Are we bad savers, or was it a bad survey?
A recent report on New Zealanders’ savings habits annoyed me — and not because it starts by saying that the Savings Working Group, of which I’m a member, “is likely to face a tough challenge”. What got my goat was its misleading conclusion.
The survey, by RaboDirect, found that 46 per cent of New Zealanders over 18 are not saving — a finding that got considerable media coverage.
That sounds alarming, until you realise how the bank defined saving. I have two problems with this.
The first concerns KiwiSaver. The survey found just 12 per cent are saving for retirement. How does that tally with the fact that 37 per cent of adults belong to KiwiSaver?
Says a RaboDirect spokeswoman: “The question people were asked was what they do with any money left over after paying their usual monthly expenses. The low ’12 per cent’ response may be an indication that when answering that question, people typically considered their KiwiSaver contributions as a ‘usual monthly expense’, rather than as an additional saving.”
She goes on to say that researchers did ask questions about KiwiSaver, although RaboDirect didn’t publish that information in this report. “The results showed that a) only 61 per cent of KiwiSavers said they were saving or investing, and b) only 16 per cent of KiwiSavers said they are saving for retirement.”
Hmmm. Is it fair to say only 46 per cent are saving when you know that — because of the way you asked the question — many respondents aren’t counting KiwiSaver as saving?
My second problem is how narrowly RaboDirect defined saving. To my mind, saving is anything that will increase your financial wealth. And the best measurement of wealth is net worth — which is assets minus debt.
To grow your net worth, you can either accumulate assets or you can decrease your debt. And if we include people in the survey who are repaying debt — mainly credit card debt or mortgages — the percentage who aren’t saving drops to 34 per cent.
But that’s not all. I reckon saving should also include spending on education. When you study you are usually adding to your assets — the particular asset being the ability to earn a higher income for the rest of your life. That can make a huge difference to total wealth.
And what about spending to build up a business? A percentage of those who said in the survey they have no money left after expenses will be putting every spare penny into a business. And while many small businesses fail, others grow to be significant assets.
Not surprisingly, the survey made no mention of saving by spending on education or on business. But if we did include those activities, plus KiwiSaver, I suspect the percentage not saving would drop below 25 per cent.
Let’s look at this non-saving quarter of the population. A good chunk will either be retirees, who are not expected to save, or those who don’t need to save further.
This latter group includes not only wealthy or frugal people who have stashed away many thousands of dollars, but also low-income people with no savings.
How come? Well, New Zealand Superannuation is generous by international standards, so many people find their income rises when they start receiving Super. It doesn’t make sense for them to put away money before they retire — making life tough now in exchange for relative luxury later.
That leaves us with a pretty small percentage who are non-savers who should be saving.
Rather than facing a tough challenge, perhaps the Savings Working Group should congratulate the country on how widespread saving is — although there’s still the issue of whether people are saving enough.
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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.