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Attitudes to saving - Full Report

Friday, July 26th 2002, 6:49AM

Background and Objectives

Background

"It’s ironic really. Every five minutes you have some politician on TV saying that we all have to save for our retirement because there won’t be enough tax money to go around for a state given pension of a decent level. So what do the banks do? They decide that having small accounts isn’t worthwhile and phase them out and that means that our kids don’t learn anything about saving. Savings are something you have to learn about when you’re young, or it just becomes a habit to spend everything and worry about tomorrow later. You have to teach kids to save just like you teach them manners. But it’s hard to do that when you don’t have a bank that sets the example. We’ll have a nation of spendthrifts and debtors if the banks have their way."

Business woman, Timaru, Project Success II 2001

AMP has conducted research into savings since mid 2000 through its SuperWatch research. While this research has provided valuable information about New Zealanders’ savings patterns, AMP had a strong sense that information beyond the ‘hard numbers’ is vital in terms of understanding New Zealanders and their needs. AMP thus commissioned a qualitative study able to be positioned alongside quantitative research for depth as well as breadth of knowledge. The ideal was to have insightful information that moved beyond the ‘how much’ and ‘how many’ measures into the realm of the ‘why’ and ‘what made this happen.’

Colmar brunton was asked to assist in the development of a sound research programme that examined New Zealanders’ attitudes to savings in an in-depth manner. This document covers our findings.

Objectives

The key objective of this study was to develop an insight into New Zealanders’ attitudes to saving, spending and borrowing and assist in the conversion of this into practical understandings and potential actions. It will inform AMP of the mind and mood of New Zealanders.

Methodology

As the objectives were exploratory in nature, we recommended a qualitative methodology. Qualitative methods are ideal when understanding rather than measurement is required. They were most appropriate in the context of speaking to New Zealanders about their attitudes toward saving.

Sample

Qualitative samples, though small, are carefully constructed in order to cover the dimensions of interest for the given research programme. In this study, several variables were integral in the formation of the sample. These were:

  • geographic area of New Zealand (urban, secondary, North and South Islands)
  • age (18-59)
  • ethnicity (NZ European, Maori, Pacific Island, Asian, other)
  • qualification levels (no formal qualifications, trade qualifications, Graduate and Post Graduate University qualifications)
  • type of employment (range – professional and trade, unpaid work as long as combined household income meets criteria (so as not to exclude home-makers))
  • employment status
  • life stage (single, coupled, family – to include single parent families, empty nest)
  • household income (over $30,000).
  • Gender
  • Household composition (mix)

Method

We used a combination of focus groups, in depth interviewing and family interviewing for this project. Each different qualitative method had a complementary part to play in terms of the final outputs.

Focus Groups

Focus groups are a dynamic forum in which like consumers are put together so that issues and ideas can be discussed and brainstormed in a social context. For this project, this means we were able to assess differences and similarities in attitude relatively easily, and then use the combined dynamic of the group to move forward in time and ‘solve’ any issues related to saving perceptually. Groups encouraged creative thinking and sharing of ideas. They assisted us in seeing how issues are discussed at the social level and gave us clues as to socially correct responses versus real attitudes. Fundamentally, groups allowed us to gain the spread of attitudes relatively quickly.

In depth Interviews

In depth interviews allowed us to spend time with people on a one-to-one basis. This means we could explore process and decision making more easily, and probe around sensitive issues with sensitivity. They provided richness of response, and a detailed understanding of how things happen over time.

Family Interviews

Family interviews are useful when we wish to know if attitudes are changing with time. Family interviews allowed us to see any inter-generational differences in attitude, and because of the closeness of participants, find out why this is happening. This allows us to see the effect of cohorts on behaviour in a way no other method can reveal.

We conducted five focus groups in five New Zealand locations:

  • Dargaville
  • Auckland
  • Wellington
  • Christchurch
  • Gore

We supplemented the focus groups with 12 in depth interviews and two family interviews across the five locations.

This provided AMP with a sample composition that is broad in geography and make-up.

Overview and Key Findings

To say that New Zealanders are unaware of the need to save would be to do them a disservice. Almost without exception the people that we spoke with stated that saving was very important – the problem seemed to be that many of them couldn’t find a way of saving effectively.

It was clear through our discussions with participants that savings were an ideal – something that they knew they should be doing, something that made them feel safe and secure, and something that they knew others (i.e. parents, the Government) wanted them to do. However moving from knowing to doing seems to be hard.

"I want to save. I really do. Every time I get a thousand dollars in the bank I feel so much better. It’s a relief knowing that there is something there just in case…. Trouble is, as soon as it’s there it’s like Him upstairs goes – ‘oops, time for a disaster now’ and it goes on something breaking down, or needing to be replaced. Every time I get some money put away something happens and it goes. You just can’t win."

Woman, Dargaville, $40,300 HHI

People of all income levels spoke of the difficulty they found finding the money to save – sometimes because of poor planning or poor skills in being able to delay gratification (must have it now!) and sometimes because the pressure to have the things our parents took for granted (a home, kids being educated, health care etc.) creates a financial burden that gets people into a spiralling ‘debt cycle’. If people escape that fate, then the struggle of balancing the home/work/family issues appear to loom – to ‘have it all’ seems to require more than a single income these days, resulting in feelings of overload, struggle and guilt. A surprising number of participants dealt with their sense of guilt (at not being home with the kids for example) by purchasing ‘things’ to make themselves or others feel ‘better’ – ironically making the pressure worse. Even very wealthy participants spoke of having difficulty at times making ends meet – not in the same way as a participant on an income of less than $30,000 – it’s relative after all – but of being cash poor, or savings dry because they were living to the edge of their pay packets every week, or they were actively pursuing wealth to the point of having a ‘debt style’ (using credit to make their money ‘work’ for them – with more or less success depending on the individuals) rather than a lifestyle.

