January 9, 2012
 Advice for Kids Leaving Home
There are times as a parent when you look forward to the day your children head off into the world to make their own way. When that day comes, it often comes with worries about how your children will cope with life as adults, and in particular whether they will succeed financially. Here are three basic principles to teach your children before they leave home.
- Set a limit for spending on non-essentials. Money that we spend falls into two basic categories: what we spend on essentials (things we need, like housing and food) and what we spend on non-essentials (things we want but don’t really need, such as dining out or movies). The best way to keep a limit on spending on non-essentials is to have a separate bank account for it. Each week transfer a set amount into that account and keep your spending within that limit
- Put aside money for unexpected expenses. There are some essential expenses that occur infrequently, perhaps only a few times a year. Often these expenses are unexpected, such as medical or dental costs, or car repairs. Spending all your income every week means you won’t have money on hand to cover these costs. Transfer money each pay day into a savings account to cover unexpected expenses.
- Stay out of debt. By following the two principles above, you should avoid being forced into debt to cover essential spending. The worst kind of debt is money borrowed to buy non-essentials such as new furniture, televisions and computers. This kind of debt is usually short term with high interest rates and the high repayments can prevent you from being able to set aside money for unexpected expenses.
Encouraging your children to use these principles should set them on the path to financial success.
December 27, 2011
 Declutter Your Money
Holiday time is a great time to declutter. As well as cleaning out your cupboards and wardrobe, it’s a good idea to do some housekeeping on your financial affairs. Start with your bank accounts. Do you have accounts you seldom use? It is best to have all your accounts at one or two banks rather than three or four, especially if you use internet banking to track your spending. Having too many accounts means you may be paying unnecessary fees and also makes managing your money more difficult. Arrange to do regular saving by automatic transfer into a high interest account and to pay your bills by automatic payment or direct debit. Set up your online banking so you can easily see the balances of all your accounts and arrange to have your bank statements sent to you electronically.
Next, take a look at all your credit cards and store cards. With multiple cards, your total debt can easily get out of hand. Aim to have no more than two cards on which you owe money.
Investments should also be reviewed. If you have small holdings of shares that you own purely for historical reasons (for example if they were gifted to you or you inherited them) consider whether you should continue to own them. A good test of whether to sell them is to ask yourself whether you would buy them now if instead you had their equivalent value in cash.
Finally, sort out your paperwork. Put all your important documents together in a safe place. Record important details such as policy numbers or account numbers in a separate place (computer or notebook) in case they get lost. There is a great little tool called myINFOSAFE which helps you organize and protect your personal information. Happy holiday!
November 28, 2011
 Make Smart Financial Decisions
Life is full of financial decisions. Whether you are deciding how much to spend on your holiday, how to finance your car purchase, which house to buy, or how to invest your nest egg, the consequences of your choices can have a lasting impact on your financial future. Sometimes the way things work out is a matter of luck, but rather than leave your life to chance, here’s how to be smart with your financial decisions.
- Set your emotions aside. Decisions made in a state of excitement, nervousness, fear or greed are often regretted. Financial decisions should be based on cold, hard analysis of the information at hand. If you are not sure what to do, sleep on it, get more information or seek advice.
- Look at the worst case scenario. If things don’t go according to plan, will your financial situation still be secure? How much can you afford to lose?
- Look at the best case scenario, but don’t make it too optimistic. Make your best case scenario your most realistic one.
- Do your financial calculations so you can see in black and white what the implications are. Read the fine print so you know exactly what costs are involved and how your decision will affect your financial situation in the long term.
- Write down the pros and cons on a piece of paper and consider alternative options.
- Make sure you understand exactly what you are committing to, especially when it comes to signing documents.
- Get professional advice. It’s not always possible to know all the aspects of a financial decision or how to accurately predict outcomes. A professional adviser can help you ask the questions you didn’t know to ask and learn from the mistakes others have made.
November 13, 2011
 Commission or Fees?
It seems it is only a matter of time before the payment of commission to financial advisers will be banned, and advisers will instead charge fees. Commission will be banned in the UK from 1 January, 2013 and in Australia there is a proposal to ban most commission from 1 July 2012. In New Zealand, the Committee of Inquiry into Finance Company Failures has recommended that Government “investigate the possibility of conflicted remuneration structures in the provision of financial advice, including consultation with Australian authorities on the model proposed in that country”. Commission can vary between products and, whether true or not, there is a perception that advisers may place business where they receive the highest commission. Any adviser who receives commission cannot be considered to be independent. Unscrupulous advisers can increase their commission income by switching clients from one product to another. The payment of commission at the time of sale means there is no financial incentive for the adviser to follow up with their client to ensure the client is happy and that the recommended product is still appropriate. In effect, the client loses control of the relationship with the adviser. While clients may feel they are getting ‘free’ advice if the adviser takes only a commision, in effect, there is still a cost because commission is paid from product returns either directly or indirectly. On the other hand, fees are completely transparent, they are sometimes tax deductible for the client and can be negotiated. The payment of fees creates a relationship between adviser and client whereby the adviser has an ongoing obligation to service the client or the client may refuse to pay. A switch from commission to fees should result in an improvement of the quality of advice and the ability of clients to demand good service.
