Interest rate analyst Suhaimi Mohamad looks at our savings rate and says; 'We can do better.' He explores some ways to save, more

Interest rate analyst Suhaimi Mohamad looks at our savings rate and says; 'We can do better.' He explores some ways to save, more

By Suhaimi Mohamad

According to the Organisation for Economic Cooperation and Development (OECD), New Zealand won't be taking home any gold medals in the savings department. Not this year, or even next.

Relative to other OECD countries our household savings rate is just too anaemic to get on the podium or even close to it.

(See the chart below for a more comprehensive ranking).

Although we've come a long way since 2006, when the savings rate was a pathetic negative 8.93%, in a year's time we're predicted to cross the finish line around 1.6%.

A negative saving rate, as you'll most likely know, indicates that households spend more than they earn in the course of a year. 

While we can boast of some Olympic victories over our neighbour, they have us beat,. hands down, in the savings department.

In the same period, they've gone from a savings rate of 2.4% to an expected rate of 9.1% in 2013.

Germany by comparison (a model of savings discipline) has remained more or less consistent; 10.6% in 2006 to 11.7% for 2013.

Household saving rates - forecasts (Percentage of disposable household income)
  2006 2007 2008 2009 2010 2011 2012 2013
Australia 2.4 4.5 6.1 10.4 8.9 9.7 9.6 9.1
Austria 10.4 11.7 11.5 10.7 8.3 7.5 7.5 7.5
Belgium 10.8 11.4 11.7 13.7 11.2 11.2 10.5 9.5
Canada 3.5 2.8 3.9 4.6 4.8 3.8 3.3 3.0
Czech Republic 6.1 5.7 4.8 6.1 5.7 4.2 3.9 4.3
Denmark -2.3 -4 -3.7 -0.4 -0.2 -1.3 -0.9 -1.8
Finland -1.1 -0.9 -0.3 4.1 4.1 2.2 1.4 0.6
Germany 10.8 11 11.7 11.1 11.3 11 11 10.6
Hungary 7.2 3.3 2.7 4.5 2.5 3 3.2 3.7
Ireland -0.9 -0.1 5.5 10.1 8.9 9.4 8.3 7.3
Italy 9.5 8.9 8.4 7.1 5.3 4.5 4.3 4.5
Korea 5.2 2.9 2.9 4.6 4.3 3.1 2.9 3.1
Netherlands 6.1 6.9 5.9 6.4 3.9 5.5 6.4 7
New Zealand -8.9 -4.0 -4.5 -2.2 0.1 0.8 1.3 1.6
Norway -0.5 0.8 3.4 6.6 6.1 8.0 8.9 7.6
Poland 6.1 4.6 -0.3 6.8 6.4 3.9 4.7 4.9
Slovenia 11.7 10.3 9.4 9.1 10.0 9.0 7.6 5.7
Sweden 4.9 7.2 8.9 11.2 8.5 9.7 10.7 9.4
Switzerland 11.4 12.6 11.7 12.0 9.9 11.4 12.1 12.0
United States 2.6 2.4 5.4 5.1 5.3 4.7 4.3 4.0

A number of factors have contributed to our low savings rate including high house prices, relatively immature retirement savings schemes, social welfare and inward migration transfers, - all of which are highlighted in this Reserve Bank of New Zealand paper on household savings and wealth in New Zealand. I won't get into macro economics and monetary policy. Instead, let's look at some practical ways we can boost individual savings. I'll even let you in on my own secrets and savings habits.

How to save

Savings I believe comes down to perception, determination and knowledge. 

I know most households are struggling to cope with the high cost of living and barely have any spare change after paying the mortgage, utility bills, buying food and meeting other outgoing expenses. But in small ways there is always room to save.

My recommendation is to begin with a simple savings plan. Don't just talk about it. Get it down on paper and discuss with your partner or other family members what your objectives are, and how you plan to get there in a specified period. Start with a plan that you can achieve that's not too ambitious. Review your progress regularly and make any necessary revisions as you go along.

Baby steps

If you are new to the savings game, start by saving a small amount so it's not overwhelming. Make it a regular habit by putting aside a set amount each week or month from your pay packet. At the beginning, the impact may be insignificant but don't be discouraged. Savings requires discipline, determination and purpose and is best viewed as part of a bigger long-term plan.

In this regard, the New York Times has an interesting interactive calculator to visualise the impact of adding 1% more into regular savings. It's a savings expanding experiment. Go on try it.

Spare change

As long as I can remember, I have been a saver. It started when I was a primary school student and my sister gifted me a piggy bank. It's a habit I've retained through adulthood and continue to do now for the benefit of my kids.

Instead of feeding my pocket change into a box, I now do it electronically.