"You get paid, you pay the bills, you wait for the next pay day."

Male, Auckland, $80,000 HHI

"Sometimes you have to make a choice between eating today or paying a power bill. When you’re like that, saving just isn’t on the horizon."

Female, Oamaru, $35,000 HHI

At a rational level it would be easy to assume that the amount of income reflected the savings attitude/capacity of the individual. Under this premise people on lower incomes would find it harder to save than people of higher incomes, a reasonable enough assumption. As interviews progressed, however, this was the type of hypothesis that was confirmed and denied. Certainly those on lower incomes find it hard to save simply because it is hard to make the dollars stretch when there is financial pressure, but equally, those on household incomes of over $100,000 sometimes stated that saving was hard work as well. As it transpired, the biggest barrier to saving was not income per se, but attitude. There is clearly a group of the population that are savers, and equally clearly there is a group of people who find they can’t – and income is not the motivator or barrier. Some people are squirrels, some are spenders and their financial position in life does not tend to affect this. There appears to be a grouping of people somewhere in the middle – those that can save a bit, particularly if they have a clear goal, and their future planning revolves around asset accrual (i.e. home ownership) with ‘a bit put away’ rather than anything more specific.

The attitudinal elements that seemed to be important in terms of making a ‘saver’ or not were varied, but included:

‘Old money’ versus ‘new money’ – it appeared that people who were born to a level of wealth had developed more money handling skills through exposure. Money wasn’t the ‘novelty’ it appeared to be to those that may have been reared in middle class families, but who now found themselves in a dual income household earning over $60,000 or $70,000. The people who had ‘new money’ seemed to know more about spending – they did not have the same personal attitude to money because the level of income was beyond their formative experiences.

Young versus old – mature people tended to feel that saving was a responsibility – something that you had to do to have a ‘nest egg’ for a rainy day. For a number, however, the level of saving they had achieved was sometimes insufficient for retirement – the pension they had relied on was simply not stretching out far enough with a higher cost of living than anticipated and user pays impacting on basic areas such as health care. The younger people, on the other hand, seemed to feel that saving was for things you wanted ‘short term’ (i.e. the deposit on a car so that you’d be able to borrow the rest and pay it off). Many had a high debt level because of student loans, and it was clear that many did not realise the impact of debt repayment until AFTER it was borrowed/spent. We spoke with some very sorry late twenty-year olds to early thirty-year olds who said that:

"I would never have borrowed that much if I’d known how hard it would be to pay it back."

Female, 24 years, Auckland, $37,000 HHI

"I wish I knew then what I know now. I would have worked in the holidays, or extended out the time of my degree and worked part time to pay for things rather than borrowing living expenses as well as fees."

Male, 28 years, Auckland, $35,000 HHI

"Every time I see the payments going out of my wage slip I want to weep."

Female, 25 years, Dargaville, $45,000 HHI (including parents income)

Indeed, the pressure seems to be hardest on our 30-50 year olds in all things financial. One of the most common reasons we were given for not saving related to the difficulties people faced paying for their children’s care and needs and their parents’ (unexpected) care and needs at the same time. Our Boomers as a generation seem to be finding it harder because the awareness of the need to save is present, but the capacity to do so is restricted. This, of course, generates a sense of anxiety and helplessness.

"I think our grandparents had it easier, you know? They bought a house, cleared the mortgage, lived on the pension and everything was OK. And I know that that’s what my parents tried to do as well. They had one of those Government mortgages where they only paid 3% over the whole 25-year term. Can you imagine… 3%? So they were mortgage free before Dad retired, but they didn’t have much in the bank. I think they’d figured that they’d do the saving in the last five years of Dad’s working life. He had a stroke at 55 though, and then he had to retire early. It was terrible. Mum was younger than Dad, so she couldn’t get a pension, or thought she couldn’t or something, so they went from being on an income of $100,000 to $23,000 bang, overnight. We were helping out by taking them out to dinner and that, but we realised that we would have to find a way of doing more when Mum ended up being hospitalised with an infection because she didn’t think she could afford to go to the doctor. We help out with money into their housekeeping now, though we have to be careful because if the welfare find out they’ll cut their pension. … So there’s no way we’ll save yet. We can’t. Jane’s ‘varsity bills get bigger every year, Mum’s health’s getting worse. We’re at the bottom of the list I’m afraid."

Woman, 49, Auckland, $80-90,000 HHI

"I hate saying this, I sound like such a mean spirited person, but I sometimes resent my parents for not saving. Because of their selfishness I’m now working my guts out to pay for them and our kids. I’d planned on paying for the kids, that’s part of being a parent after all, it’s your responsibility. But looking after your parents financially isn’t right. They’re supposed to leave you things. You’re not supposed to have to parent your parents."

Woman, Auckland, 42, $52,300 HHI

Urban versus rural – There was a general perception held by participants that those in the country lived a simpler life, and thus were less likely to get into debt. To some degree there is an element of truth in this assertion – the ‘lifestyle’ needs appear to be less on the surface. Interviews showed some interesting similarities between the city folk and the country folk – though in unexpected ways. Less ‘well to do’ in rural communities did seem to have better skills at being able to make ends meet than their townie counterparts – they were more likely to have gardens planted, to be comfortable op shopping, to budget and plan. Just like the city folk, however, there was a list of priorities that made getting ahead and/or saving difficult (i.e. a family of 4 on an income of $27,000 having SKY Digital because ‘the reception is crap without it.’ Mid income – well to do in the country faced a different type of spend pressure to their city equivalents. Whilst those in the city are constantly being tempted by this ‘deal’ and that ‘offer’ (all with no deposit, interest free for the first six months and deferred payments), the country ‘well to do’ have a ‘community’ pressure to spend. We spoke with a number of farmers who said, for example, that they updated their cars far more often than they really wanted to because their income kept other businesses afloat. The awareness of the state of health of the general community was thus one of the remarkable differences in attitude – and we can say that there are definitely some people who would like to save more, but are unable to because they are keeping the wolves away from others’ doors.

