Just as our society has created an obesity-generating environment, it has also created a debt generating environment. Somehow, we have to change those social cues, writes Bernard Hickey

Just as our society has created an obesity-generating environment, it has also created a debt generating environment. Somehow, we have to change those social cues, writes Bernard Hickey

By Bernard Hickey

Two apparently unrelated things happened in the first week of October that say so much about New Zealand these days.

Firstly, the world's two biggest 'fast fashion' chains, H&M and Zara, opened their first shops in New Zealand, creating the sorts of scenes we've never seen before. Hundreds of people queued up to be at the opening of these stores at the Sylvia Park mall in Mt Wellington, generating wall-to-wall media coverage and the sort of enthusiasm and fandom usually reserved for pop stars.

A google news search for these store openings shows there have been at least 1,130 articles or references to them in New Zealand media in the last month. I know of one young woman who travelled from Tauranga especially to be at the H&M store opening and was happy to queue for hours to get into the store and was happy to queue for another hour for changing rooms once inside the store.

As a boringly-dressed 49 year old man I, of course, have no idea what is going on here, but I'm reliably informed (by the NZ Herald's live blog of the Zara opening last Thursday) that there were frenzied scenes. Over 300 people queued and there was applause and a rush for the racks when the door opened.

Remember, these were people queuing to pay money for clothes that can be bought any day of the week, from any computer on the planet, and there is no shortage of choice. This is not queuing for bread in a war zone. This was an active choice by sane people who were willing to take time of out of their busy days to enthusiastically consume. Something in the air (and most probably Facebook) informed and enthused these people to do this. It might be advertising or word of mouth or social media or mainstream media attention. Whatever it was, it's now all around us, wrapped up and embedded in New Zealand's economic and human geography.

Secondly, four days after the H&M opening and the day before the Zara opening, Treasury published a paper on the rise in New Zealand's household debt to record high levels relative to income. It's fair to say there were no queues outside the Treasury's doors at the bottom of The Terrace in Wellington for its release.

It showed household debt actually fell relative to incomes for a couple of years after the Global Financial Crisis of 2008 as we pulled our heads in and saved after a shock, but that we got back on the spending horse in earnest from 2014 onwards. Our household debt to income ratio of 165% is now around 5% above those previous highs of 2008 and rising quickly as debt rises around twice as fast as incomes. That speed of growing indebtedness is not much different to the bad old days of 2002 to 2007 when New Zealand went on its biggest ever debt-funded spending spree.

This week I attended an OECD conference on saving that was hosted in Auckland by New Zealand's Commission for Financial Capability. The opening speaker was an economic anthropologist, Ida Rademacher, from America's Aspen Institute.

She spoke about how international researchers were starting to look at the issue of debt and saving in a similar way to those who study obesity epidemics. Our western society has created an environment full of cues and prompts to encourage us to eat high energy food as often and as cheaply as possibly -- an obesogenic environment.

It has also created an environment, an economic geography, that encourages us to spend money we don't have.

"We've created an environment that really facilitates overeating and I'm thinking there's a very parallel piece where we've created an environment which facilitates overspending," Rademacher said.

She pointed to how human geographers in Britain were now conducting studies of a 'debtogenic' environment that has developed in some cities that were now packed with betting shops, payday lenders, clothes shops and ads to encourage spending.

"There's this idea that we have made it so easy with the financialisation of our world. It's so easy to spend. It's like the eskimos have 18 words for snow and none for other things. I think we have a 1,000 words for spending and very few for saving, so there's a lot of ways we have to change the environment to make it as easy to save as it is to spend," she said.

"There's ways you can look at obesity epidemics as being very similar in terms of what do we have to do around changing the systems and the culture, and not just the information, so different choices are not just possible, but different choices are being normalised."

Forty years ago most shopping malls and pubs and offices were full of smoke and cigarettes could be bought easily and much more cheaply at any dairy. After decades of legal, political and social changes, smoking is no longer 'normal'.

No one at the queues at Sylvia Park was smoking, but they were spending money, and many were spending money they didn't have.


A version of this article also appears in the Herald on Sunday. It is here with permission.

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... don't they have the internet up in Auckland , Bernard ... anything those eager Zara and H & M shoppers wanted has been available to them for many years online ... no need to queue .... this isn't 1970's Moscow ...

Pretty much all the high end stores and luxury goods on this beautiful shoppers paradise planet are open to us , way down here at the rump end of the world ...