ASB Bank has a product called Save The Change that automatically takes the change from my purchases and puts it into savings accounts, split between my two children. It's a brilliant and painless way to save. You don't get the satisfaction of hearing those coins clink against the porcelain but the effect is the same. Two years on, the piggy is getting fatter, slowly but surely.

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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We don't save because we don't realise it is important.  The article won't move it much at all.  but it will move it in the right direction.

You are right, it is, is 'borrowing" any better when in theory "saving" is what initially funds it (borrowing)?
The whole monetary system is a 'suckers game' , where eventually one or the other (borrowers/savers) bailout/screw over each other in turn.
Such a system is destined to fail............and is 

Government will see us right.
Make more people reliant on handouts, make government part of everybodies life, that how we can learn to save.
Reward borrowing, not saving, in fact penalise saving and then wonder why!!

No point in urging borrowing in a world of diminishing underwrite.

Saving can be done in many ways. If I buy extra food each week, ie cans of baked beans or extra loo paper, that is saving. Putting in fruit trees on your property or a vegetable garden is saving.Grabbing some sheets that are on sale and putting them in the cupboard for the future is saving. Paying extra against the mortgage for your abode is saving. We do it in lots of ways. It doesnt have to include a bank. Not all these things are measurable by the economists and statisticians either.

In 2006 baby boomers were panic buying their retirement holiday homes! Using what would have been their retirement savings for deposits. How dumb was that. Some of these people will now have to work until they are 70.

To be honest I think most of us will.....its going to be a pretty tough 2 or 3 decades.

I cannot believe people still believe in savings after 2008.
We all know that:
- Real inflation we experience is around 7% (Council rates, fuel, electricity prices, food, house price, rent)
- You pay tax on the 3. something % interest you earn.
- Compound Inflation @ 7% > compound interest @ 3%.
Most people consider savings as risk-free, ha!  What about inflation risk?  Hyperinflation risk?  Bank holiday risk?

How much can your $1k buy now as opposed to a future projected compound-interested $1.5k 10years later?
I'll never save until inflation drops to zero.

"we all know that".....well no we dont, you quote CPI, which is variable over a year, sure I know you think that, that isnt reality.  I dont just buy food, I buy differing items like clothing, TVs, tools, services etc....the last 4 are getting cheaper...My internet bill is now $1 for 1gb download...15 years ago it was $14 per Mb......A top of the range 29inch TV was $1200 then....a 32inch tv is now $600....etc etc.
You pay tax on any investment gain, well thats how it goes, any profit is taxed.
most ppl consider savings risk free? do they? surprises me if they do...fools if they think that.
$1k depends on what you intend to buy....if you buy food, sure its rising, welcome to the post peak oil world.  If you are buying a TV say, large 20% seem common.
Saving is saving  for a rainy day and not saving as a gain, most of china etc know this.  More fool you.
You will get your wish on inflation = < zero and it looks like its less than a year away....Great thing about deflation of course is your savings are worth more every day and the gain is tax a depression, if you have a job that is.....

Who will stop the megalomaniac’s in this country ?

Who are they?  vested interests, yes sure......I certainly dont think its anywhere started the robbing peter to pay paul will accelerate as the pie shrinks....just listen to the ppl complaining about tax etc as an example....or its not worth investing as they get a prro return for a big risk....
Welcome to post peak oil....its going to be volitile, risky and dubious payback unless you can price gouge.

My question to you all is, if I have 20K lying around, and I don't want to put it into a property, what do I do?

not an expert but if you have 20k and you don't need it for 10 to 15 years then i suggest a share in a mid rotation forestry block.
i read that forestry has returned an average of 7%over the last 30 years even allowing for inflation.
Better dtill your share may include the land so you benifit twice.
If you want the money at short notice i suggest the Heartland building society.
Their interest rates seem to be very attractive.

Forestry is not a bad idea at all, haven't looked into that but I will do now,, seriously though its such a waste just leaving it in the bank to rot, which is annoying but I guess thats a sign of the times.

you could also buy 20k of livestock and go 50/50 with a local farmer.
you pay for them ,he grazes them and somewhere down the track you both make a bit of money .

Thats a really good idea too I hadn't thought of that as well, thanks very much

I'd look at protecting that as a rainy day and cash like things......

Futureproof is the yardstick.
I put spare cash into tools, blades, seeds, spare anything I won't be able to get in 10 years - gumboots for example.
Few folk understand where things have to be going........

Is it actually legal to answer this question if one's not a registered financial adviser?

Only a low-cost/high energy society can afford charging for exclusivity.
Powering-down will inevitably see tickets/registration/legality left behind. No-choice poverty leaves little option. You do or you die, then you do.

Relax, its just a few people throwing around a few ideas

Get a diamond studded tiara for Miss Piggy ...... from a stall in Hong Kong ....

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