"Things are simpler in the country. There’s not the pressure to have stuff because ‘the Joneses’ live too far away for it to matter."

Male, Auckland, 47, $63,000 HHI

"See that… (gestures to a Ute at the front of the property). I didn’t need another one. The old one was fine, nothing wrong with it. But if I didn’t buy it I’d be putting (Name of Car Dealer) into the poo, because it’s us farmers that help them keep their businesses going. They rely on us, and others rely on them. It’s a bit like a fence. If one bit goes down, then the rest of it’s useless."

Male, 57, Dargaville,$120,000 + HHI

So, we all tend to know we should save, we all know we should have a bit away for retirement, but we don’t know, very often, how much this ‘should’ be, and how we should balance our needs and our wants to be able to get there, and we have pressures on us that vary – but appear to combine to make for difficulties planning for our financial futures and saving.

If this paints a pessimistic picture, keep reading, but have a handkerchief nearby.

 

 

Key findings

  • Attitude is everything when it comes to savings – income is not the motivator or the key barrier.
  • People who don’t save actually want to save and know they should, but can’t find a way to do it effectively.
  • Saving and debt lessons are learned fairly early in life.
  • There is a difference in attitude between those who are new to having higher levels of disposable income, compared to those who had experience of money from their childhood. Those new to higher incomes seemed to lack the money handling skills inherent in those who had been exposed to money from an early age.
  • Living pay to pay is not restricted to lower income people.
  • Successful savers put money away before they see it. Less successful savers try and find the money after they’ve paid for everything else.
  • The reasons people don’t save include poor knowledge and planning skills, wanting things now, conflicting priorities, paying for children’s education, supporting their parents, and living beyond their means.
  • Some 30-50 year olds are unexpectedly finding they are paying for their parents as well as their children.
  • People have no idea how much they need to save for their retirement. If they do get some advice they’re overwhelmed by the magnitude of it.
  • We believe we’re a nation of poor savers and this tends to become a self-fulfilling prophecy.
  • The household home is the ‘white elephant’ of saving. Some people believe that paying off the mortgage is saving, yet still expect to live in their family home when they retire.
  • Some people tend to gloss over debt in their minds. They ignore the impact of credit cards and hire purchase.
  • Student loans were seen as teaching people with expensive educations poor life lessons.
  • People who’ve had student loans thought it was ‘money to burn’ to start with, and the reality of paying it back only hit when it was too late - or sometimes not even then.

Learning to Save

An interesting issue related to this project involved the idea of how we learn to save. This section covers participants’ beliefs regarding the ways and means of learning how to save.

"It’s hard to learn how to save… I just don’t know what to do with my money."

Male, 30s, Wellington, $80,000-$90,000 HHI

Participants were adamant that learning to save happened when you were young, and most were keen to cite the example of banking days at school as a good way of getting people into the swing of saving a little bit of money often, with the end result being the pleasure of seeing the total grow.

Participants noted two key things they missed from the ‘old days’:

  • The silver coin savings cards
  • The piggy banks that were replaced when full

"Do you remember the days when you had those card things that you filled up with coins – wasn’t it something like 5 cent pieces or 10 cent pieces or something that you kept on putting in until you got to $5.00?"

Woman 29, Dargaville, $31,000 HHI

"I used to love those elephant bank things that the Auckland Savings Bank as it was then used. Cashin wasn’t it? Elephant would get heavier and heavier and then you’d go to the bank and they’d open it up and count it all out and it would go into your account and you’d get to choose the next colour elephant you wanted."

Woman, 43, Auckland, $47,000 HHI

These two devices seemed integral to the ‘start point’ in terms of understanding about saving for many people across the sample. The use of such services seemed to be a marker, or a ritual (the key forerunner to habit) that they themselves, when they were children, tended to look forward to and anticipate. Many were sorry that their own children could not experience this.

Perhaps the part of the process that was missing for most related to the PURPOSE of saving. For many, the accrual of money was related to a short term goal, and if a parent tried to teach a lesson with regard to saving it seemed to be more likely to be ‘spend some save some’. Others learnt about saving for items and starting from scratch to get the next item.

The discussion around early savings lessons often led into a tirade against the banks for treating children as undesirable customers. Participants tended to exclaim at some length on topics such as the charging of fees on children’s accounts, the lack of caring about the saver of tomorrow because of the costs incurred in lower value accounts, and the general attitudes banks had to customers. This tended to flow into a conversation around the lack of incentives there were to save (low interest rates, fees being higher than interest earned etc.) which reflects the general attitudes we have encountered historically.

"They shouldn’t charge fees on children’s accounts. It’s not right. It sends out the message that unless you’re wealthy don’t bother saving."

Female, Auckland, $37,000 HHI

The treatment of children’s accounts was, according to some participants, an integral part of our younger generation ‘not having any sense of responsibility to saving or debt’.

In terms of the lessons learned via parents etc. many participants had recollections of fathers or mothers encouraging them to save for items, with some sort of ‘carrot’ involved in the process (e.g. if the child saved half then the parent would pay the rest). Others said that their parents would ‘loan’ them the money for things they wanted, under the condition that it was paid back (though how strictly this was enforced varied from parent to parent seemingly).

Later life lessons (early adulthood) in saving tended to focus on getting ‘the bigger things’ such as stereos or electronic equipment, cars and such like. This usually involved accruing a portion of the total amount (this is the ‘saving’) before borrowing a larger amount to actually complete the purchase. This meant that even though there was a large amount of debt involved for some people, they felt that they had learned to save well – in other words, they had learned how to ‘get things’ by saving ‘enough money’.

