As Kiwis, we love to see New Zealand make its mark in the world. We ranked number one for our Covid-19 response. We are ranked the second least corrupt country in the world, first in social capital and fourth most prosperous (outside of Europe, we’re #1).
But there is one area in particular where we aren’t doing so well. When it comes to saving money, New Zealand ranks in the bottom four OECD countries. Typically, we spend more than we have.
Reality paints a pretty grim picture:
- 53% of Kiwis would be at risk of poverty if they had to forgo 3 months of income.
- Only 5% have enough money saved for 6 to 12 months.
- Nearly 60% have savings of less than $500.
We’d like to challenge New Zealand to move up the ranks and get better at saving money. First, we have to understand why we’re so bad at it.
Barriers to Saving for Kiwis
A study done back in 2007 examined Kiwi attitudes to saving and investments.
It found some common barriers in attitudes to saving, including lack of independent financial advice, low financial literacy, lack of trust in advisors and need for personal control, and the nature of the information people use when making financial decisions (i.e. relying on your gut feeling or what your neighbour thinks instead of researching).
Really what that all boils down to is having financial advice you can trust. A trusted financial advisor can help you get a realistic view of what you need to save and how to do it. They advise which types of investments would be best for your personal situation and help you to understand why.
That same study questioned participants on their reasons for not saving. Here’s what they found:
- Many felt they could rely on Superannuation.
- Reliance on property values. In general, people feel wealthier when their house value goes up.
- They intend to keep working after age 65 - some with unrealistic ideas of how they would be able to do so.
- It’s too easy to accumulate debt with credit cards and mortgages, leaving nothing left to save.
Relying on Superannuation was particularly the case for persons in lower income brackets, as the Super will give them an equivalent or even better standard of living. As it stands now, the Super provides about $650 a week for a married couple. It may be enough for some to get by, but most of us imagine enjoying our later years with a bit of travel or spoiling the grandkids.
As for property, it’s great to have something of value. However, you can’t eat your house, and if you sell it you have to rent.
There’s no guarantee you will be able to continue to work after age 65, or for how long. Also, how much you have saved up impacts your quality of life in the years when you especially need to look after your health. By putting a bit aside in KiwiSaver each week, you can significantly increase the amount you’ll have to live on later, as KiwiSaver provides for you on top of the NZ Super.
When it comes to the current generation’s accumulation of debt, the Commission for Financial Capability put it this way: “Because consumer borrowing and living for the present moment has been normalised in their social circles, they are often unaware of the consequences over-borrowing can have on their retirement.” Living in the moment is great, but it needs to be balanced with thought for your future. Spending too much now can have an impact for years - now you know, and knowing is half the battle.
KiwiSaver Makes It Simple to Save
KiwiSaver was introduced in 2007 because of concerns that Kiwis were not preparing for retirement. The goal was to encourage people to develop a long-term savings habit and increase individual financial independence.
Today KiwiSaver has 2.5 million members. Over 75% of the population aged 18-64 are enrolled. People who may never have thought about investing are now learning about it and looking at their options. Go us!
Part of that is because of the ease of enrollment. When you start a new job, you’re automatically enrolled. You choose a contribution rate, your employer contributes, and the government throws in a contribution every year as well.
But beyond enrolling, there are steps you can take to fine-tune your KiwiSaver account according to what you want to do with it. You can use it for a first home deposit or retirement - or both. You can invest in funds that do some good in the world. You can adjust your risk level to maximize your returns while riding out losses along the way, or to keep a nice steady savings pace.
We think it’s pretty important that every Kiwi has access to information to improve their financial well-being. It’s the motivation behind BetterSaver - making it easy for Kiwis to understand how to make the most of their KiwiSaver investment. BetterSaver has all the knowledge you need. We are independent, unbiased advisors who want to help you take a look at your personal goals and make a plan to reach them.
So How Much Should I Be Saving?
There is no one-size-fits-all magic number to attain, but many experts recommend saving 15% of your income every year.
Here’s why. It’s estimated that to enjoy a similar standard of living in retirement as you do before retirement, you’ll need about 80% of your pre-retirement income. According to the example cited here, if you’re on a median income and save 15% every year, you’ll have over $320,000 at retirement. Add in the Super and your income is about $50k a year.
But this only works if your savings are invested in a fund like KiwiSaver over the long-term. Cash under the mattress or even a savings account won’t do it.
Also, we said long-term - so you’ll only reach that if you start saving early in life. Another example puts it like this: a 25-year-old who saves $5000 a year (15% of $33,000) with an average annual return of 8% on their investments will have $1.67 million at retirement. If that same person in the same scenario starts at age 35, they will have $730,000. (We’ll leave it up to your imagination what waiting until your 40’s might mean.)
The moral of the story is to start now. Shoot for 15%, but at least save what you can now and increase as your salary increases down the road.
Start Now with KiwiSaver
We want to see headlines that praise New Zealanders for being some of the best savers in the world.
With KiwiSaver, there’s no excuse for not saving. You set your contribution rate and it’s deducted out of your pay automatically. Plus, your employer matches 3% and the government matches 50 cents of every dollar up to $1,042. It is much easier to get pretty close to that 15% goal!
Of course there’s more you can do than set your KiwiSaver contribution to the maximum. Choosing a provider and fund can make a huge difference to your long-term results. BetterSaver makes sure you are armed with all the knowledge and tools to make it easy for you.
In our next article, we’ll go over budgeting techniques you can use to really get your savings growing. Let’s get better at saving, New Zealand!