Personal Finance

  • Elizabeth Kerr questions the morality of using the same manipulative tactics as used by one-day-deal websites to sell her old stuff on Trade Me

    By Elizabeth Kerr

    I confess that I’ve been a bad girl this week.

    Under the guise of “research” I’ve been experimenting with people's brains, or more to the point people's purchasing impulses on Trade Me, which I’m pretty sure has netted me more profit than if I just listed things traditionally.

    Before you attack my personal morality I can assure you I wasn’t doing anything that those companies who generate those One-Day Coupons Deals sites or those stores with the humongous once a year sales don’t use on all of their unsuspecting customers.

    This week's column is dedicated to everyone who has ever brought something they weren’t looking for and didn’t need - just because it was on sale.

    Spending because of a Saving = Spaving.

     When you do this something strange happens to your brain – it thinks you are making a financial gain as though a deposit just went into your savings account when actually all you did was spend. “Yes that top may have only cost $25, down from $60, but it’s still $25 that you no longer have anymore – you didn’t just put $35 into your savings account – there was NO SAVINGS, ONLY SPENDINGS going on there Luv”!!!

    Groupon, Daily Deals, GrabOne, Firstin, etc… those emails that bombard your inbox with coupons for goods and services specific to your region in NZ play on this very real need to make you feel like you are making a financial saving.

    These emails invite you to save on everything from house cleaning services, restaurant meals, cheap entertainment, beauty services or makeup, car tune-ups and often at prices which seem outrageously cheap. What these sites do is take a small margin off every coupon voucher sold to their email database and in order to do that they use some very clever tricks to make you buy.

    The first thing I need to emphasise here is that these “offers” are always for things that you don’t really need and would add little value to your lifestyle design. Lets look at a few from today – we have emails offering a manicure, possum socks or gloves, a foldaway tea-tray, fleece leggings, a garage organiser and hair colour.

    You see, none of this stuff is going to make a measurable difference to your life and if you don’t have one of each of these already then you obviously don’t need them. But once you’ve seen the coupon deal your brain will store it and the next cold day you’ll desire fleece leggings and possum gloves as you peruse your garage organiser for the screwdriver to your foldaway table. Suddenly you’ve adapted to not being able to do life without these things. And therein lies the first problem. These daily deal sites steal your brain and turn you into a purchasing zombie!

    Tip #1

    Even if you don’t purchase the coupon they set your brain up for recognising a future need. The easiest way to make any financial gain would be to stop the emails from getting into your inbox. It is illegal for these emails not to have a unsubscribe button, so make sure you use it!!! Don’t be a wimp and tell yourself: “Well, I’m not buying anything, so what’s the harm in receiving them?” Just unsubscribe and you’ll never have to wait to find out.

    Tip #2

    They grossly over-exaggerate your potential savings. For example, that manicure I mentioned above that came out today was discounted from $75 to just $25. That sounds awesome right – a 66.6% savings? Wrong!!! A basic manicure should only cost $45 in the first place, so they’ve increased their original price to make you feel like you are getting a better savings. This trick gives them access to the little part in our brains that gives way to rational thoughts and makes us justifying a purchase on the basis it would be a crime not to take advantage of such a big savings. They rely on the fact that you have no real idea how much the product was originally worth in the first place.  

    Tip #3

    They secretly hope that you don’t redeem your coupon voucher at all. The idea is that you’ll buy it and run out of time to use it before it expires.  Oh well….sucks to be you!  (Kind of like a gym membership, they don’t want you to actually use the gym just pay the monthly payments because if everyone who used the gym actually turned up they would need crowd control).

    Tip#4

    If they can control your inbox they can control your wallet. Yes that’s right, most sites won’t let you buy your coupon unless you sign up to their daily newsletter, so they can sucker you into more things you don’t really need at prices that aren’t really true.  

    Tip#5

    They want you to feel pressure to purchase. They want it to be easier to say "yes" and willingly complete at least five more steps before your purchase is complete; then just click on the red X at the top right of the screen and close the page. They do this by either limiting the quantity of vouchers available or limiting the time you have to take advantage of the deal, or both. Remember both of these things are just perceptions playing with your mind.  

    So, how does all this relate to my Trade Me experiment you ask? Well, given that I know we humans have a deep-seated desire to make a savings and feel a rush when we are perceived to get a bargain (i.e. we are generally quite dumb and lack rational independent thought), I thought I'd try manufacturing my Trade Me adverts to use the same tricks that these companies on the daily-deals sites do.

    I had an old suit jacket I wanted to sell.

    I initially listed it at $25, which I thought was a fair price. But after a week it was still not sold.

    So, I tried again but this time I added a Buy Now of $300 which was completely inappropriate. But what I was betting on was that the Buy Now would fool people into thinking that was what the jacket might have been worth (tip #2) Did the jacket sell this time? You betcha…. It got a full $50.

    Conscious that this could have just been a lucky fluke because someone really wanted my jacket and thought $50 was a good price, I decided to try it with something less desirable… a plain white photo frame. It was probably worth new about $12 but with a Buy Now of $75 I think it was perceived to be worth more than it was… and it sold well too. A pair of old suitcases sold well and quickly when I added a $350 Buy Now price and reduced the time my auction was available to just 24 hours (tip #5). I can just see someone thinking “Ohhh… $300 suitcases for $1 reserve –what a bargain”!!!  Like I said above, this trick gives way to rational thoughts…..

