Mary’s Q&A column appears in the Business section of the Weekend Herald. Mary was a finalist for the "Best Columnist – General" award for this column in the 2014 Canon Media Awards.
NZ Herald 20 April 2013
Q&As: Two readers warn about trying to control children's inheritances
- Do adult children expect an inheritance these days?
- A bit of confusion over KiwiSaver and tax
- Two readers' ideas on rethinking student loans
Question: I note letters to you from a number of recent correspondents trying to protect the interests of their children and grandchildren, to avoid a significant part of an inheritance passing to a current or future partner of a child or grandchild in the event of a subsequent relationship split.
Shouldn't we perhaps be a little careful that we don't end up exercising too much control, perhaps even from beyond the grave, on the options and choices that our children and grandchildren might wish to bring into their own relationships? Are parents and grandparents always the right people to make a judgment, simply because they are the original source of the funds?
I have simply told my children that, in the event they are lucky enough to receive a valuable inheritance from any source, including me, it is over to them to determine how best, if at all, to protect it from the risks of current or future relationship issues. I don't intend to interfere.
Answer: You make a really good point. And you have a kindred spirit in the next correspondent.
Question: I have a different take on the woman wanting to protect her daughter's inheritance.
Give the inheritance unconditionally or not at all. The daughter may not want or may not need the mother's protection. The daughter may already have protection in place, or may have her own ideas about how she would like to do it.
The adult daughter should already understand the need to protect herself, and the consequences if she doesn't.
When can the inheritance be shared, when they get married, when they have kids, grandkids? What other conditions are going to be put on the inheritance - that it must be spent on a house? That it can't be spent on a boat? It can't be spent on an overseas holiday?
She will make mistakes. We all do. She will learn from them. You can't protect her from herself forever. If you haven't let go by the time the will is read, that would be the perfect time. Just saying.
Answer: I don't think we can assume that an adult daughter - or son - does always understand how the Property Relationships Act works.
But that's not your point, really. Every generation tries to help children learn from their parents' mistakes. And it hardly ever works. The kids have to do the bad - and good - things themselves.
There's another issue here too. We certainly hear horror stories about how the Property Relationships Act can work - and we've had a few of those in the column lately, so let's not do more of that. But basically the act is there to ensure people get fair treatment. If, say, a daughter's inheritance is used to buy a family home and the couple later split up and the husband gets a share of the home, in many cases that will be a reasonable outcome.
Question: I wonder these days if adult children are actually expecting anything from a parent's estate when they pass away?
I'd much rather that my parents, who have just retired, actually enjoyed it, rather than worry about keeping hold of a bit of money so that their children can inherit something.
Not sure how widespread that sentiment is, but my wife and I have both openly discussed it with our parents over the last few years.
Answer: It seems to me, based on nothing more than looking around, that a growing number of retirees are spending more than just the interest, dividends and rent earned on their savings. They're using up the capital as well. Some call it SKIing, or spending the kids' inheritance.
Many people still leave their house to family. And - given current house prices and the fact that most families these days have just one, two or three children - that's not a bad legacy to split up.
For those retired people who "eat their house" via a reverse mortgage or other means, that's fair enough. After all, it's their money. It seems silly to see retirees deprive themselves, especially when it's for the sake of children who are better off than their parents.
Good on you for encouraging your parents to SKI.
Question: In your March 30 column, you say about KiwiSaver: "Also from Monday, the minimum you as an employee can contribute also rises from 2 to 3 per cent. This money is not taxed so the full amount will go into your Kiwi Saver account."
I thought employee contributions were taken from your income after income tax had been deducted. Can you please clarify this for me?
Answer: You're right. I should have made that clearer.
Let's say someone earns $100,000 - to make the maths easy. PAYE tax is taken from that money before they get it.
However, when calculating their minimum KiwiSaver contribution, the employer uses 3 per cent of their before-tax $100,000, which is $3000. That full $3000 goes out of their after-tax pay and into their KiwiSaver account.
