Finding the savings groove
Research out of the UK indicates young people are not saving. This is not really news, but the numbers do make frightening reading. According to the survey, 37 per cent of 25 to 34-year-olds are not saving into a pension.
What is probably worse is that many of these people will not own a house,nor be saving for one. Like New Zealand, the UK also has an affordable housing problem. It may not be quite as bad as New Zealand’s but young people in many areas find it difficult to buy a house, and home ownership rates are falling.
My guess is that both the UK and New Zealand have much the same problem - young people sense that home ownership is out of reach, meaning there is little motivation to save.
If these people do not save for their first house, the savings habit is not established.
We all struggle to imagine our older selves, but young people find this especially hard to do. And so, although a few young people might now imagine home ownership, hardly any imagine retirement.
Therefore, if they cannot imagine home ownership because it is too hard, they surely will not be motivated to save for something as distant as retirement.
Young people are hit both ways and do not save for a house or retirement.
People who have bought houses effectively have two savings programmes. First they have their pension savings, which in in New Zealand is KiwiSaver, and second, they have a mortgage to repay. The repayment of a mortgage will take care of housing in retirement and KiwiSaver takes care of the other costs.
Together these two savings programmes lead to a decent retirement. But, if you take the house and mortgage away, the savings habit is not ingrained when the deposit was being accumulated and often little or no savings are being accumulated at all.
You can have a good life without home ownership. However, the compulsory savings of a mortgage to buy an asset that is likely to increase in value, sits at the heart of most financial plans.
Even with the subsidies, KiwiSaver is not enough by itself to fund a decent retirement if you do not own a house. Young people either have to commit to saving more for retirement, or keep on saving for a house deposit.
Neither of these options seem attractive to the average 30-yearold. Nevertheless, all savings programmes. whether for a house deposit or KiwiSaver, is to fund a better tomorrow. Somehow, young people just have to get the savings habit.
Martin Hawes is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.