"Obeseogenic environment" and public health type measures to change it. What an interesting idea and like the best ones, obvious all along and we should have thought of it before.

... we need a compulsory " boot camp " for all kids when they turn 16 ... 2 years in barracks , with some Gareth Morgan 'like economist-sgt major yelling at them ...

Getting the kiddies fighting fit ... and teaching them fiscal prudence ....

... if you dine on pests such as possums and cats , you help the environment , save money , get all the proteins the human body needs ... and just to keep the teenies in trim and slim , they gotta catch their supper by hand ... no guns ...

Apparently the feckless kiwi youngsters are already saving at a greater rate than the previous generation of feckless kiwi youngsters. http://www.treasury.govt.nz/publications/research-policy/staff-insights/...

So if anyone needs to go back to bootcamp it is the oldies...

Unfortunately youngsters today don't have any choice. They can't be as reckless as baby boomers, and don't have the same educational opportunities as Generation X.

What I've noticed with some of my younger friends is there's no way to get student loan to do a masters degree now. John Key thinks that you should be able to work full time and work full time on a masters degree. For our PM to make a statement like that I can only imagine he was on a massive drug binge to display such impaired judgement. We are going to lose a lot of potential for those who could be highly productive elite workers. This is going to have a long term impact on New Zealand which is already suffering from productivity issues.

Instead youngsters have to save to invest into financial bubbles and I can only hope that they don't sell everything right after one of the many bubbles bursts.

Rich or poor. Be an individual or a whole nation. It's the 'Micawber Principal' that will give you the best result. If if you just want to have stuff.

Yes KH, and seeking status by consuming unearned money is futile because yr neighbour will just borrow more and out-consume you. So obvious.

Simple the key culprits are the Central bankers realistic interest rates and the problem would have never have emerged instead we are heading to financial ruin.

Our household debt to income ratio of 165% is now around 5% above those previous highs of 2008 and rising quickly as debt rises around twice as fast as incomes.

Isn't disposable income the factor of interest?

It is and debt servicing is at a low. Some people have more breathing room in their monthly cashflow, others are taking the opportunity to pay down debt. This had led to the record car sales we're seeing this year. From the financial help forums where I spend time helping people I have no doubt that the vast majority are all financed. With no one thinking about how interest rates and their cash flow might change in the future with an interest rate change. So long as you can make payments now that's all that matters.

I find the rise in household debt levels to 165% of household income, when this number previously peaked at 160% pre-GFC, reassuring. Given mortgage rates have halved since this time. Certainly doesn't indicate over indebtedness.

pre GFC Loan to Income was at its peak 8 now we are above 10, glad you are reassured that should interest rates rise NZ can service the debt.
ironically the amount paid out in interest has stayed pretty constant with interest rates falling

http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins...

Bulk mortgage lending generates fantastic interest income for banks. If the interest rates double from today debt servicing as a percentage of household income would hit a record level. Of course there would be record breaking problems.

It's an increase in interest rates that could the cause problem - a doubling would be catastrophic. A small increase in the current low interest rates is proportionally more significant than the same increase with higher interest rates. If borrowers are currently "stretched" with their existing loan repayments that incease could cause them to default.

There is a saying - eat, drink and be merry for tomorrow we die - to rephrase perhaps eat, drink and be merry for tomorrow we financially die. I think New Zealanders think in very short time spans - witness the popularity of fixing mortgages for one or two years - and the total absence of fixed 30 year mortgages ( I doubt banks will ever offer them in New Zealand - our interest rates are to volatile).

it is not just NZ but the whole world, the distortion of ZIRP left on too long.
we now have the FED acting as the world back with the other RB waiting for them to move so they can move without affecting their currency

Every Auckland home comes with a built in ATM where the notes are filled in regularly by unseen gnomes. Why not spend some at H&M, Zara, et al. Bring it on.

I take a bit of a different perspective. Sure the frenzy was largely a 'consumer frenzy.'
But....
I was at Zara / H & M on the first days. I like fashion as does my wife.
My view is this. NZ's cost of living is really high, it's great to have more affordable clothing options which are still stylish.
Specsavers made a big difference when it came too. I used to have to spend circa $800 for frames and lens, now i can get a nice pair with lens for circa $400-500.
I'm really pleased to see Auckland getting more consumer options all round. Would be nice if the same could apply in housing. Please come to NZ, Lendlease.