It was interesting to note that whilst people could articulate savings lessons, they were not aware of debt lessons. Debt just seemed to ‘happen’, whilst saving was a conscious activity. By inference we can see that people feel like they do save, whilst also being able to gloss over debt in their minds. This became even more obvious with participants that managed to keep some level of savings in an account – they could feel ‘safe’ in the knowledge that they had some money behind them and conveniently ignore the debts in the background.

"I never feel right if I dip below $1,000 in the bank. That’s my little safety valve. If something goes wrong I know that I can cover it."

Female, 24, Auckland, $37,000 HHI

(paying off a car, stereo and lounge suite as well as two credit cards at maximum levels)

Several people in the study discussed how their parents had ‘sat them down’ as they entered adulthood to give them advice about saving. In more traditional homes, this tended to be related to putting money away to afford a home as early as possible to avoid paying rent. Others said their parents had helped them to accumulate as many possessions as they could before leaving home so that they did not have too many debts to face as well as bills to pay once they had left home.

The learning by experience scenario is also worthy of discussion. We spoke with several people who had seen parents, friends or relatives face some fairly dire circumstances because of a lack of savings and/or poor debt management. Interestingly, the ‘living’ proof of the need to save did not seem to affect some of our participants behaviourally, whilst the exact same scenario appeared to have impacted hugely on others. This led us to the hypothesis that savers were savers due to some internal needs requiring satisfaction – a case of nature over nurture in other words.

"The old man said you had to save… had to have a house or it was pointless. That was really important to him, and he’s chuffed now that our place (the family home) is paid up. We aren’t getting one in a hurry though. It’s too hard these days."

Female, Dargaville, 29, $31,000 HHI

"My parents are living on the bones of their bum now. The pension’s pretty small even if you live simple like – and I know I should think about things now so that that isn’t me in 50 years time… but at the end of each week there’s never enough money to even let me have the stuff I need today let alone then. That’ll have to wait until things get better."

Female, 43, Auckland, $47,000 HHI

"There’s no way I’m ever going to be like her (mother). No way. I have money taken out of my pay every week. Every week before I even see it. And it goes into a pension fund and I’m going to live properly when I get old and I’m not going to be a burden to MY children."

Woman, Auckland, 42, $52,300 HHI

"I’m hopeless (laughs)… Jenny’s the saver. She sets the budget and doles out how much I can spend. She’s in charge of the putting things away and I’m in charge of the spending."

Male, Auckland, $80,000 HHI

It was interesting to note that the financial situation of the individual did not necessarily play a role in determining a saver from a non-saver. One would naturally assume that the wealthy would be more inclined to save through sheer capacity to be able to do so. This was not always the case however. We certainly spoke with some very wealthy spendthrifts and some very financially constrained savers. Personal resources thus may impact on the AMOUNT of savings that are done, but from our perspective not on the DESIRE. So, as it transpired, variables other than household income impacted more on savings attitudes.

Implications

Some people had learned to be savers, whilst some married or connected with people that had the skills to compensate for their own lack. The participants that had partners who were equally debt comfortable and saving lean were the ones in the greatest financial difficulties. It would appear that savings and debt lessons are learned fairly early in life (though others can clearly influence this in later life) signalling the importance of having a strong, positive educational focus from early childhood. This means that parents need to pass the skills on to the next generation – a strategy that can only work if the parents themselves are informed and assisted.

It is also important to note that successful savers speak of putting money away before they see it; whilst less successful savers try and find the money to save after all other needs/wants have been covered. This means that we need to be developing ways of encouraging people to put money away (a) before they have come to rely on it (e.g. at a pay rise before they adjust their standard of living to accommodate the extra income) and (b) before they actually have it to use (e.g. as the pay is lodged in the bank rather than at the end of the pay cycle).

People are obviously different in terms of their attitudes toward savings and debt. This means that a one size fits all solution will not be appropriate.

General Attitudes to Saving and Retirement Saving

This section covers the general savings attitudes expressed by participants during the course of our study. It gives a broad picture of our thoughts as a nation – even if these are not always converted into actions.

Do We Think We Save?

To their credit, New Zealanders are not deluded. Across the board, people were almost unanimous in their belief that New Zealanders are ‘hopeless’ savers. Some even know this about themselves – though the motivational effect of this knowledge is not always visible.

Participants report seeing a large amount of literature/information telling them they should save more, though many fail to use this information efficiently. There is a general belief that people should save however – and retirement is one reason that people can give for saving.

"Oh yeah. Everyone should be saving. If not for any other reason than to be able to survive when they retire."

Female, 24, Auckland, $37,000 HHI

"Every time you turn around someone is saying ‘you have to save.’ And they’re right of course, we all should."

Male, Auckland, $80,000 HHI

"We’ve always been poor at having cash. We’re quite good at owning homes I think. Quite good in comparison to lots of other countries anyway. But we are bad at having actual money."

Woman, 43, Auckland, $47,000 HHI

"We’ve always had a welfare mindset. So there’s no real push to be self-reliant. If it all turns out bad, then someone will always rescue you. That’s the way we are."

Female, Dargaville, 29, $31,000 HHI

 

"Look, people need to save. That’s a fact. I think every man, woman and child in New Zealand knows that they need to save, to look after themselves, to have something away in case times are hard, for our old age… but it’s just so hard to do it with the expenses of just … living."

Woman, 43, Auckland, $47,000 HHI

People have no shortage of excuses as to why they don’t save – though it is interesting to note that the excuses they give themselves often don’t wash with them as they cast judgement on others ‘caught out’ without savings.

"I hate it when those people that haven’t got a cent to rub together are fined or told to pay people back money when they’ve crashed into them or something. They don’t have any savings to pay out with, and they’ll usually say that they’re on the dole or something so that they only have to pay back 50c a week or something stupid like that so that people like me end up with another debt and they get away almost scot free."