    Now before you harp on about how mean I am, let me point out that these purchasing tricks are being used everywhere, that this was done as an experiment, and this week's column should be a reminder to really look at a product and decide for yourself what you think it is worth, and what value it will bring to your lifestyle design regardless of what the retailer or one-day-deal is discounting it for.

  • The rise in rates comes despite overall wholesale and retail market rate falls, but after the SOE bank cut some fees. Many of the increases are steep

    Kiwibank has raised most of its main credit card interest rates, increases first signaled three weeks ago.

    Kiwibank's credit cards are on the MasterCard platform.

    It has six separate card products and all have seen sharp rises in interest rates.

    The increases are mostly +1.00% although their 'Low Rate' cards have jumped only +0.55%.

    The increases for cash advances are much steeper however.

    The changes are:

    Kiwibank card name Cash advances   Purchases
      was % new   was % new
    Low Rate 12.90 +7.05 19.95   12.90 +0.55 13.45
    Zero 15.90 +4.05 19.95   15.90 +1.00 16.90
    Gold 16.90 +3.05 19.95   16.90 +1.00 17.90
                   
    Air NZ Airpoints Low Fee 17.90 +5.05 22.95   15.90 +1.00 16.90
    Air NZ Airpoints Standard 21.95 +1.00 22.95   19.95 +1.00 20.95
    Air NZ Airpoints Platinum 21.95 +1.00 22.95   19.95 +1.00 20.95

    These changes were originallly signaled by Kiwibank in early June with a notice that emphasised their cuts in credit card fees.

    A Kiwibank spokesperson confirmed the bank is "rebalancing from fees to rates".

    These changes basically remove any interest rate advantage Kiwibank had over their main rivals ANZ, ASB, BNZ, and Westpac.

    Along with these rate rises, Kiwibank has cut and simplified many of its fees across a range of products. Some of those were due to adjustments required by the recent Credit Contracts and Consumer Finance Act law changes.

    Wholesale interest rates have been falling sharply recently. Most other retail interest rates have followed suit, including mortgage rates, savings rates, and term deposit rates. These rises in credit card rates move against this trend.

    You can see all credit card interest rates compared here.

    You can see most credit card fees compared here.

  • A total of 540 student loans worth a record $17.7m written off due to bankruptcy in one year

    Forget the Greek bailout. We have a bailout of our own to contend with.

    New Zealand taxpayers have taken a record hit over the past year paying for people defaulting on their student loans due to bankruptcy.

    A total of 540 student loans, worth $17.7 million, were written off due to bankruptcy in the year to June 28.

    Inland Revenue Department (IRD) figures show the value of these loans jumped from $15 million in 2013/14, $9 million in 2012/13 and just $2.8 million in 1999/2000.

    The closest this figure has come to where it is now, was when it reached $16 million in 2007/8 – the time of the Global Financial Crisis as National came into government.

    The average amount of student debt defaulted on due to bankruptcy over the past year was $32,778, while the median amount was $19,596, indicating there were quite a few sizeable loans in the mix.

    While the value of loans written off has increased, the number of people defaulting on their loans has gone down from 685 in 2013/14.

    The IRD’s explanation

    The IRD puts the growth in value down to the fact more student loans are being taken out. The total value of outstanding student debt at the end of May was $14.8 billion; compared to $14.2 billion at around the same time last year, $9.6 billion in 2008 and $715 million in 2000.

    The IRD says the amount of debt written off due to bankruptcy has also increased because “there is increased focus and awareness about the need for people to repay their student loans”.

    In recent years it has cracked down on borrowers, by increasing the repayment rate, and reducing the maximum length of repayment holidays borrowers can take when they travel overseas, from three years to one year.  

    It’s also working with the Australian government to enter an information sharing agreement that will make it easier for the IRD to follow up on people living across the Tasman who have loan repayment obligations.

    'Out of sight, out of mind' attitude among NZ expats

    The director of Tax Debt Management, Imran Kamal, is particularly concerned about what he believes is a growing number of borrowers going overseas, racking up interest on their loans and losing control of their finances.

    Borrowers have to pay interest on their loans if they leave the country for more than six months.

     “When most borrowers are finally in a position to start making payments on their loans, they can be so inflated that they can’t comprehend the repayment obligations or the total amount of debt facing them in comparison to the amount of their original loans”, he says.

    The IRD says of those who defaulted on their loans due to bankruptcy over the past year, 390 live in New Zealand, 62 in Australia, 18 in Asia, 18 in other locations, and 52 in “unknown” places.

    The IRD says, “The ‘unknown’ category is mainly New Zealand addresses but the borrowers are recorded as being overseas-based. Be aware that there are New Zealand borrowers with overseas addresses and vice versa.”

    Kamal maintains the rigidity of the loan repayment system, which doesn’t take borrowers’ financial positions or individual cases into consideration, exacerbates the problem.

    He points out, “The IRD will only alter a repayment obligation for a maximum of one year, and interest and penalties continue to accumulate in this time”.

    Otherwise, he admits some people see “simply” declaring bankruptcy as an easy answer to wiping their debt, especially if they have no intention of returning to New Zealand in the foreseeable future.

    Kamal says while the impact of declaring bankruptcy in New Zealand affects your credit rating, ability to be self-employed and to travel overseas, these restrictions don’t apply when you’re living outside of New Zealand.

