a great way to help students, as your contributions are boosted by government money.
But you do need to keep contributing $1043 for each son, so they get the full $521 tax credit. The credit is now 50c for each dollar you contribute. If you put in $521, they would get only half the maximum tax credit.
Question: I have not contributed to my KiwiSaver account for over a year.
The annual tax credit is approaching end of June and I would like to take advantage to get the full amount.
I contacted my provider and was told you have to put in $1043 to get the $521 tax credit for the last year due to the changes implemented.
I have the savings currently to contribute the $1043. But I can't help thinking maybe it's just better to put in $521 to get $260.
I am not too sure what to do. Spend more to get less or spend less to get less. Any help you can please provide on the matter would be much appreciated.
Answer: Forget about the old deal - in which you put in $1043 and so did the government. While the new tax credit is not so generous, it's still a gift from the government, and you might as well get as much as you can.
After all, it's not as if you lose the money you put into KiwiSaver. It's still yours, to spend in retirement, boosted by returns earned on it in the meantime.
* Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. 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@example.com 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.