Woman, Dargaville, $37,000 HHI

"Doesn’t it piss you off when you see those ‘poor’ people who have just had their house burned down and don’t have anything left, the ones who don’t have a cent in the bank and no insurance, the ones who could still afford the cigarettes that made the fire start in the first place, get all the help in the world because of the ‘tragedy’… It’s suckers like you and me that end up paying for those bludgers…"

Man, Auckland, $40,000 HHI

Some of the most frequent reasons people gave for not saving included:

  • Think that they already are via having a mortgage (enforced savings – by far and away this is the most common reason for not having a formal savings plan)
  • High cost of living/prices going up all the time
  • No incentive – interest rates are low, no tax breaks, performance of investments poor
  • Paying for parents and/or children
  • Education
  • Small income
  • Too many bills
  • Just enough to pay for day to day expenses with nothing left over.

Unexpected financial pressure also played a big part in preventing saving – particularly in the boomer generation who seem to have found themselves caught between two generations of user pays ‘dependents’ – their elderly parents and their children. Many average New Zealand families were struggling to care for the health and well being of their ailing parents, whilst simultaneously trying to cushion their children from the burden of debt (or at least trying to minimise it in any way they can) that can be incurred with a tertiary education. This ‘middle generation’ has little hope of being able to put their own needs at the top of the list with the pressure of caring for and paying out for their loved ones.

Added to this, in previous generations this financial pressure may have cleared up at some point with an inheritance or bequest. Increasingly, however, we hear of the family home having to be sold and the proceeds spent on health care for parents prior to the adult children having to assist financially. In other words, in some instances there is no hope of recompense.

This, of course, contrasted with the most frequent reasons people gave for saving:

  • Never know what’s going to happen next- need to have some reserves
  • Don’t want to be like my parents
  • Responsibility
  • Specific purposes (i.e. deposits, holidays)
  • Habit
  • "Feels right" to do so
  • It was made easy for me (e.g. a super scheme through the workplace).

This meant that savers often felt that non-savers were somewhat weak in character, or lacking in some basic skills. Non-savers often admired and respected savers – it’s just that this alone wasn’t sufficient to motivate them into action. So that means that savers that truly can’t because of financial pressures may feel enraged at the lack of understanding, and the saver who should but doesn’t becomes recalcitrant – like a child caught out doing something they know they shouldn’t.

If a lack of saving is a form of ‘rebellion’ for some, then it would be useful to provide the skills and desirability of saving in naturalistic ways.

Just as a child may learn to handle money and saving through the lessons of parents and teachers, so might the adult exposed to a situation they can empathise with without feeling as if they are the target specifically.

There seems to be a self-fulfilling nature of seeing oneself as a non-saver or a failed saver. As an example of negative self perceptions and self fulfilling prophecy in action, non-savers often spoke of their complete inability to build up a large reserve of cash UNLESS they could not access it. They often commented that this would be the only way that we would ever learn to save as a nation (i.e. compulsory saving). When questioned about why people voted overwhelmingly against compulsory super, however, they said that the idea was sound, just the mechanism for doing so was flawed. Participants suggested that the idea would have been better met if it did not mean an adjustment to their current standard of living. In other words, in the proposed scheme a certain percentage of income was to be held – meaning that people would have to live with this much less in their pockets every week. For the people who lived from week to week, day to day in some cases, the idea of a lifestyle cut was thus anathema. A no was a foregone conclusion. Savers on the other hand often spoke of their contempt for the lack of personal choice and responsibility inherent in such a scheme. They wanted to see tax breaks for supersavers rather than enforced savings. Still others felt that the Government (as an institution rather than any specific party) was not to be trusted with such a large amount of disposable cash. Many expressed a concern that they would save for retirement under a compulsory scheme and then find that when they retired the Government of the day would be unable to pay out for some reason, and they would have no other savings to fall back on because they would have been unable to save with another scheme because of the compulsory savings.

The differing attitudes thus combined to result in a clear no - though the idea of not being able to touch savings certainly appeals to some.

Added to this, a part of our population believe in saving – at least in principle – as long as it doesn’t interfere with their lifestyle. This means that the now often takes precedence over the tomorrow and the consequences of this are dismissed. There was certainly a group of consumers who did not want to ‘go without’ because of saving. This was sometimes related to having seen their parents put saving ahead of ‘living’ – and as a result the next generation lives by the opposite behaviour.

"I’m not going to go without. It’s part of my well being as well."

Woman, Christchurch, 31 years, $60,000-$70,000 HHI

"You’re a long time dead… I don’t understand people who save to the extent of not being able to go out for a coffee… you still have to live and be able to enjoy yourself."

Woman, Christchurch, 30, $40,000-$50,000 HHI

So, with such a cynical outlook being present in some, and a lack of skill being present in others it is not surprising that people see others, and themselves as being unable/unwilling to save.

The task of fundamentally ‘undoing’ our National psyche regarding saving is thus a major, though essential, task. We feel strongly that the perception that New Zealand is a country of poor savers actually HELPS to maintain the problem, rather than shocking people into a state of action.

The future key may thus be to ‘re-story’ our image as savers, so that people can feel able and willing.

In terms of people who would like to save, but find they can’t due to circumstances or life stage, then opportunity may be the best to hope for. This would involve work with workplaces and people in order to catch a moment when the financial situation improves (e.g. a pay rise) but is not yet absorbed as a way of life (i.e. never had it to miss).

Real Knowledge of Financial Requirements in Retirement

With an awareness of the need to save, and an awareness of the need to save for retirement specifically being reasonably present at the perceptual level, it would be easy to assume that we are aware of HOW MUCH we need to save in order to maintain a decent standard of living into our golden years. This is where the picture begins to unravel however.