    “As the ex-pats are no longer based in New Zealand, there is no real impact on their lives in their new countries”, he says.

    “There is also less of a stigma around declaring bankruptcy amongst Generation Y, due to the changing global financial climate and changing demographic of students, availability of higher education and ability to travel.”

    Call for IRD to be more flexible

    Kamal believes people have a moral and social obligation to pay their student debt, however if they are in serious hardship there should be provisions in place to ease the pressure.

    He says one of his clients recently declared bankruptcy, as they were sick with no chance of recovery, and the IRD would only give them a year off making repayments.

    “With this kind of stringency, IRD will unfortunately find itself with many more bankrupts on its hands and less in the coffers”, he says.

    “I would like to see more flexibility around repayment options, discounts or partial write-offs of penalties and interest when lump sum amounts are offered.

    “It is one of the few areas of tax administration where there is little consideration given to the ability of the debtor to pay.”

    IRD: Bankruptcy a last resort

    The IRD says, “We endeavour to make it as easy as possible for a student to pay back their loan and are happy to help them with a variety of options.

    “If a borrower is suffering hardship they may also phone us to discuss their repayment options, as many do, as it may be possible to reduce their repayment obligation for the year.

    “If borrowers intentionally refuse to repay their loan, they are doing a disservice to the vast majority of those who do the right thing and pay back their loans.  

    “Bankruptcy and its continued effects on the borrower need to be thought about and consequently seen as a last resort.”

    It also points out that not everyone with student debt, who declares bankruptcy, is driven to do so primarily by their student debt.

    “Bankruptcy may be the result of actions taken by the individual or by creditors other than Inland Revenue. It is likely that most people in this situation also owe other creditors and their student loan is not necessarily the main driver for bankruptcy.”

  • Elizabeth Kerr looks at how to weight the sale and purchase agreement in your favour if buying property

    By Elizabeth Kerr

    Let’s be honest. Unless you work as a real estate agent or are a property investor, the buying and selling of property isn’t something you are going to get the chance to do all that often.

    So this week I’m going to introduce you to a few non-negotiable parts of the process.

    Yes I know, for some of you this will seem like I’m telling you to suck eggs but for the rest of you it might be exactly the lesson you need right now.

    (Butt-covering disclaimer: I am not a lawyer, so seek professional advice BEFORE you go house hunting).

    Right, before you even start trawling Trade Me and dating the real estate agents you need to know why you are buying a property in the first place. Is this a rental purchase or a new family home? If it is a rental are you buying is it for capital gains with the intent of selling it and pocketing the cash for something else (boosting your money machine perhaps), or do you want it to have it for the rental income after paying down the mortgage?

    Either way, the following are some important steps. Ignore them at your own peril!!!

    Get it under contract

    So, I’m assuming you’ve done your sums and you know you can afford to purchase the property. The first thing you want to do is get the property under contract. Yes, you could organise valuations and property inspections and builders to go through first (only novices do this by the way) – but why would you bother paying money for those inspections unless you know you can actually buy it?

    What if after all that effort the vendor didn’t want to sell it to you for your offering price? You only need to do that a couple of times over, and suddenly, house hunting becomes a very expensive shopping trip and you’ve still got nothing to show for it.   No, I think you should agree the purchase price and get a contract signed together first, and this is the important thing, subject to getting all your ducks in a row afterwards.   

    I get that some real estate agents may put the pressure on you to sign the contract as soon as possible.

    They might tell you that there are other buyers wanting to make an offer today, or the vendor wants to put the price up next week, or take the house off the market and that if you don’t sign today you risk missing out. All of that might be true. You need to understand that real estate agents are working for the seller.  Yes, they must treat you, the buyer, fairly – but “fairly” has a different meaning for everyone.  

    So first up, don’t sign if you feel pressured. But if you do sign for any reason before you can take the contract to your lawyer to look it over, make sure you put in the following Get-Out-of-Jail clause into contract on the page marked Special Conditions at the back.

    The Get Out of Jail Free Card

    Clause #:

    “This Agreement is conditional upon the Purchaser being satisfied in all respects and entirely at their own discretion with the outcome of the Purchaser’s Due Diligence investigation into all aspects of the property and its financial implications to the Purchaser. If such approval has not been given in writing by 5pm five (5) / ten (10) / twenty (20) working days after the date of this agreement, this agreement shall be null and void, all monies paid under shall be refunded and neither party shall have any claim against the other.

    This clause is inserted for the sole benefit of the Purchaser, and the Vendor shall not be entitled to enquire into the purchaser’s exercise of discretion under this clause.

    Clause #:

    The Vendor agrees that the Purchaser together with its agents, surveyors, engineers and invitees may have reasonable access to the property from the date of execution of this Agreement for the purpose of due diligence as provided for in Clause XX above”.

    Now this clause is not unique or special, and I can’t claim to have made it up myself, but not many people know it exists unless you are a seasoned property purchaser. Most lawyers will be able to provide you with one to the same effect. 

    If you know you are going house hunting, why not give your lawyer a call and ask for their version of this clause before you go out? Put it in your phone and be prepared to write it out, or print it on sticky paper and stick it in the back of the contracts before you sign it. (Obviously this clause won't work if you’re buying at auction – that’s another entirely different kettle of fish.) 

