Make this Christmas a time to get real
A family plan makes gift giving a lot of fun — and delivers financial savings, too
Q: Some time ago, you asked for suggestions to make Christmas less expensive.
Several years ago our family (10 adults and eight children) decided that Christmas didn't need to be a huge commercial exercise.
Since then we have celebrated — with lots of laughs:
● An op-shop Xmas.
● A “donate to charity” Xmas.
● A second-hand book Xmas.
● A “second-hand anything” Xmas.
● A “get rid of our unwanted stuff to another lucky family member” Xmas.
Of course, some of the ideas overlap, but who cares? Some of the grandchildren do baking or make sweets, etc. There are unlimited possibilities to be creative.
We all agree it's lots more fun, much less stress and way less expensive.
A: What great ideas. Lots of families now do the “everyone gives to just one other person” thing. But your themes sound like much more fun.
It’s nice to give birthday presents, when you’re buying for just one person at a time. But the Christmas spendfest — when “This will have to do for Fred” means many people receive stuff they don’t want, and families go into debt in the process — is crazy.
Whose interest?
Q: Who is making a killing? In April 2016, my wife and I signed for an apartment to be built at the Auckland Trotting Club and shortly thereafter paid a 10 per cent deposit, which is over $130,000.
We were told the money would go into the club's solicitor's trust account and earn interest. I’ve since learnt the interest rate is 1 per cent.
The apartments are still not completed. The expected move-in date is now June 2020. So our deposit remains in the trust account.
In 2017, we sold our home and put the proceeds, in excess of $1.4 million, into a one-year term deposit at 3.5 per cent. So that’s what the going rate was then.
With over 240 apartments sold and deposits paid, the solicitor’s account would have in excess of $20m in it. Obviously, one would expect it to be earning the same interest as us, or more. Please note that these rates applied before Mr Orr put his oar in and reduced rates just recently.
My question: who is creaming it, the club, its solicitor, or the solicitor's bank?
A: It seems that either the solicitor or its bank is doing quite nicely, thank you.
“We cannot comment on any particular private contract details,” says Mauro Barsi, the recently appointed chief executive of Alexandra Park. “But we can make clear that stakeholder funds are placed in solicitor trust accounts, oncall, at floating rates, at receipt. These rates are then a matter for the relevant solicitors, can vary, and we believe are held for the benefit of both parties until the contract crystallises.”
I asked Barsi: can the solicitors earn more interest than depositors receive?
“Aside from proper tax treatment, as we understand it there is also a small law-firm commission. This essentially acts as a firm’s fee for investing the funds on behalf of clients,” he says.
“We believe that such commission is charged by all law firms that invest funds on behalf of clients, though it may be calculated differently depending on the firm — for example, if the purchaser’s lawyer had been holding their deposit in an on-call account or term deposit, then it would be the purchaser’s lawyer that would charge.”
So one of these two scenarios seems to be going on:
● The account has at times earned, say, 3 per cent, but you’re earning only 1 per cent, and the law firm gets the difference. On large sums, that’s a lot of money.
● The account has earned an unusually low return. If that’s the case, I asked Barsi, why was the law firm not seeking a higher return from the bank?
His reply: “Again, we cannot comment on any individual private contract. However, we note that your correspondent can look to confirm what the rate is (or was) — and also potentially change rates or types of accounts with their lawyer.
“We suggest this as they should take advice from their lawyer on potential changes to rates, accounts and protections.
“With respect to usual legal accounts, we understand that their major benefit is that funds held are protected and secure during a transaction, though they do tend to have lower rates than term investments,” says Barsi.
The main trouble here is that your money has been held for an unusually long time. Normally, we all put up with low interest in these circumstances, because it’s just for a matter of months.
Time to get your lawyer involved.
No bonus on bonds
Q: I was reading your last column about the correspondent with $32,000 in Bonus Bonds.
Back in 1971, when I was very small, my very proud uncle invested $5 in Bonus Bonds for me.
This was a generous gift from his pay packet at the time. (The Reserve Bank’s inflation calculator suggests this would be about $74 today.)
A couple of years ago I found the certificate and got around to checking the balance — sure that there would be some unknown windfall awaiting me. The balance after 48 years? $5! I might buy a coffee.
A: Bad luck! It just goes to show that for small amounts, you certainly can’t count on getting the average 0.75 per cent Bonus Bonds return. More on this topic next week.
By the way, good on you for using the Reserve Bank inflation calculator, on rbnz.govt.nz. It’s really useful for this type of calculation.
Giving to charity
Q: I give to a number of charities by cheque — usually once a year, sometimes twice.
I have had a phone call from a medical charity. The caller “softened me up” by asking why I gave to it (my mother suffered from this medical condition). Then she urged me to consider making a monthly online donation.
I realise this means the charity knows what it is getting and when. However, I am in my mid-80s and solo. My executor works overseas for at least half the year.
When one dies, superannuation payments stop, but regular online payments will continue until they are contacted or bank accounts closed — more work for the solicitor (and more expense) or my trustee. I intend to leave a list of the charities I support, but my trustee will have more urgent matters to attend to in the short term.
With cheque donations, the monthly letters can be returned with “Deceased, return to sender” on them.
A: Thanks for making a good point.
Give it away now?
Q: For some time, we have been considering how to leave donations in our will that would not be a cost or pain to administer.
What I’ve come up with is another option: Give now what you plan to leave in your will.
I believe it benefits everyone:
● The charity gets the bequest now, which is worth more in today’s dollars than some time in the future.
● The donor gets their tax rebate while they are still alive.
● The donor knows their money is making a difference now.
● If they want, the donor can keep donating annually as before.
● It makes writing a will easier, and with less administration needed it should make it cheaper.
Win, win! I can’t really see a downside.
A: The only downside I can see is that, after you’ve given, you might need the money for something unexpected. But if you’ve got plenty of emergency money, that’s not a worry.
Here’s another idea for charitable giving, plus insurance that you won’t outlive your savings. Put some donations in your will, and then spend your retirement savings assuming you will die at 85 or 90. If you live past that age, change the will so that you become the charity!
Next week: two readers suggest how to make donating easier.
Pensions for all
Q: The ongoing debate about means testing pensions and negative press about the “boomers” frustrate me. It is encouraging that you continue to support our “pensions for all” approach.
Like many boomers, I have done well financially, thanks to being taught about budgeting and saving by my parents. I was more than happy to help pay for my parents’ pensions in retirement. I was frustrated when they were still net savers in their 80s, but that says a lot about their views on providing for the family. Our inheritance was very helpful, but not life-changing.
I have my SuperGold card and view my pension as a partial tax refund, as I still pay much more tax than the pension I receive. So I am also helping pay for pensions and benefits for those of my generation who did not have the foresight and/ or ability to save.
Paying for three lots of pensions and getting one back I do not view as unfair.
A: Are you a lawyer by any chance? You argue like one!
Most people of any age on higher incomes pay more in taxes than they get back from the government. That’s the deal in civilised societies. So I’m not sure that, in itself, is an argument for giving wealthier retirees NZ Super. Still, I don’t begrudge you your pension.
On your parents continuing to save in their 80s, that’s not uncommon. It shows the power of a lifetime habit — which might be too powerful if the saver is depriving themselves in old age!
Mary Holm is a freelance journalist, ● a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.