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Household Savings - Are We As Rich As We Feel?

Spicers Household Savings Indicators
WEDNESDAY 16 MARCH 2005

ARE WE AS RICH AS WE FEEL?

The latest Spicers Household Savings Indicators show that the net wealth of New Zealanders is still growing – by $8.4 billion in the December quarter.

Household balance sheets appear healthy. The net worth of the average household has risen almost $60,000 during the last two years.

But are we financially prepared for retirement? Treasury research suggests that we are, although many would disagree. A comparison between New Zealand household balance sheets and those in Australia shows that Australians are significantly better prepared.

Australians earn more and are therefore able to save a bigger proportion of their pay. New Zealanders have consistently spent more than they earned in the last 15 years. Australians have only recently started to live beyond their means, Rozanna Wozniak says.

“Most Australians also belong to a compulsory workplace savings scheme with an employer contribution. International research suggests that while such schemes provide some substitute for other savings, savings overall still rise.”

“The danger for New Zealanders is that they mistakenly assume that the New Zealand Superannuation Fund will provide the same security in retirement as the Australian scheme with individual accounts.”

Rozanna Wozniak says it is unlikely that the workplace savings scheme under consideration by the Government will result in a significant increase in savings. There is no financial incentive to remain in the proposed scheme and no restrictions on withdrawing after the initial lock-in period. The temptation to spend their money will be too great.

The Spicers Household Savings Indicators show household wealth increased by 2.4 per cent in the December quarter even though the rate of increase in debt (3.7 per cent) outpaced the growth in asset values (2.7 per cent).

Ms Wozniak says households are still relaxed about leveraging their housing gains of the last few years. Although the pace of housing appreciation has slowed since the highs of 2003, the pace of growth in debt picked up last quarter even after the seasonal impact of the Christmas spending binge was removed.

Homeowners still showed the largest gains in net wealth, although the gap between the pace of growth in financial assets and housing assets narrowed.

Spicers Household Savings Indicators are compiled in conjunction with the NZ Institute of Economic Research and Morningstar.

ENDS

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