    The power comes from the words “being satisfied in all respects and entirely at their own discretion …” This essentially means you need to be happy and can change your mind because you’ve found something that you don’t like, and you don’t have to justify it to anyone … even the seller. Maybe on reflection you’ve realised that the house doesn’t have enough storage for your enormous Star Wars collection, or you’ve found out it's not in your preferred school zone, or there is a shopping mall going up next door, then use this clause to get out of the purchase.

    “But I can just use the Builders Report or the finance clause to get out of the contract," you say. “...Oh no you can’t”!!! Keep reading below to understand why.

    Due Diligence Must-Dos

    Building Inspection

    Your brother’s friend of a friend who used to work for a builder is NOT the right person to conduct a formal building inspection for you. You need someone who has the tools and experience and knows what to look out for. You are to expect that they will spend close to two hours going through each room, the ceiling and under-floor cavities, and taking moisture readings. You are then to expect a phone call with a brief update that day and a written report within the week. The cost of this will be in the range of about $600 + gst, but is dependent on the location, size and age of the property. 

    If you had not used your Get-Out-Of-Jail free clause in the contract and just circled the builder's inspection box on the front page, then hypothetically, if the vendors are entitled to that report and if they remedied the building inspection findings, then they could argue that you still should buy the house because your building inspection is now perfect. That would suck if your real reason for getting out of the contract was that it didn’t have enough storage.

    Finance

    Again, your lawyer will be able to give you a clause to carry with you. What you want to avoid is being vague. Quite often the contract might say under Finance “Enough to satisfy the purchase” or just the remaining amount required at settlement… but this is too vague. What if you can’t get a mortgage from your chosen bank, but the vendor has a mafia-mate who will give you one at 22% interest? …Tough luck you have to take it. You never stipulated you needed to like the terms of your finance – just that you needed enough to close the deal.  A better option would be to use this clause in the Special Conditions page:

    This agreement is conditional upon the purchaser obtaining satisfactory finance to complete this transaction on terms and conditions entirely satisfactory to the purchaser within 5 working days from the date of this Agreement”.

    The key sentence in here being “On terms and conditions entirely satisfactory” to you! This means no mafia boss or loan-shark helping you to close the deal. You can just walk away if you can’t afford it.

    So that’s building, leakiness and finance done.  These can all be addressed on the front of the contract by doing this:

    Meth Lab

    Okay you think you’re buying in the “right” neighborhood and you doubt your house was used for P-production.  But you just can’t be so sure. Meth labs are totally random and you can’t discriminate to a particular property. The costs for checking for meth may be approximately $250 plus gst and can be done at the same time as your building inspection.

    If you think for a moment that skimping on any of these checks to save a bit of money is a good idea then think again. You are likely to be spending a shit-load of money on your house so what’s $1000 in due diligence in the scheme of things? If you don’t have a spare $1000 then chances are you should not be buying a house right now either!!!

    Other Due-Diligence

    The other question you need to know is can you really afford it. Remember the costs don’t stop at the purchase price. Get out a piece of paper and write down the following costs:

    • Rates: (can be found on the city council website)
    • Bank fees & mortgage repayments
    • Body Corporate Fees (if any): should be provided by the agent on behalf of the body corporate committee
    • Insurance: (Call an insurer for a quote)
    • Water Rates
    • Buying entity set up – ie are you buying in a company or family trust and still need to set this up?
    • Noticeable repairs or maintenance costs
    • Rental income and property management fees (if you are renting it out)
    • Renovation costs (if you have ambition for a doer-upper)
    • Increase in transport costs (if you are an owner occupier do you have to pay more in petrol to get to work – is it worth it?)

    Going unconditional

    When you are satisfied with both your physical and financial due-diligence and you have your mortgage approval for the purchase then you can give the nod to your lawyer that you are happy for the contract to go unconditional. Once it goes unconditional – that’s it. Short of a meteor crashing into the earth and destroying mankind…it’s pretty difficult to get out of a contract without specialist help from a very proactive and experienced lawyer. This is not a service you want to have to pay for so, don’t expect that they will be your ambulance at the bottom of the hill if you skimp on any of the above.

    In closing:

    Buying a property is a big deal, but at least armed with those two clauses above you might feel a little more empowered about your decisions. Real estate agents may not like you changing the contract but they need to treat you fairly and this requires that they respect your right to change the sale and purchase agreement to suit your terms. However, they are a poor second for getting professional legal advice though, so, if you are property hunting why not call a lawyer and discuss your approach first? 

    The main point today is that when buying a house you are about to part with a lot of money. So, you have every right to have this purchase work entirely to your personal conditions and no one else’s. How about sharing your tips below for how you do it?

  • New Zealanders borrowing at their fastest rate since the Global Financial Crisis with net home loan growth up $1.5b in a month

    Housing debt grew at its fastest annual pace in 13 months during May and surged a net $1.5 billion month-on-month, the latest Reserve Bank sector credit data shows.

    By the end of May New Zealanders had $202.347 billion of housing loans, the Reserve Bank data shows, up 5.4% year-on-year which is the fastest annual growth rate since April last year. Total household claims, which includes consumer debt, rose 5.5% year-on-year in May reaching $217.564 billion.

    Business debt rose 6.1% to $86.214 billion and agriculture debt rose 6.4% to $56.074 billion.

