Mary's Money column appears in the
Business section in the Weekend Herald.
NZ Herald July 15 2006
Q&As: Lessons from the Bible: Is borrowing bad?
Is luck or attitude the secret to wealth?
Sharebrokers shouldn't always be expected to give ongoing advice.
Question: After seeing the recent Fair Go programme on money, I was taken aback by the comment you made on the show on how hard it is to save 10 per cent of your income.
The Biblical tithe commands 10 per cent minimum to be brought into God's house as belonging to Him, according to Malachi. He accuses those who refuse as "robbing" God, and furthermore the tithe is to be the "first fruits" of one's income. So on top of anything else including savings, this comes first.
Our experience of "doing the right thing" by tithing and heeding the scriptural financial advice has been one of gradual prosperity.
The firm advice of "owe no man anything" seems to be ridiculed in today's society to their own detriment. The rush for easy gains in the housing market as in the share market in the late 1980s has seen people act like there is no day of reckoning. Easy finance has pushed housing prices out of reach for a lot of people, due to there being far more buyers than there would necessarily be without credit.
The housing market rush is like a huge pyramid scam, where the ones who get in early reap the gain and the last on board reap the loss.
The most I have ever paid for a house is $165,000, the latest being less than four years ago and 35 minutes from Auckland. Before I had finished doing it up an agent said it was worth $500,000. Why? Is anybody really any better off? Isn't it all relative? Where is any real wealth creation from that?
The Bible teaches "build your business first" as a business will buy a house but not necessarily the reverse.
I have been mostly averse to debt in my 30 years of self employment, borrowing only when really necessary. My wife and I are raising a very large family by today's standards. We have no debt, a good asset base and money in the bank.
My first married daughter went into her marriage with over $40,000 cash and a good car. Two of my other daughters, 19 and 17, presently employed in our family business, have good bank balances and have also paid cash for their cars. They aim also to enter marriage with money. They tithe and are debt-free.
If people refused to borrow money, prices and interest would fall immediately.
At the heart of most people's problems is the age-old problem of covetousness. That is where the real problem lies.
A lot more could be said.
Answer: Not in this column, sorry. You are already way beyond 200 words, but I'm running your letter at length as it is thought-provoking.
You seem so much more certain than the rest of us that the way you live is the right way. I guess we should put that down to your faith.
That's an area I'm not qualified to comment on, except to say that people quote the Bible to support all sorts of arguments. Indeed, various biblical quotes seem to contradict one another.
Beyond that, I'll leave the moral judgements to you. Let's concentrate, instead, on your abhorrence of borrowing.
I agree that many people don't do themselves any favours by running up big debts. But there's good borrowing and bad borrowing. If you borrow to buy something that is likely to grow in value, you will usually end up better off for having borrowed.
Many people borrow to gain tertiary education, which is likely to lead to a higher income and a more fulfilling life. Surely you don't think that's bad?
And without borrowing, home ownership would plunge. Admittedly, lower demand would reduce house prices. But it would still take most people many years to save enough to buy a house mortgage-free.
While I think home ownership is over-rated, most families benefit from the security and the savings discipline it gives them. Surely you don't think that's bad either?
I can't agree that the house market is like a pyramid scheme. House prices are cyclical, and currently we seem to be near the end of a very strong rise. Nobody knows whether prices will fall in the next few years or just rise more slowly.
What we do know, though, is that over the decades house prices rise a few percentage points more than inflation, probably at roughly the same pace as incomes. They couldn't rise much more than incomes for long, because nobody could afford to buy them.
The ups and downs are, in many ways, unfortunate. Some people gain at the expense of others. But over a lifetime most New Zealanders get their turn as winners.
And I certainly wouldn't like to see the government trying to control house prices - or borrowing, for that matter. We've tried price controls before, as have other countries.
British Prime Minister Winston Churchill once said that democracy "is the worst form of government except all the others that have been tried." Similarly the free market is the worst economic system except all the others.
If we look at borrowing to buy items that don't appreciate - such as cars, furniture, appliances and clothes, or items that we enjoy fleetingly - such as entertainment and travel, I'm much more in your camp. Your old-fashioned word covetousness is often apt.
The sad part is that people who borrow to buy such things could, over their lifetimes, be so much better off if they just got into the habit of saving before buying. The thousands they spend on interest could instead go into buying more stuff - if that's really what makes them happy.
As for my comment on television that it's hard to save 10 per cent of your income, I base that on what people tell me in their letters and at seminars.
Many people could, of course, get by on 10 per cent less. But if you suggest they start saving 10 per cent, most will say it's too hard and perhaps give up on the whole idea of saving. Far better that they start at 1 or 2 per cent and build up than that they don't start at all.
Question: I quote you from last week: ..." while many wealthy people have worked harder than most to get there, luck almost always plays a part - in their genes, talents, upbringing, education or just the breaks they received."
Wealth belongs to the 'lucky ones'? Yeah right, Mary.
History is full of rags to riches stories. Dale Carnegie, Greta Garbo, Elvis, Richard Branson - it's a very long list. Were they just the 'lucky ones'? No way. I don't buy it. Wealthy folks don't get rich by having lucky breaks, that's absurd.
I believe that creating wealth is the result of thinking in a certain way. Napoleon Hill called his book "Think and Grow Rich".
And the news today: "Pessimists outnumber optimists eight to one about the general business outlook". Sounds like there a few people out there on your side, Mary - just waiting for the next 'lucky break' to come around. My view is that both our success and failure are always the result of our thinking.
It's the quality of our thoughts that make the difference not our upbringing or education. Yes, these can be an advantage for some, but they ain't necessary to make you wealthy!
Answer: Please don't lump me in with the pessimists. I'm usually on the sunny side of the street.
And I certainly don't want to encourage people to think they have bad luck and therefore can't do well in life. I quite agree that the right way of thinking is hugely important to success.
My comment last week was addressed to those wealthy people who sometimes say things like: "I grew up in a poor household, and I got my money through hard work. That poor man over there could do it too, but he's too lazy."
That's when I want to line up the rich and poor men and compare their genes, talents, upbringing, education and breaks. Maybe the difference will be that the rich man had a really supportive parent, some inspiring teachers, or someone who lent him Napoleon Hill's book!
I'm all for the poor man's learning how he can change his fortune. I just hate some wealthy people's smugness, lack of compassion - and reluctance to acknowledge how luck has helped them.
Question: Last week you wrote about a family that invested in a finance company through a broker.
I agree totally with your advice regarding finance companies and the level of risk that many New Zealanders are exposing themselves to for inadequate returns. Investing in fixed interest should provide return of capital first and returns second. If risk is acceptable then investing in equities where one is more likely to be rewarded for risk would be more appropriate.
As a NZX broker, I wish to clarify one aspect of your report, however. It was not clear whether the family paid a fee to the broker to monitor their portfolio. If they were paying, then I believe your comments were entirely fair.
However, if they used a broker to put together a range of investments and they then managed it themselves, it would be entirely unfair to expect the broker to contact them with advice. You would not expect a real estate sales person to contact past clients to notify them that there had been a planning change for the area they had purchased in.
With the growing complexities surrounding many new investment vehicles, investors are wise to seek ongoing expert monitoring of their investments and advice.
But if the family were transactional clients only, as most small to medium sized investors are, then they could not in my view expect a monitoring service.
Brokers generally attempt to keep such clients informed, but they are under no obligation to provide ongoing advice, although they may well be required to justify the original asset allocation,
Answer: Fair enough. But last week's correspondent did say the broker "holds a small account at 5 per cent from which he draws his commission."
That sounds like an ongoing arrangement to me.
* Mary Holm'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.