Only one or two people in our study had any realistic picture of how much money may be needed in order just to live in a comfortable manner in retirement. Most people had not even attempted to do the sums to see if it was a couple of thousand or a couple of hundred thousand. This was definitely in the ‘too hard’ basket, and the ‘don’t want to know because it’s easier to be ignorant’ area. And if they are told, the magnitude of the sum actually overwhelms them – people who struggle to keep $2000 in the bank can’t imagine how they’ll ever be able to accrue $50,000 or $100,000. So, this knowledge, whilst fundamentally essential, generates its own sense of paralysis of action. Breaking it down into a series of smaller sums doesn’t seem to help that much either, because then it becomes ‘real money’ – money they know is not always available at the end of a week – or money that could be accessed for other, more immediate ‘needs’.

"I had some financial guy tell me I had to save for my old age because there wouldn’t be a pension for people when I get to be that old, and he really scared me. I mean, I was seriously thinking ‘man you need to do something about this.’ And then he told me how much I’d need to save and I thought ‘no way man, you’se going to have to get used to searching for the puha on the side of the road."

Man, 45, Dargaville, $35,000 HHI

Interestingly some people do hear the message about retirement needs, and take steps. From interviewing, however, this was rarely self initiated, and worked best if the path was ‘smoothed’ by some form of intermediary. Two of the most successful mechanisms in terms of persuading people to save for retirement included:

  • having a super scheme as part of a salary package in the workplace – best if linked to a pay rise so that the rise in income has not been incorporated into everyday life
  • having a relative experience financial difficulties in retirement (and thus pass on the advice to save and avoid the same distress) in combination with a relationship with a person who is seen to be a recognisable ‘expert’ in terms of money handling.

In the first scenario, saving for retirement becomes automatic and relatively painless. Money just disappears, is not missed, and eventually a sense of safety begins to develop as the saver realises that a ‘nest egg’ is developing without them having to do anything.

Two issues can impact on perceptions here however:

  • Management fees being larger than interest earned
  • Leaving the company gives the saver access to the funds and the temptation to ‘just hold on to it’ becomes too great

In terms of management fees, several people noted that they had started saving for retirement via a formal programme at some point and ‘pulled out’ within a year or two citing their disappointment with interest earned relative to fees charged. We note that this sum is seen almost in isolation to their own saving efforts. People would note their own ‘hard work’, but not be able to acknowledge the work involved in the growth of the funds. People who had taken the decision to go high risk seemed most annoyed with fees charged. Their total mindset seemed to be about making money fast – and failure to perform, compounded by fees thus was reason enough to withdraw from the scheme. Market conditions were not taken into account, nor were issues such as short-term performance relative to long-term gains. As we’ve seen before, people do not tend to think long term – short term, faster gratification, visible results seem to count more than long term, steady gain, or stepwise gains with some years performing poorly and others compensating.

"When I saw the performance relative to the fees charged I thought, ‘hell, I could have done better than this with the money under the mattress."

Male, Auckland, $160,000+ HHI

"I started out with a scheme that was going in my old work. But when I left I had the option of leaving the scheme or keeping it up with my next employer. My current work doesn’t have a scheme in place though, so I lost the little perk that I had. So I pulled out and thought I’d look around and see what else was going, and then the car broke down and I used the cash to get a new one… I haven’t quite got back to saving properly yet, but I will one day."

Woman, Auckland, $140,000+ HHI

Added to this, we noted that few people seemed to spontaneously think to increase the amount of retirement saving they do without some sort of external prompt. Pay rises, bonus payments, inheritances etc. thus may get ‘lost’ in spending if someone is not reminding them to put a bit more aside as income rises. Letters seem to be relatively ineffectual – it does seem to take the personal touch and a degree of relationship in order to be able to assist people in seeing saving as being not only ongoing, but incremental.

"Oh, I get letters every so often saying that I should be increasing the amount that I save, just like I do from my insurance company. But they get binned."

Woman, 43, Auckland, $47,000 HHI

"I’d never thought of saving more if I got paid more. I mean, it makes sense, but when I started up the scheme I just assumed that it would be the same no matter what."

Male, Oamaru, 40, $60,000-$70,000 HHI

"I’m on a good plan. If I get a pay rise, the payments automatically rise by the same sort of proportion, so if I get a 2% pay increase, the payments go up 2% of that 2% or something like that I think."

Woman, Auckland, 42, $52,300 HHI

The whole issue of the freehold home also impacts. Most people assume that having a mortgage free home is a sound investment – a good thing to have as an asset, and in fact call it ‘savings’. Most, however, appeared to be unwilling to ‘trade-down’ in order to free up cash. The home thus becomes the ‘white elephant’ of savings – Claytons savings in other words.

Moderator: "So, without savings to help keep you reasonably comfortable in retirement you’ll sell your home and get a smaller one to get a bit of cash?

Participant: "Oh, no… no… that’s my home. I mean, I want to stay there. That’s what we bought it for. It’s our home… the kids would never forgive us if we moved. That’s where they grew up. That’s where our grandchildren visit. Oh, no. We could never sell."

Woman, 43, Auckland, $47,000 HHI

"This is where my lifetime of work is. This is what I have to show for all my years of work. Selling it would be like saying everything I worked for is not worth anything."

Male, Oamaru, $60,000 HHI

"Every time we’ve sold it’s to buy a better home. Going up in the world you know. I don’t know if I could ever go backwards. I think I could do smaller but with the same value if you know what I mean, like retiring down to a beach home. But I couldn’t go backwards."

Woman, Auckland, $30,000-$40,000 HHI

This did contrast with the views of some of the younger, newly moneyed individuals we interviewed who were adamant that owning your own home was a waste of time – emotionally and financially. These people believed that renting or leasing was the only viable financial solution as long as the extra income gained through not having property costs was invested or made to work. These participants felt that home ownership was more to do with expectation rather than practicality. They felt that they were able to live a better lifestyle and be in a better financial position without the ‘baggage’ of a home and a mortgage.