    "Overall credit growth is running at its fastest pace since the Global Financial Crisis hit over 2008 and 2009.  Housing credit will be the part catching the Reserve Bank’s eyes the most.  It is clear that, even before the Reserve Bank cut the Official Cash Rate (OCR) in June, past falls in interest rates were already fuelling mortgage borrowing demand. We still expect a July 25 basis points OCR cut (to 3%), with some risk of further cuts.  But the borrower response to falling interest rates, along with the weaker NZ dollar, may temper the Reserve Bank’s preparedness to cut too much," ASB chief economist Nick Tuffley said.

    Tuffley also noted the surge in housing lending was the strongest monthly dollar value growth since November 2007.

    "The temperature remains high in the Auckland housing market, with signs of lifting activity elsewhere. Declines in mortgage rates are likely to be playing a part in stimulating the added lending growth. Consumer lending growth is also holding up, at around 6% year-on-year," said Tuffley.

    In the year to May consumer debt rose 6.3% to $15.217 billion.

  • Will Australia's crack-down on commissions paid to financial advisers cross the Ditch to NZ?

    The writing could be on the wall for financial advisers in New Zealand… Their days of earning a living by receiving commissions from life insurance companies look to be numbered.

    The Australian government has ratified a proposal from the life insurance industry to toughen the rules around commissions.

    Australia’s Association of Financial Advisers, Financial Planning Association and Financial Services Council proposed the reforms.

    Given a number of the life insurance providers operating in New Zealand are Australian, the question is, will they be prepared to accept similar reforms here as the Financial Advisers Act 2008 and the Financial Service Providers Act 2008 are reviewed?

    The industry and the public have until July 22 to make submissions on an issues paper, released by the Ministry of Business, Innovation and Employment, that floats the idea of restricting or altogether banning commissions in New Zealand.

    What’s happening in Australia?

    Australia’s Assistant Treasurer Josh Frydenberg last Thursday announced upfront commissions will be capped at 60% of a policy’s premium from July 2018, and there’ll be a cap on trailing commissions at 20% from January 2016.

    There’ll also be a ban on volume-based commissions from July next year, and the development of a code of conduct.

    Under the transition arrangements, upfront commission will fall to 80% in 2016, 70% in 2017 and 60% in 2018.

    The move comes after an Australian Securities and Investments Commission report published in October last year painted a grim picture of the influence commissions have over the quality of the advice provided to life insurance customers.

    There’s also been a lot of concern expressed around ‘churn’ – the practice of financial advisers moving their clients’ policies from one insurer to another to receive more upfront commissions.

    Tony Boyd from the Australian Financial Review reports, “While the package of reforms put forward by the industry does not go as far as those put forward by John Trowbridge in an independent report published in February, it will go a long way toward removing the incentives for poor quality advice.

    “Upfront commissions on retail life insurance have been as high as 120%. There is usually a further 20% trail commission.

    “…It is estimated these reforms will slash about $225 million in commission revenue per year by 2018.”

    What are the Aussie companies that operate in NZ saying?

    AMP says, “We believe this is positive for AMP as it will likely reduce industry churn, improve new business value and benefit AMP-backed planners relative to independent advisers.

    AMP says it’s ahead of the game, having announced in April that it’ll slash upfront commissions on life insurance to 80% of the first year’s premium, from today.

    Outgoing Suncorp Life chief executive, Geoff Summerhayes says, “The industry has known change is imminent and this announcement provides much needed certainty about a way forward.

    “Adviser remuneration has been a hotly debated topic and consumed much of the attention. I recognise that advisers may experience some difficulty in adjusting, but I believe the long-term benefits will make the change worthwhile.”

    Summerhayes announced his resignation from CEO on Monday, after seven years in the job.

    ANZ’s deputy managing director of Global Wealth, Gavin Pearce, says, “We’re pleased to see acceptance across the industry that the insurance and advice sectors need to change in order to rebuild trust and fulfill the important objective of ensuring Australian’s are properly protected.

    “Many Australians still remain unaware of their protection needs or the implications of being under-protected, so maintaining and supporting a sustainable insurance advice industry is critical.”

    'Australia & New Zealand are different'

    When asked whether ANZ believes the Financial Advisers Act in New Zealand should be reformed in such a way to provide similar outcomes as in Australia, ANZ’s New Zealand Wealth communications manager pointed out the regulatory environment for financial advice in Australia and New Zealand are different.

    Louise Nicholson says, “Here in New Zealand, we are preparing a formal submission to the Government’s review of the Financial Advisers Act. We don’t want to pre-empt this process.

    “Any change to the legislation needs to build New Zealanders’ trust in the financial advice industry and ensure New Zealanders can continue to gain access to quality financial advisers.”

  • A "how to" guide on seeing the glass half full when we talk about our ageing population

    The Government’s putting a positive spin on the impact our ageing population will have on the economy.  

    The Ministry of Social Development has released a report – ‘The Business of Ageing’ – which claims an ageing population will bring more opportunity than economic doom and gloom.

    The report’s found that by 2035, there will be 1.2 million people aged over 65 – almost double the current figure of 650,000.

    Seniors will spend around $65 billion a year in 2051, up from $14 billion in 2011.

    Including payments on pensions such as New Zealand Superannuation, investments and GST, they will pay taxes of $17 billion, up from $3.6 billion in 2011.

    If you put a dollar value on every hour of voluntary work they did, they’d contribute four times more to the economy.