"...I used to have to spend circa $800 for frames and lens, now i can get a nice pair with lens for circa $400-500." Glasses are the greatest medical ripoff. Go to www.zennioptical.com for ones around $25 delivered in a week.

And hearing aids.
How come everyone has to compete but dentists and opticians and lawyers and so on can just screw the daylights out of the rest of us and get away with it.

How come? Too many rent seekers, lack of competition and regulation. Real prices of cosmetic surgery in the US, paid for by comsumers in a competitive market, have fallen while medical healthvare costs have doubled in the same timeframe - heavily regulated and paid for largely by third parties.

"Because of that market competition, the prices of almost all cosmetic procedures have fallen in real terms since 1998, and some non-surgical procedures have even fallen in nominal dollars before adjusting for price changes. In all cases, cosmetic procedures have increased in price by less than the 93% increase in the price of medical care services between 1998 and 2015."

https://www.aei.org/publication/what-economic-lessons-about-medical-cost...

Seven years and this baby was still before the courts... Vested interests are powerful indeed.

"The High Court in Wellington has found for the Commerce Commission in an anti-competitive case against the Ophthamological Society of New Zealand and five individual ophthalmologists.

In his judgment delivered yesterday, Justice Gendall found the ophthalmologists and the society breached the Commerce Act when they entered into arrangements in 1996 to block entry by two Australian ophthalmologists from carrying out routine cataract surgery in Southland in 1997.

Justice Gendall said that in late 1996 there was a substantial waiting list of largely elderly people in Southland awaiting surgery for cataracts to their eyes."

http://m.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=3552460

It's the way of New Zealand business. Price yourself out of the market, then attempt to gouge an ever-decreasing pool of customers. Profits go down. Whine to government and try to make them eliminate competition, then price yourself out again, and try to make up profits by gouging an even smaller pool of customers.

It isn't the case of New Zealand.
It is the case of public funded institutions everywhere.

Those "hundreds of people" queuing up outside the fashion stores were most probably migrants and other imports (or children thereof) who are accustomed to such attractions, have now brought their culture with them

The crowds were a reflection of Auckland as far as i could tell. Lots of NZ born kiwis, as well as immigrants

Fed's Yellen says 'high-pressure' policy may be only way back from ..

What is high pressure ?

http://www.cnbc.com/2016/10/14/yellen-fed-might-want-to-run-a-high-press...

I think she would like to create high demand pressure on goods and employment leading to higher inflation (apparently rising prices is now a good thing - you're not supposed to ask why). Not sure if she's been out in the real world but looks to me like we have created abundant supply everywhere you look, folk have spent all their spare money and the elites have forced wages down with outsourcing, direct immigration and the destruction of worker rights.
Sometimes you don't know whether to laugh or cry.

This country has ridden debt for over a decade. Debt happily provided by banks. The scary thing is the massive debt increase at these low interest rates.

Debt is the one thing the government doesnt focus on. Its GDP and a surplus with no focus on debt.

As a household if your spending increases due to an increase in debt rather than income this is a concern and not seen as a good thing but at the macro level private debt growth doesnt seem to be a focus. As soon as house prices stop increasing in value and interest rates rise were going to see growth stall and our economy will be in big trouble.

Other sources have identified it - since the 70s and 80s real incomes have declined. The free market economy and removal of regulation has seen employers screw down employment contracts so that the middle and lower income groups, the vast majority, struggle to survive. But we are in a consumer society, bombarded with advertising about how the rich live and want a piece of it ourselves. Rather than blame the suddenly deaf politicians for creating an economy where we struggle to make ends meet, we borrow the money and pretend, willingly stepping into the jaws of the trap. But it is all a house of cards!

"Other sources have identified it - since the 70s and 80s real incomes have declined."
That is just not true.
"The free market economy and removal of regulation has seen employers screw down employment contracts so that the middle and lower income groups, the vast majority, struggle to survive."
The removal of regulation? Are you crazy? The market is the most regulated it has been at any point in our history.

It isn't the employers screwing down employees, it is the government regulation that it is doing it.
On the topic of consumerism, that is solely the risk of the individual.

Bang on nymad, There is nothing "free" about the "market" economy any more, anywhere, especially since 2008. More like Oligarchical Communism. The political classes of the West all worship despotic China nowadays - a command economy, that's all the go!