"Owning a home is pretty much the Kiwi dream, you know. But in this day and age it doesn’t make any sense. Just think about it. Property prices have pretty much stabilised in the bigger areas where there’s employment so you simply don’t make the big capital gains the way you used to. So, to own a home, you can’t do any more than develop equity. Which is fine, but not as profitable as investment or trading. I did the numbers, and by renting, even though I’m renting in Remuera, I still come out on the winning side by several thousand every month. Now, invest that, even in a low return scenario, and I’ll still be better off in the long term than I would have been with a 1 or 2 % bi-annual capital gain."

Male, Auckland, $160,000+ HHI

"People don’t understand why I don’t want to own a home. It’s such a big thing to most people. But I know that I’m financially better off this way. Home ownership is about stability and family. It’s not about making money."

Woman, Auckland, $60,000-$70,000 HHI

"I had a few friends who had heaps of investment properties that they ended up having to get rid of when the market began to drop and the banks started screaming. It taught me a lesson. Property is not necessarily the be all and end all, in fact, sometimes it’s just a big risk."

Woman, Auckland, HHI $140,000+

For the average participant, however, home ownership was the mark of success. People spoke of it as a form of security, savings and investment. Having a home was the ultimate goal for many who did not have one. Having several was the dream of a few who had the belief that they could rent out the ‘extras’ – use the rent to pay the mortgage and have a bit over to live on. Most realised that this wasn’t likely unless there was a high degree of equity involved, however.

"My Dad always said, ‘whatever you do, make sure you get a home."

Woman, Dargaville

"I’ve always wanted to have a home of my own. Rent is such a waste of money. At least if you own your own home, you’re your own landlord."

Male, Oamaru

"I got moved out of a flat once, and all I’ve ever wanted since was to have a home that I could stay in for the rest of my life if I wanted."

Woman, Christchurch

"People need a home to live in, an apartment or house to have as a renter, and a beach house for the family."

Male, Auckland

 

We also noted that some people had gone through an attitudinal shift as the result of having had life events impact on their belief system (e.g. lost a home through foreclosure or marriage breakdown). Having had ‘the dream’ shattered seemed to lessen the personal sense of needing to have money put away. Participants actually felt punished for having saved, or attempting to save, resulting in a new attitude toward saving (why bother?) and a keen desire to live with debt (why go without?).

"When we lost the farm, it changed us. I mean, the farm was the thing we were going to leave our children, and they’d leave their children. It was our heirloom kind of thing. So when the bank took it, our lives were shattered. All of our hopes and dreams were gone. We had nothing to look forward to or work toward. So after we picked ourselves up off the ground, we just got on with it. We share milk now, and live for the moment. We never want to go back to that pain of having something so precious that it is painful to lose it. One day at a time. Get what you want because you have to enjoy what you can."

Woman, Dargaville, HHI $30,000-$40,000

"My parents saved for everything. I was like that for my first five years on my own. But then I lost my house to divorce so my attitude changed. I started putting more things on credit. Why bother saving? My savings was lost when I was divorced. Why go without while waiting to save? If there’s something I want, I get more credit to pay for it."

Woman, Wellington

Given the statistics related to separation and divorce in New Zealand, we can’t help but wonder if our attitudes toward saving are becoming increasingly ‘loose’ as a result of having to ‘start out’ again more often in our life spans.

In the same vein, people don’t truly understand the issue of interest and debt, which means that they aren’t thinking in ‘real’ terms about saving and owning.

So we have a lot of awareness of need, but a lot of confusion and difficulties around realities. This is perhaps the most difficult place to be, because the way forward will have to be carefully considered – mishandling of motivation prior to action can result in paralysis or inaction being maintained.

Before we all need Prozac to continue reading, however, some participants did show a high level of knowledge - to the point of having investigated home ownership and rejected it as an investment that offered too few returns for the period of time the money is ‘tied up’ for. These type of people were relatively unique, well educated, naturally investigative and relatively atypical in their thinking patterns. But they are there, and doing quite clever things with their money.

The average Joe and Joette Bloggs, however, think they know an awful lot more than they actually do. And the challenge is to make them discover the answers to the gaps in their knowledge for themselves rather than telling them.

A final note on this topic relates to the perceived age of retirement. For those who are working to make their money work for them, the idea of an ‘early’ retirement is appealing – working because they want to rather than because they have to in other words. Some spoke of their ideal as being able to ‘step off’ the ‘treadmill’ by age 45-50. Others who found themselves unable to save, even though they knew they should, believed they would retire far later – planning to work into their 70’s if they could. Several participants suggested that age of compulsory retirement would be lifted in the future, indicating that increasing technology would help to keep us healthier longer, thus extending our usefulness in terms of active contributions to the workforce. Others felt that we would have a problem in the future being able to cope with the number of retirees (read beneficiaries) on a reduced taxpayer base (because of the boomer numbers versus the boomer babies). They were unsure if this meant we would be retiring earlier or later.

Implications

What is important from this is the ‘grey’ area that this lack of knowledge causes. Because there is no ‘certainty’ it assists people to make excuses to avoid action. The idea that retirement may be delayed until 70 or 75 actually aids in the belief that there’s plenty of time. Having options for increasing the lifestyle in the 40s and 50s may thus be met with more enthusiasm.

 

Attitudes to Debt

It was interesting that the issue of debt was one of those topics that people discussed in terms of other people (students in particular), but often did not think to speak about in relation to their own lives. In one of those little psychological sidesteps we are all inclined to do when there’s something a bit difficult to deal with, people seem to have savings and debt portioned off in separate little brain compartments. This makes for some interesting attitudes.

