Friday, June 30, 2006

Deposits and Mortgages are not saving!

A few weeks back there was some feel good research published by the Westpac bank that purported to show that Aucklander's saving habits weren't as grim as thought.

In particular when this was reported by the MSM emphasis was placed on:
The independently conducted research shows that nearly half of Auckland savers claim to save regularly, with just under half aiming to increase their contributions to their nest eggs in the future. On average, the sample group were saving nearly 22% of their monthly income, but would ideally like to make this 32%.

Typically, more than a third of savers (35%) were salting away more money now than they were a year ago. What’s more, nearly 50% plan to increase their savings contributions over the next three months, compared with just 21% who plan to save less.

And from there the feel good wrapper was made.  However what really needed to be focused on was the target of these "savings": 18 – 35 saving mostly for mortgages and deposits, and the 55+ cohort for retirement.
First - it is disturbing that the main group saving for retirement was the 55+ age group, if this is when you start saving for your retirement you have big problems.  In fact whatever you salt away in the last 5 years or so of work is really going to have no appreciable effect on your retirement standard of living.
Secondly - and potentially more importantly - is the point that saving for a mortgage or deposit on a TV is not really "saving" in respects to the type of saving that New Zealand needs, it is avoiding a Hire Purchase Agreement.  While this is to be lauded - it is frequently better for us to delay buying something until we can actually afford it - it is not saving in terms of building wealth, and building the wealth store of the country.

That involves "saving" without a purpose - it involves building up your personal reserves without a spending target in goal, improving your asset and earning base.  The mind set that "saving" is something you do until you spend it is a major factor in New Zealand's continuing decline in OECD living standard comparisons, because we are never building our wealth on a permanent basis.  We may temporarily save - but only until we hit some benchmark that we can now buy that TeleVision / House / Holiday.  As a society we need to divorce our thinking that saving for the purpose of spending is a good start - but definitely not the end goal.

What proportion of your income do you actually save?  And what do you put away to buy things?
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weizguy said...

"What proportion of your income do you actually save? And what do you put away to buy things?"

I put it all away to buy things. What is the point of having money that you aren't going to spend. My Super Scheme is being put away so I can spend it when I am retired.

What purpose does money have (for the individual), if you don't spend it?

iiq374 said...

The other point of money is to develop wealth and capital - IE to generate earning capacity beyond your direct labour input.

Then you can use the extra earning capacity to either invest further or to buy those things you want without eroding your capital base.

Your final comment is actually a telling one for your mindset - the purpose for the individual can be security, gratification for passing onto spouse / decendents. Even leaving to the SPCA or Ethiapian children if that feels better.

But it is the individual desire to use all the money they can get their hands on that defines much of the difference between a Socialist and Capitalist mindset; and is also the prime explanation for our continuing decline in OECD living comparisons.