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Me, retired? "Yeah right!"; What's wrong with renting? Nothing; The hidden upside to drinking wine; Let the rich sacrifice their bloated salaries? Why females make bad bankers (supposedly)

Posted in Personal Finance

By Amanda Morrall (email)

1) Retirement income

A reminder to join our live web-interactive this Friday at 12:30 p.m. We'll be chatting with Mercer NZ's Martin Lewington about retirement readiness; obstacles, strategies and what steps you should take to prepare yourself properly. To find out more on how to participate, read our promo here. This time, Twitter users will also be able to join via Twitter.  If you are keen to have your questions answered but won't be able to participate please feel free to email me directly and I will pass them along to Martin.

See also, Tower's two-step process for a "quick retirement guesstimate" here.

2) What's so wrong with renting?

Personal finance editor Rob Carrick of the Globe and Mail in this video chat here looks at the upside of renting in an overpriced property market. The discussion relates to Toronto's bubbly house market but parallels can be drawn with some cities in New Zealand as well. Auckland springs to mind. The Canadian economist Carrick interviews suggests that if the house price is 15 times or more the annual rent, you're better off renting.

See our home grown resources on the rent or buy dilemma below:

Should you rent or buy?

First home buyer affordability report

Rent ratios

3) Wine lovers unite

The couple that drinks wine remain faithful to one another. That's the happy conclusion drawn by two Belgian economists who decided to examine the link between monogamy and drinking societies. Contrary to what one might expect of drinking cultures and their licentiousness, the good economists found that alcohol was a gelling factor for couples with wine being the most cohesive intoxicant of them all. Another reason to love wine? I think so.

4) Fat cat salary sacrifice 

Danny Dorling, writing for the Guardian, suggests one way to boost the ailing U.K. economy is by getting fat cats on bloated salaries to sacrifice some of their pay to put more people on the payroll to boost employment. I can just see the executives queuing now to do their bit for Mother England. "Yeah right!"

5) Are female bankers worse than men?

Seems I rankled some nerves at the office yesterday with my story selection in Take Five for Tuesday as I discovered this one in my email this morning debunking the notion that female bankers play it safe(r) then men when it comes to money. I didn't make it through the 80-page support document but gather from the Financial Times story below that lack of experience (relative to men) was an aggrieving factor.

Ah, will it ever end. The gender war?

Women bankers take more risks, says study

By Ralph Atkins in Frankfurt

The image of women as safer managers less likely to fritter away a bank’s finances is wrong – and politicians should take note, according to Bundesbank research.

Board changes at banks that result in a higher proportion of female executives “lead to a more risky conduct of business”, conclude the authors of an extensive study of German finance houses released by the country’s central bank.

They also find that younger executive teams increase risk-taking – but more PhDs in management have the opposite effect.

The results, which counter the popular image of women managers as less likely to take risks, could also prove politically controversial. Ursula von der Leyen, Germany’s labour minister, is among European politicians pushing for stronger measures to increase female board representation.

Such political pressure is based on a desire for greater gender equality, the report’s authors note, but the likely impact on corporate behaviour is less frequently discussed. Their findings “suggest that a public policy debate must take this impact into consideration”.

Although it published the report, the Bundesbank said on Tuesday that the results “do not necessarily reflect the views of the Deutsche Bundesbank or its staff”. The Bundesbank has one woman – Sabine Lautenschläger, deputy president – on its six-person board.

Explaining their controversial findings, based on an analysis of German bank executive teams from 1994 to 2010, the report’s authors suggest a major reason is that women executives tend to be “significantly less experienced” than male counterparts, and that lack of experience drives risk taking.

Another explanation could be that, with women still rare in boardrooms, their inclusion breaks up a clubby atmosphere. The authors write: “If group members come from heterogeneous backgrounds in terms of experience and values, this might increase the potential for conflict inside the group and hinder decision-making.” The obstacles women face in entering bank boards could also include accepting a higher risk exposure, they add.

They are probably on less controversial ground in arguing that a decrease in the average board age increases risk taking – and that regulators should take a closer look at the ages of bank executives. According to the study, a five-year reduction in the average age of a board’s members increases the ratio of risk-weighted assets to total assets by 2.66.

Their conclusion that more executives with doctorates reduces risk taking is attributed “to the fact that better educated executives employ more sophisticated risk management techniques and adjust the business model accordingly”.

Only 14 per cent of directors in Europe’s largest companies are women, according to the European Commission, which this month announced the first stage of a legislative proposal that will probably impose a quota of women on large company boards. Sceptical national governments have vowed to block EU-level measures, however.

The Commission cited a McKinsey study that found companies with mixed boards had 56 per cent higher operating profits as an argument for legislation.

Several European countries including France have passed mandatory gender quotas, a path first taken by Norway in 2004.

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter@amandamorrall

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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8 Comments

Interesting gambit...govt

Interesting gambit...govt invites senior bureaucrats to sponsor one school leaver into a job...every bureaucrat taking over a quarter million in salary gets an invite...names of sponsors listed...names of those invited as well...could be some traction in this..."what say you Sir Humphrey?"

Well I reckon my price to

Well I reckon my price to rent ratio is about 65:1, so I am pretty happy not to be exposed to the property bubble.
 
With regards to wine and belgians, well they actually make some pretty good beer to:-P

Quick question for you

Quick question for you Scarfie: Ave NZ house prices are currently hovering around 2007 levels (please correct me if i'm wrong). So on that basis prices have been flat for close to 5 years. Is it therefore reasonable to describe this scenario as a "bubble"? A bubble is generally used to describe a situation where prices have surged at an unsustainable level for a prolonged period of time. Flat for 5 years doesnt seem to fit this description? Interested to hear your thoughts.
Cheers.

New Zealands total overseas

New Zealands total overseas liabilities are greater than the total money supply (M3). Of that debt, 75% of it is mortgages against residential housing, a further 8% is personal debt. These are all figures readily obtainable from here at interest.co.nz or from RBNZ direct. That is clearly a disproportionate allocation of debt. Since all money is debt, then it is also a disproportionate allocation of money. Sooner or later redistribution will take place.
 
It is in part attributable to fractional reserve banking practice, which artificially inflates the money supply. It also has permitted leverage in the property market, but the problem with leverage is when it goes into reverse. All the vultures involved in finance don't want this to happen of course, because leverage in reverse hurts.
 
Why the question AFM, you getting worried?

Well the question was purely

Well the question was purely because I was interested to hear your response. Which was interesting. Agree there is too much debt out there, but I don't see a bursting of a bubble. I cannot see much growth in residential values over the next few years because of the affordability issue. But you have to accept that the residential boom came to an end in 2007. Since then it has been a "soft landing" if you will, which we are now 5 years into. It has been a soft landing due to accommodative monetary policy, but also due to supply constraints. So I don't see it as a bubble. A fully priced sector maybe but no bubble. 

Well my recent thoughts have

Well my recent thoughts have resulted in a modification to the Quantity of Money Theory, which doesn't allow for interest. So M.V=P.Q becomes (M.V)+I=P.Q 
 
I say for simplification for those like me that are not from an economics background, that velocity is pretty much the same as spending. Once you start adding interest, then constant additions are required to keep the balance, or though it won't ever balance again.
 
This new equation address the affordability, as increasing amounts of the left side of the equation get directed towards servicing interest payments. Based on this I would predict interest rates can only go one way, and that is down. Based on this theory (if you accept it) then eventually the money supply will go hyperbolic.

Yep well I think we both

Yep well I think we both agree that there is an imbalance. How that plays out will be interesting. I think you are right on interest rates, which is a big part of the reason I think the residential market will be pretty well insulated.