    Furthermore, 65% of men and 55% of women between the ages of 65 and 69 are likely to participate in the labour force by 2051–2061, up from about 45% and 31% respectively today.

    The Minister for Senior Citizens Maggie Barry says, “In the future they will stay in the workforce longer, give more of their time to the community, and become a powerful consumer base. Seniors are a positive force for change and should be seen as such.

    “Too often we hear our ageing population described as a burden. That attitude is objectionable and completely wrong.”

    But is it really?

    Reality check  

    Figures released by Treasury in its 2013 ‘Affording Our Futures’ report, show government spending on healthcare is projected to grow from 7% of GDP in 2010, to 11% in 2060. Spending on NZ Super is projected to increase from 4% to 8% of GDP over this time.

    Yes, tax revenue is expected to increase from 27% to 29% of GDP between 2010 in 2060, but government debt is expected to offset these gains 14-fold.

    The Treasury report estimates net government debt will grow from 14% of GDP in 2010, to 198% in 2060.

    Following the release of the 2013 report, Treasury Secretary Gabriel Makhlouf told reporters, "If we do not increase taxes, expenses will soon outstrip revenue, leading to persistent deficits.

    "We will need to make policy adjustments, either to spending areas or to revenue, or a mixture of both.''

    Harnessing the purchasing power of over 65s

    While I will leave readers to decide whether to view the glass as half full or half empty, ‘The Business of Ageing’ report does make two points I’m sure we can all agree on. 

    Firstly it says, “Businesses will need to better understand this group [over 65s] and the role they will play as consumers in the future. The rapid expansion of businesses signing up to the SuperGold card shows how this market is growing.”

    DDB advertising agency chief executive, Justin Mowday, believes businesses aren’t reaching out to this group as effectively as they could.

    He says there are a few challenges to targeting this group.

    “People’s brand preferences and options are entrenched by the time they get to 50… From 50 on, it is very hard to shake someone out of one brand and into another”, he says.

    “Brands are also hesitant to overtly associate with over 65s, because it may polarise other groups they may like to appeal to.

    “If you overtly appeal to an over 65-year-old, there will be some younger demographics who instantly decide that brand isn’t for them.”

    Nonetheless, Mowday says it is possible to target an older age group and get it right.

    He points to a TV ad DDB did for Westpac, where they showed a middle aged man (not quite in the 65 plus age group), trying to relax and enjoy his hard-earned cash, but ending up handing out money to his grown-up kids, grandchildren and parents. 

    Mowday received a good response from people who said they really empathised with the poor guy dishing out cash and his stage in life.

    In terms of marketing targeted at elderly people, he also raises the point that we can’t discard the ads seemingly aimed at middle-aged people. No 65-year-old thinks they’re old, so will connect with an ad aimed at a 40-year-old.

    Hiring and retaining older staff

    A second good point the report raises is; “As the traditional ‘working age’ population shrinks, businesses will need to retain and harness older workers’ skills in order to sustain their long-term growth and profitability”.

    BusinessNZ chief executive Phil O’Reilly says employers are putting increasingly large efforts into retaining their more elderly staff members, but aren’t doing as well when it comes to harnessing new employees.

    “There’s a big recognition now that those workers have skills that are hard to replicate or re-create”, he says.

    “It’s not as though there’s a million appropriately qualified young kids out there ready to start. So the idea of retaining talent feels more secure.”

    He says the population’s also become fitter and healthier, so older people are more capable staying in employment.

    Nonetheless, O’Reilly admits it’s harder to employ a 60 year-old over a 30-year-old, when you’re not certain about their commitment to the workplace and their capacity to deal with the fast-moving and uncertain environments that we’re familiar with in workplaces today.

    On the flip side, he says it’s also important for older candidates to demonstrate their skills are still relevant to today’s work place.

    He maintains they’re doing this well, having become much more familiar with technology than say 10 years ago.

    He says employers who see the benefits of having diversity in the workplace will be more open towards hiring older staff.

    “The smart employers are already doing all of this – the banks, insurance companies and large retail employers. It’s a case of making sure we spread this out to those who might not be so sophisticated in their hiring practises.”

    O’Reilly says it’s also important to concentrate on the right opportunities, as a 25-year-old is likely to be a more desirable employee for a labouring job than a 60-year-old for example.

  • The lower quartile house price surged to $616,500 in Auckland last month but declined in many regions

    Buying a first home became more affordable in most parts of the country last month thanks to a fall in lower quartile selling prices in most regions, but significantly less affordable in Auckland, where the lower quartile price surged to a record high, according to the interest.co.nz First Home Buyer's Affordability Report.

    The report shows that housing remains affordable for typical first home buyers in all regions of the country except Auckland, where affordability worsened considerably due to rapidly rising prices.

    In Auckland the REINZ's lower quartile selling price was $616,500 in May, compared to $584,500 in April and $502,100 in May last year.

    The report estimates that would have pushed up the mortgage repayments on a lower quartile-priced Auckland property purchased by typical first home buyers to $821.83 a week, which would eat up 54% of their after tax pay, up from 50.8% in April, 45.8% in May last year and 38.1% in May 2013, when the same property would still have been considered affordable.

