Are you fake rich? Do the maths
Many high-earning households may only be ‘‘fake rich’’, financial advisers say.
Stuff reported this month that even households earning more than $150,000 a year say they have insufficient income to cover their costs. But that may be because their lifestyles are heavily dependent on debt.
New Zealand’s household debt has increased to 163.9 per cent of gross income, an all-time high.
Financial adviser Martin Hawes said it was common for people who appeared to be welloff to be carrying large loans.
‘‘The large amount of debt could be because they have some rental properties or a business,’’ he said. ‘‘But I think there’s also quite a group of people with a high income using that to service a big debt for a bigger house than might be appropriate.’’
The size of the average mortgage has risen at a faster pace than house price growth in recent years. Forty per cent of new borrowers now have loans that are five times or more of their annual income.
Government statistics show that 14 per cent of the highest 20 per cent of earners have household costs more than 30 per cent of their income. More than 20 per cent of those in the secondhighest income bracket were in that position.
Hawes said that often the things in an expensive house would also have been purchased with hire-purchase agreements, and holidays were put on credit cards or revolving credit facilities. About 13 per cent of new cars are sold to companies that will lease them to people.
New part-payment options, such as Afterpay, target those with disposable income and are helping to increase the number of people who spread the cost of shopping. New Zealanders also have more than $7 billion on their credit cards.
Mortgage broker Glen McLeod said 65 per cent of clients had hire-purchase agreements for cars, as well as QCards or Gem credit lines when they applied for a mortgage. About 95 per cent would have credit cards.
Hawes said that as people’s incomes rose, their spending tended to increase at a faster rate.
The shortfall was made up with debt.
‘‘I think there’s quite a group of people who look like they’re wealthy, with good jobs, a nice house and car and all those things, but when you do a snapshot of their net wealth – their assets minus their liabilities – they are not particularly wealthy at all.’’
Financial adviser Liz Koh said one of the main money personalities was the ‘‘achiever’’ type.
‘‘They generally have high incomes but high outgoings.
‘‘If they were prepared to accept a more modest way of living, they would be able to create more wealth through saving and investing. Achievers often suffer stress from living from payday to payday, as they live up to and beyond the level of their incomes.
‘‘They want the high life now, not later.’’