Five-fold Friday: Organic food price controls; just desserts for credit card companies; floating mortgages; KiwiSaver tax deceit; and Kiyosaki's Conspiracy theories

By Amanda Morrall

I promise next week to find suitable artwork, in the meantime, I welcome any suggestions.

1. Savings and spending

With the rising cost of food, petrol and power is it any wonder the country has a national savings problem?

Putting aside the academic debate about whether there is a savings issue in NZ (yes there is disagreement), I think it’s fair to say the average household struggles. According to the United Nations, global food prices hit a record high last month. Petrol has breached the NZ$2 mark just as we’re rolling into winter where power bills will spike.

Where are the savings supposed to come from?

Often it is mundane daily choices that can make a difference. On that front, smell-of-an-oily rag website has some zany and yet practical tips to curb spending.

Rest assured I won’t be collecting road kill to collect maggots for chicken feed (my backyard henhouse experiment was sadly short-lived) but after reading the bit on duplicitous milk pricing practices, brand names are now meaningless to me. And having claimed a wee plot at my local organic community garden (with gratitude to a Christchurch earthquake refugee), I'm determined to give Supermarkets the snub where possible. I think it's the future. Here's a map to community gardens in Auckland.

2. Credit and Debt

The gravy days for credit card issuers peddling easy money at exorbitant interest rates with a whole slate of sneaky fees and penalties could be drying up. Following legislative reforms in the United States mandating credit card issuers to make it more clear to borrowers the effect of compound interest at minimum repayment rates, Australia is looking at similar legislation.

A new bill set to go before Parliament is proposing a suite of changes that could curb profit margins levelling the playing field for the benefit of consumers. This include limits on over-limit spending, abolishing fees when that happens, a requirement for providers to allocate repayments to higher interest debt first, and  a higher level of disclosure on those fineprint details that often get glossed over.  On that last note, banks may be compelled to tell prospective mortgage seekers what other lenders are charging for interest. Will New Zealand follow suit? Let's hope so.

3. Home and Real Estate

I incorrectly noted last week that floating and fixed rates had come down. My apologies.

I can confirm, if you missed it, that is true now of both options in the wake of the Reserve Bank’s lowering of the Official Cash Rate yesterday to 2.5% Chief Allan Bollard said he made the cut with the expectation that banks would pass on the advantage to borrowers - which they did. For a round up of the bank’s new floating rates see Gareth Vaughn’s story here.

The lower rates could be fleeting as Bollard has indicated he’ll raise the OCR again when the rebuilding phase of Christchurch begins. See Bernard’s story here.

4. Death & Taxes

I wrote about this last month but I think it’s worth mentioned again after hearing from one major KiwiSaver provider that it remains a widely ignored issued: Prescribed Investor Rates (PIRs).These are the rates of taxation applied to KiwiSaver accounts.

PIRs vary from 10.5%, 17.% and 28% depending on your income.

Unless otherwise specified by the KiwiSaver him or herself, the PIR rate is set at the highest rate. If you incorrectly put yourself at the lower rate, and the matter is flagged to their attention, you’ll be in arrears with Inland Revenue. Of course, if you’re taxed at the higher rate by mistake (as would be the case with many low-income earners and kids) and you try to retroactively claim that money back, you’re out of luck. With close one-third of all KiwiSavers 18 and under, I reckon there are more than a few out there being over-taxed. (For further details, click here). Your provider can tell you what your PIR is.

5. Books & Film - At the risk of getting pilloried, much love and loathed financial guru Robert Kiyosaki’s has a new offering from his extensive collection. Hang on a second, this one is free although you’ll have to wade through a minefield of sales pitches in exchange for his charity. Kiyosaki has been writing an interactive on-line book on the financial crisis called the ‘Conspiracy of the Rich.’

It aims to explain the greed, corruption and manipulation of money markets underlying the euphemistically named credit-crunch crisis. Threaded into that discourse, Kiyosaki offers his strategies on how to get ahead. His new mantra: Knowledge is Money. I've posted an excerpt below. And if you’re looking to balance the how-to-get rich, with what-for questions, Kiyosaki’s ‘Rich Brother, Rich Sister’ book is also worth checking out (from the library.) It’s co-written with his sister Emi, a Buddhist nun, who softens the money theme with a higher purpose driven inquiry. It's an interesting dichotomy.

Money, Money, Everywhere - Robert Kiyosaki

For someone out of work, deeply in debt, and not earning enough money to make ends meet, it’s hard to imagine that the world’s problem is too much money. It’s like the old saying, “Water, water, everywhere, but not a drop to drink.”If you’ve read Conspiracy of the Rich: The 8 New Rules of Money (COR), you know that the world’s problem is too much money. The problem is that without financial education in our schools, which is part of the conspiracy, most people—even highly educated people from good schools—are short of money even while floating in a sea of money.

Today, trillions of dollars are circling the globe looking for people who know what to do with it all. This tsunami of money is causing booms and busts all over the world. For example, in China and Brazil, massive sums of money are causing inflation. Rather than solve the problem, these countries are timidly raising their interest rates and increasing the required down payment on a home from 40 percent to 60 percent, and still, real estate prices are climbing. I predict that in the near future, China’s real estate bust will make the real estate bust in Dubai look like chump change.

For those of you who understand macro-economic forces, when tons of money moves into a country, the banks need to lend that money immediately. The reason this credit expansion happens is because savings are a bank’s liability. Money in a savings account costs the bank money due to storage fees and interest payments. The only way a bank makes money is by lending out your savings at interest.Hence, banks need borrowers.

The more money in savings accounts, the more banks need to lend money, and soon, as banks pass out money like candy, we have real estate, stock market, and commodity booms. When hot money flows into a country, the expansion of money can be explosive, if it’s not well managed. As you know, this is what happened in Japan, the US, and Europe. Economic booms led to economic busts. The rich got richer and the poor and middle class are paying for the clean up.

In spite of all this chaos, I watched a former Federal Reserve Bank governor say on television, “There is no inflation.” He’s either lying or really stupid. The riots in Egypt were set off due to high unemployment and high food prices—both symptoms of corrupt governments and too much money driving up prices.This former Fed governor, today a college professor, basically said this wouldn’t happen in the US. I don’t know what this guy is smoking, but if the US doesn’t control its spending and reduce its deficit, the problem will only grow worse. If governments start laying off government bureaucrats due to budget cuts—which might be a good thing—we’ll only have more unemployment and higher prices.

As a person who invests in oil production and not oil stocks, this is good news for me because the price of oil keeps going up. Unfortunately, since oil affects all prices, high-cost oil destroys the living standards of the poor and middle class. To make matters worse, the Obama administration hasn’t reopened oil drilling in the gulf since the BP disaster. Due to environmental fears, the government has stopped energy exploration on the Outer Continental Shelf and has canceled 77 drilling in Utah.

This may be good news for environmentalists, but it’s bad news for the economy. In a few years, it’s possible we’ll have gasoline prices in the US as high as they are in Europe, which is around $7 a gallon.

As all this turmoil swirls around the world, the US government continues to create more debt to buy old, bad debt. This makes no sense to me. Yet, what can politicians do? All they can do is keep the lies and deceptions going, and as long as people are happy, the party roars on.

Personally, I would rather take matters into my own hands and not be dependent upon the “smartest” people in the world, our leaders in Washington. This is why COR is important, especially the 8 new rules of money. If you’re playing by the old rules of money, you may also find yourself surrounded by money, money, everywhere but not able to afford to live.

Music therapy with visual stimuli, Ok Go's "This Too Shall Pass."