Meanwhile, their employer also contributes $3000, but that money is taxed, so less than $3000 lands up in the KiwiSaver account. That's the distinction I was trying to make.
Question: As a private career counsellor, it concerns me that young people can access sizable loans for their education and living expenses with little consideration of the economic value of what they are buying.
The most important purchase in one's lifetime is an education, but we need to be smarter consumers by actively questioning the value of the courses being offered. I would suggest asking the simple question: "What percentage of your graduates are finding employment in this field of study, and where?"
However, the most costly education is no education. So as a nation we need to balance the importance to society of a general education for everyone with the personal value of a higher education for some. Being smarter, less wasteful consumers of education would help reduce the debt levels, and free more funding to be spread across more people and better facilities.
Consumer marketing also influences students in their selection of universities. Otago in particular has thrived (perhaps even survived) on selling a certain "culture" that appeals to young people. A more rational decision would be to stay at home to avoid inflating one's student debt through additional living and travel expenses. Relocating from Auckland to Dunedin to complete a commerce degree when there are perfectly good options in your home city makes no sense, and is a youthful indulgence partially funded by the taxpayer.
Publishing student loan debt figures that differentiate between actual tuition costs and living expenses might help us deal with the whole loan issue better.
Answer: I'm not sure that would make much difference. It might be better to ban university for everyone under, say, 25 (she says a little facetiously). There's nothing like being out in the world and the workforce to make you appreciate the value of a dollar and an hour - as the better results for "mature" students show.
Only trouble is that people have often got on with their lives by 25, and it's not so easy to take time out for study.
I like your suggested question, about how many students from a particular course find employment. I expect at least some institutions will give out that data.
You can certainly get New Zealand-wide data at www.careers.govt.nz/tools/. If you click on "Compare Study Options", it tells you median salaries, employment rates and so on.
For example, you can see that with a bachelors degree in language and literature, two years after study the median salary is $39,299, and 51 per cent of students are employed. This sounds a bit alarming until you also notice that one year after finishing their degrees, 55 per cent are in further study - and presumably quite a few of those are also studying a year later.
By comparison, with a bachelors degree in computer science, two years after study the median salary is $47,643, and 74 per cent of students are employed. In this case, one year after study, 27 per cent are in further study.
I'm not saying, though, that we want to discourage people from studying language and literature - although our next correspondent might feel that way.
Question: The student loan system favours academically "soft" qualifications likely to benefit nobody but the tuition provider. Often, the public purse might only be reimbursed if a graduate finds employment, by chance, in an unrelated field overseas. Meanwhile unpaid interest is a present and future drain both on the lenders (you and me) and the debtor.
Many qualifications seem to qualify the holder merely in self-indulgence. Having a talent doesn't mean that the world will pay for one's rendition of it, and there certainly shouldn't be an expectation that society at large must automatically subsidize one's hobby.
We seem to have forgotten that a qualification (as opposed to learning for learning's sake) is effectively a portable personal business. Why should the state lend money to qualify in holistic embroidery when it would not do so to start up an embroidery shop? The latter might actually have more prospect of success, and give more back to its community, yet its entrepreneur would be expected to demonstrate commercial feasibility to find commercial backing, then pay commercial rates for a shop-front.
It's time to rethink the whole structure. Make student loans as conditional as commercial ones. The state could buy future expertise where it needs it (say in science and engineering) or in disciplines where applicants can show measurable social return. If study is towards a commercial end (such as law or hairdressing) then let commercial lending terms apply. If for a cultural end, then let audiences decide who will float.
The onus then rests on borrowers to research their market before starting a qualification, with all student loans being paid back on commercial terms, regardless of success or failure, just as a loan for any business would be.
Disclosure: I qualified partly in fine arts and have three close relatives with student loans, one in philosophy. Only one of us has ever made a cent out of our qualification.
Answer: But, but, but .... where would we be without bachelors in holistic embroidery?
Your idea is interesting. The only trouble is we would probably need to set up a course on how to research the market for a qualification. Would we let students borrow to do that course?
* 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 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.