    Auckland CentralAuckland North ShoreAuckland SouthAuckland WestWellington CityHutt ValleyPoriruaKapiti CoastWhangareiNew ZealandHamiltonTaurangaRotoruaNapierHastingsGisborneNew PlymouthPalmerston NorthWanganuiNelsonChristchurchTimaruWairarapaQueenstownDunedinInvercargill

    That means housing is likely to be becoming severely unaffordable for first home buyers in Auckland because as well as mortgage payments, they will be faced with other property-related expenses such as rates, insurance and maintenance costs, which could severely impact their finances.

    And it could leave them facing even more severe financial difficulties when interest rates eventually start to rise again, which they inevitably will do at some stage.

    What 'affordable' is

    The report considers housing to be affordable when mortgage payments are less than 40% of take home pay.

    The income measures used in the report for typical first home buyers are the regional pay figures for working couples aged 25-29, according to the LEEDS (Linked employer-employee data survey) data from Statistics NZ.

    Mortgage repayments are calculated using the average of the major banks two year fixed rates on a 25 year mortgage.

    By those measures, housing is affordable for first home buyers in every region of the country except Auckland.

    The cheapest place for first home buyers remains Southland where the lower quartile price was just $139,400 in May, followed by Manawatu/Wanganui at $163,100, Otago $198,300, Hawkes Bay $216,700, Taranaki $234,500, Northland $258,200, Waikato/Bay of Plenty $265,500, Nelson/Marlborough $295,700, Wellington $325,900. Canterbury $342,000, Central Otago-Lakes $388,900 and Auckland $616,500 (See table below for lower quartile price movements in all regions over the last two years).

    That means the mortgage on a lower quartile priced home in Southland would take up just 11.2% of a typical first home buying couple's take home pay, while in the most expensive region outside of Auckland - Central Otago-Lakes - the mortgage on a lower quartile priced home would eat up 35.4% of their after tax income.

    In the Wellington region a lower quartile home would take up 26% of a first home buying couple's take home pay and in Canterbury it would be 28.4%.

    Last month the REINZ's lower quartile selling price declined in seven regions (Northland, Hawkes Bay, Manawatu/Whanganui, Nelson/Marlborough, Canterbury, Central Otago/Lakes, Otago) and rose in five (Auckland, Waikato/Bay Of Plenty, Taranaki, Wellington, Southland).

    The Auckland problem child

    But Auckland is the problem child because the lower quartile selling price in the region has risen by $170,100 (38.2%) in the two years since May 2013.

    By comparison, the lower quartile selling price in the Wellington region has risen by $12,900 (4.1%) over the same period and in Canterbury it has risen by $41,000 (13.6%).

    The strong price rises for properties in Auckland doesn't just mean that first home buyers could have trouble making the mortgage payments on a lower quartile priced house, they would also likely struggle to save a reasonable deposit.

    The interest.co.nz First Home Buyer's Affordability Report also calculates how much of a deposit a first home buying couple would have saved if they squirreled away 20% of their after-tax pay for four years and earned interest on this at the average 90 day deposit rate.

    By that measure, the first home buying couple in Auckland would have saved $67,554 after four years, which would only be an 11% deposit for a home at the region's lower quartile May selling price of $616,500.

    This means the first home buying couple would have to compete for the limited supply of home loans banks are able to make available to people with less than a 20% deposit, which also means they would probably not be eligible for the special interest rate deals that many banks offer and may end paying a higher interest rate than borrowers with a larger deposit.

    By comparison, a typical first home buying couple in Wellington (where pay rates are slightly higher than Auckland) would have saved $69,179 after four years, which would provide a 21.2% deposit on a home at the region's lower quartile price of $325,900.

    In Canterbury, the typical first home buyers would have saved $65,722 after four years which would provide a 19.2% deposit on a home at the region's lower quartile price of $342,000.

    Buying a first home has never been easy, but in every region except Auckland, getting on to the first rung of the property ladder should be manageable for aspiring first home buyers provided they are working and develop a regular savings habit.

    However in Auckland, that first home is becoming increasingly out of reach for many.

    And with immigration fuelled population growth in Auckland outpacing the supply of new homes and prices continuing to rise significantly faster than incomes, the outlook for first home buyers in the region is becoming increasingly difficult.

    REINZ Lower Quartile Selling Prices

      May 2013 May 2014 May 2015
    Northland $246,700 $252,100 $258,200
    Auckland $446,400 $502,100 $616,500
    Waikato/Bay of Plenty $245,300 $253,700 $265,500
    Hawkes Bay $211,700 $214,400 $216,700
    Manawatu/Whanganui $184,600 $172,000 $163,100
    Taranaki $238,400 $221,700 $234,500
    Wellington $313,000 $323,000 $325,900
    Nelson/Marlborough $295,500 $284,800 $295,700
    Canterbury/Westland $301,000 $335,800 $342,000
    Central Otago/Lakes $358,200 $360,400 $388,900
    Otago $182,200 $188,400 $198,300
    Southland $145,000 $132,300 $139,400
    All NZ $275,000 $287,000 $305,000

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  • David Chaston reviews where savers now stand following the recent OCR cut and the prospects for more of them

    The recent cut to the Official Cash Rate has reinforced the view that 'financial repression' is closer in New Zealand now.

    The chart below signals a rapid change.

    Financial repression refers to "policies that result in savers earning returns below the rate of inflation" in order to allow banks to "provide cheap loans to companies and governments, reducing the burden of repayments".