The degree of debt some people are comfortable with is surprisingly high. Take, as an example, one young woman who visited an open home one weekend and wanted to buy it because she liked it so much. Now, as this was just an impulse call (she had nothing on and just decided to see how other people lived), she, of course, had no deposit saved. Now, in the normal course of events you’d assume that something like not having the deposit would deter you from further action. In this case, however, a lack of cash just meant a bit of lateral thinking was required. Undeterred by a lack of money, our intrepid would be home owner signed up to purchase (unconditionally we might add), applied to a few banks for a credit card, made cash withdrawals against them as soon as they were approved and had applied for the loan and had it approved before the credit card debt was showing. So, nett result, one ‘home owner’ who technically is living in a house that she has no equity in, and several banks that would, we’re sure, would be extremely interested in knowing (a) about this and (b) how their systems and processes let this one slip through.

Debt was something that many people took for granted. They didn’t refer to it as debt however. Instead it was called ‘bills’ or ‘HPs’ or finance or any one of many euphemisms to describe amounts of money under about $10,000 (each not cumulative). A ‘debt’ was something like a mortgage for most, primarily because this involved a lot of credit checking and payment sorting and approvals and the like. Car financing sometimes came into the ‘debt’ category also, for much the same reasons.

This contrasts with something like HP for a fridge or freezer where there is low or no deposit, interest free terms and deferred payment. This isn’t a ‘debt’ to many; rather it is just a way of buying things. As the process is relatively ‘painless’ it doesn’t seem to have the ‘seriousness’ of a real debt.

Credit card balances aren’t always a ‘real debt’ in people’s minds either. They can be simply a ‘bill’ to pay. The attitude of the individual tends to affect how payments are made against these ‘bills’. Debt disliking individuals tend to pay off more than the minimum (often all of the outstanding balance monthly). Debt comfortable individuals tend to pay the minimum unless there is an item that is more expensive than their remaining credit limit in which case they will pay of as much as they can until the outstanding balance is at a point whereby they can ‘afford’ the wanted item. From our interviewing, these attitudinal styles have nothing to do with income and everything to do with worldview.

"When my card’s maxed out for a while they tend to raise the limit which is cool."

Male, 28, Auckland, $35,000 HHI

"Two cards help you balance out buying things. I mean if you don’t have enough left on one you can use the other card. And if it’s more than one, you can put half on each or something."

Female, 25 years, Dargaville, HHI $45,000 including parents income

Many people had begun to develop either HPs or some form of personal (as well as educationally related for some) debt by their later teen years. Many participants appeared to accept this as a fairly normal part of life, and were unconcerned with the idea of being in debt for $10,000 or so at 18 or 19 if they felt they had the income to pay the loan back over an extended period.

"Yeah, well you have to have a car, and it’s hard to get one unless your folks give you one as a present or that, or you get a bomb. And there’s so many places that let you get one on finance with no deposit as long as you work regularly that it’s a mugs game to catch buses when you can have your own wheels."

Male, 20, Auckland, 27,000 HHI

"You always tell yourself that you’ll pay off the loan faster, but you never do. The money is always swallowed up by something. So when you have a car and pay if off over 3 years, it’s pretty well shot so you trade it at one of those places and just sort of keep paying it back all over again on something else."

Male, 28, Auckland, $35,000

 

It was interesting to note that the issue of having a good credit rating was sometimes used as a justification for debt. Indeed, in some people’s minds it makes a degree of debt essential. This meant that some of our participants kept some form of debt beyond mortgage going on a continuous basis – and rationalised this as being necessary to maintain their credit rating.

"You can’t do anything without credit. You have to have a credit rating, for phone connections and things like that."

Wellington

We noted that some participants spoke of ‘managed debt’ versus ‘unmanaged debt’. Managed debt involved any amount ‘on tick’ as long as you could pay for it. Unmanaged debt was seen to be spending more than you could afford or losing the ability to pay for the managed level of debt (e.g. job loss, extra expenses, unforeseen circumstances).

In this scenario, participants spoke of doing the sums to make sure they could afford to take on new debts – but we also noted that this was seen through the filter of keeping every other aspect of life stable (i.e. people didn’t take into account the very circumstances that made managed debt turn into unmanaged debt only moments before). We had the overwhelming impression that most would not have sufficient savings to be able to ‘manage’ their debt if something untoward happened.

Debt was truly an accepted part of people’s lives. And as such, we interviewed people that were experiencing the consequences of living beyond their means. This was, for us, perhaps the most distressing part of this project.

"I thought I was going pretty well, but I was in over my head. So at 27 I lost the lot and was declared bankrupt. I’m trying to work my way through this now…"

Male, Auckland, $30,000 HHI

Student Loans

Many participants were keen to discuss the issue of student debt – be they students, ex students, parents of students or potential parents of students.

These discussions were apt to become quite heated. Many participants felt that the current scheme taught our youth nothing more than how to incur debt and then run away so as not to pay it back (i.e. get an education, build up a big debt and then go overseas to avoid the consequences). Everyone had a story of woe to tell from friends or family. No one thought that the situation was appropriate.

"What sort of message does it send out really? Borrow shitloads of money to get a degree. And then when you finally have enough nouse to make a contribution to New Zealand you take all of your new found intellectual knowledge and bugger off overseas so you can avoid paying back your student loan. So not only do we suffer from that debt not being repaid, we lose their brains as well. We’re educating people so that they can make other countries better. And all our kids are learning as they see their sisters and brothers disappearing is that it’s OK to run away from paying your debts. Good bloody lesson that is isn’t it." ,

Woman, 43, Auckland, $47,000 HHI

Almos

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
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BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 ▼6.79 ▼6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 ▼7.29 ▼7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 ▼6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 ▼7.39 ▼7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 ▼6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

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