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Household Net Worth Continues To Stagnate

The net worth of New Zealand households has effectively stagnated over the last four years, according to the latest WestpacTrust Household Savings Indicators as compiled by NZIER and Morningstar.

Over the latest quarter ended March 2000, New Zealand Household net worth fell by $0.6 billion (0.2%), the third quarterly decline over the last 12 months. Net worth is now some $5.3 billion (2.0%) lower than a year ago. Aggregate net worth now stands at an estimated $253 billion, around the same level of total net wealth owned by households at the end of June 1996. Financial net worth, which excludes housing assets and liabilities, fell $0.3 billion to around $100 billion, mainly as a result of a decline in the sharemarket and therefore the value of privately held shares.

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The overall value of household assets remained steady, with a rise in house values offsetting the sharemarket decline, but higher borrowing continued to negatively impact net worth. Households’ liabilities rose by $0.9 billion (1.4%), bringing the annual growth in liabilities to $5.6 billion or 9.1%. This does however represent a slowing in the growth of borrowing and is significant.

“New Zealand households may now be feeling the pinch of higher interest rates and a dip in wealth,” said Alex Sundakov, director of NZIER. “This is consistent with the trend in retail sales growth, which has shown signs of more subdued household activity recently.”

On the asset side of the household balance sheet, it was notable that for the sixth consecutive quarter, the annual growth in managed funds has exceeded that of short-term deposits at financial institutions. Over the year, managed fund assets have continued to show the most significant growth, rising in value by $2.1 billion or 5.6%. By comparison, the amount of deposits and cash held at financial institutions has risen by only $0.2 billion (0.4%) over the year.

“We are continuing to see evidence of the effect of the changing economic environment on household behaviour,” said Girol Karacaoglu, WestpacTrust Financial Services general manager. “Lower interest rates are continuing to cause households to significantly alter the mix of their savings and investments. However, if short term interest rates continue to rise as expected, it will be interesting to see the extent to which this trend reverses.”

Although boosted by appreciating international asset markets, net funds flow into managed funds for the quarter was again positive, increasing by $257million. For the year ended March, net funds flow was in excess of $1.1billion.

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HSI - Summary Data Latest Previous Quarterly Change Previous Annual Change
Quarter Qtr $M % Year $M %
Total Assets $320,969 $320,676 $293 0.1% $320,584 $384 0.1%
* Financial Assets $106,053 $106,443 ($390) -0.4% $105,836 $217 0.2%
- M3 $42,813 $42,764 $49 0.1% $42,645 $168 0.4%
- Managed Funds $38,926 $38,282 $644 1.7% $36,851 $2,075 5.6%
- Other $24,314 $25,396 ($1,082) -4.3% $26,340 ($2,027) -7.7%
* Housing Stock $214,916 $214,233 $683 0.3% $214,748 $167 0.1%

Total Liabilities $67,573 $66,661 $912 1.4% $61,924 $5,649 9.1%

Net Worth (Assets minus Liabilities)
* All Elements (incl Housing) $253,396 $254,015 ($619) -0.2% $258,660 ($5,265) -2.0%
* Financial (excl. Housing) $99,750 $100,098 ($348) -0.4% $99,968 ($218) -0.2%

“Although lower interest rates and competitive returns from managed funds over the last year may have contributed to the growth, we hope that these flows are also tangible evidence of a greater awareness amongst New Zealand households of the need for longer term managed funds within their retirement provisioning activities,” said Graham Rich, Morningstar managing director.


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