    We have not had that situation in New Zealand recently, even during the Global Financial Crisis. But the lower the OCR goes, the closer it becomes.

    Savers are saving. In fact household deposits are growing very fast - about +10% per year.

    Lending however is not growing anywhere near as fast, only about half that rate.

    The excess of savers funds helps push down the demand for them and the 'price' (interest) financial institutions will pay for them.

    This is exacerbated by the availability of cheap foreign money, although this can be overstated because when it's "swapped" back into New Zealand dollars, the swap process raises the interest rates on them to local levels. But the 'local levels' are only the wholesale levels for the very best rated borrowers. This means it's still cheap money by local standards.

    Small banks offering better choices

    The impact on borrowers is different for each institution. As the table below shows, among the main banks only BNZ is still offering any sort of premium over the others that is worth consideration.

    And among the small banks there are better choices, although at the moment RaboDirect has a clearly better rate offer.

    Where rates go from here will depend on a number of factors worth keeping an eye on.

    Firstly, the US Fed will set the international tone, and the long-term yields of US Treasuries are inching up in expectation of a Fed hike sometime in the next few months.

    Across the ditch, pressure is building for a resumption in RBA rate cuts.

    And closer to home, local bank economists are talking up more OCR cuts following Reserve Bank Governor Graeme Wheeler's signals.

    The lower local rates go, the closer term deposit offer rates get to the inflation rate.

    In fact, Governor Wheeler is working to get inflation back to the mid point of the Policy Targets Agreement of 1% to 3%, ie 2%. The sharply lower exchange rate will lift inflation quite quickly - you only have to visit the petrol pump to see the effects starting to happen.

    If inflation rises faster than the Governor is planning on and gets to the top of the range, and another OCR rate cut or two happens in the next six months as many bank economists predict, it is not hard to see that many savers may in fact face 'financial repression' - something they avoided during the GFC but may hit them soon.

    Or not. All predictions of what interest rates and inflation may do in the future is little more than guesswork, even by the professionals. It is the future after all and the future is always uncertain.

    Savers worried about the potential for rates lower than inflation may want to lock in longer rates while they still have a "4" in front of them. Quoted interest rates for savers are all "before taxes" and it is the after tax return they will be targeting. A 4.00% one year rate for a saver on a 17.5% tax rate will return 3.3%. For a taxpayer on a 30% rate rate, it would return just 2.8% after tax and in that time-frame that could come very close to the inflation rate (and certainly less than what Councils are raising property tax rates by, especially in Auckland).

    Use our deposit calculator to figure exactly how much benefit each option is worth; you can assess the value of more or less frequent interest payment terms, and the PIE products, comparing two situations side by side.

    All carded, or advertised, term deposit rates for all institutions for terms less than one year are here, and for terms one-to-five years are here.

    Term PIE rates are here.

    The latest headline rate offers are as follows:

    for a $20,000 deposit 6 mths 1 yr 18 mths 2 yrs 3 yrs 5 yrs
                 
    3.80% 4.00% 4.05% 4.10% 4.20% 4.40%
    ASB 3.80% 3.95% 4.10% 4.15% 4.20% 4.30%
    3.90% 4.10% 4.15% 4.25% 4.30% 4.50%
    Kiwibank 3.75% 4.00%   4.15% 4.30% 4.70%
    Westpac 3.75% 4.00% 4.05% 4.15% 4.25% 4.40%
                 
    Co-op Bank 3.95% 4.00% 4.20% 4.30% 4.40%  
    Heartland Bank 4.15% 4.30% 4.30% 4.35% 4.40% 4.50%
    HSBC Premier 3.50% 3.60% 4.00% 4.10% 4.20% 4.40%
    RaboDirect 4.10% 4.30% 4.40% 4.45% 4.55% 4.75%
    SBS Bank 4.10% 4.15% 4.15% 4.30% 4.40%  
    3.75% 4.00% 4.10% 4.20% 4.50% 4.70%

  • The equity crowd funding industry reaches a major milestone with $10 mln successfully raised. But 19% of offers made failed to reach minimum support

    The emerging equity crowd funding industry in New Zealand has just passed a key milestone.

    With the closing of the offer for Powerhouse Wind on the PledgeMe platform, more than $10 million has now been raised in equity since equity crowd funding was licensed in New Zealand.

    The first offer came to market in September 2014. That was Renaissance Brewing which achieved maximum funding support.

    In June 2015 alone so far, the four deals that have closed have raised more than $1.5 million, a bit more than half on the Snowball Effect platform and the balance on the PledgeMe platform.

    Two more offers will close this month. Tapp on PledgeMe will struggle to succeed, whereas the much larger Punakaiki offer on Snowball Effect will be successful.

    Since the industry was established, twenty one offers have come to market, four have failed so far, 17 have been successful, of which six have reached their maximum funding limit.

    Those six accounted for more than half of all money raised.

    Most money is being raised on the Snowball Effect platform and these offers are attracting the most investors - 1,643 investors of the 2,684 investors who have stumped up money.

    So far, the average investment on Snowball Effect has been $3,941, on PledgeMe it is $3,118, and on Equitise it is $6,113 in their two deals to date. This data will change when the final two June campaigns close.

    You can find detail on all equity crowd funding offers on our new resource page here.

    As at today, there are currently five offers open on three platforms, including a new one, CrowdCube. One offer closes tonight (Friday), and one closes on June 30.

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