September 26, 2011
 Get a Life
Following recent financial crises, there is a growing realisation in society that friendships, family and hobbies are more important than money. People are slowing down; they are making less money but having more fun. There are lots of ways this can be achieved. Here are a few examples of strategies that work:
- Ask your employer to be more family friendly. Many companies now have a documented policy for being a “family friendly workplace”, so if yours doesn’t, ask for one!
- Set up your own business. Women in particular have chosen this option for increased flexibility in work hours and the ability to work from home.
- Manage your time better to reduce your work hours, for example by reading on the train and cutting back on non-work related activities (eg personal phone calls) during work hours.
- Change your work hours. Work the same hours but in fewer days so that you can have one day off a week or maybe just work fewer hours for less pay. Some couples have found that if they each work reduced hours they still have an adequate income but more leisure or family time.
- Review your priorities. Don’t try and achieve everything at once. Do you really need a bigger house, a new car and an overseas holiday all in the same year?
- Downsize your life. Buy a smaller house with a smaller mortgage, make do with your old car for a couple more years and send your children to a good public school rather than paying for a private education.
These are just a few of the ways in which people are succeeding to balance their lives. You can choose to work long hours and feel as though are going nowhere, or you can choose to get a life.
August 22, 2011
 Being Happy
What makes us happy? Research suggests that it isn’t extra money. In a recent survey in the UK, around half the people surveyed said that relationships are the biggest factor in making them feel happy. Rating second in importance is health. Other factors include friendships, freedom from stress, and being engaged in meaningful work or activities.
The happiest people surround themselves with family and friends, don’t care about keeping up with the Joneses next door, lose themselves in daily activities and, most importantly, forgive easily.
The Happiness Barometer, a recent study conducted in 16 countries, found that around 40 percent of those surveyed said catching up with their loved ones after work was the happiest time of their day, while more than 20 percent said they were happiest when eating with their families. By contrast, only 5 percent said they were happiest when connecting with friends online. Families and partners were, by far, the biggest source of happiness for almost 80 percent of those surveyed, with friends coming up next at 15 percent.
The results also show that, despite the global economic downturn, overall global happiness levels are high, with more than two thirds of people saying they are satisfied with their lives.
When they do need cheering up, around 40 percent have a night out with friends and round 20 percent give or receive a hug.
Commenting on the study, Dr. Richard Stevens, a social psychologist who specializes in happiness and wellbeing, noted: “While it is important to have enough money to live, income is a fairly irrelevant contributor to happiness. Without relationships, love, family or friendship, most people will not be content and no amount of money can fill this void.”
So there you have it. If you want happiness, don’t buy a lotto ticket; go hug somebody!
July 11, 2011
 The End of a Relationship
It has been said that if breakups never existed the music industry would go bankrupt! Unfortunately, they are a fact of life. Most people endure at least one in their lifetime; some lurch from one to the next, but no matter how often you experience a breakup it is still a very painful experience. Dealing with financial matters at such an emotional time can be very stressful, and it is better to reach an agreement with your partner while you are still a happy couple on how your property will be divided in the event you part. This should be done with the assistance of your solicitor. The key matters to consider are
- What property has each partner brought into the relationship?
- What is separate property that is to be preserved for each partner?
- What is relationship property that is to be divided?
- How is the relationship property to be divided?
In the absence of a property agreement, the Property (Relationships) Act sets out a default formula for how property is divided when a couple separates or one dies. In general, for couples who have been in a relationship for three years or more, the couple’s property will be divided equally.
It is important that you get legal advice before reaching any agreement with your partner so you know what your rights are. However, going into battle for every last cent of your entitlement may leave you worse off after paying your legal bills, so be flexible.
Debts need to be shared as well as assets and this can include credit cards and hire purchase. As soon as your relationship has ended, make sure you protect yourself by freezing or closing every joint account, credit or store card or other debt arrangement. Be safe, not sorry!
July 4, 2011
 Financial Literacy
International experts on financial literacy were beamed in from across the globe for the Retirement Commission’s recent summit on Financial Literacy. We know that financial illiteracy is a big problem in New Zealand, but we are by no means the only country in the world struggling to educate people on how to use their money more effectively. The major difference, however, between New Zealand and the rest of the world is that we lack the commitment and resources from our Government to tackle this problem in a way that will really make a difference. The Retirement Commission is internationally recognized for its efforts in financial literacy despite a limited budget. Diana Crossan, Retirement Commissioner, in her opening address reminded the Government that more money is required to support financial literacy in schools if we really want to see an improvement in the personal financial well-being of Kiwis. While financial education is now part of the school curriculum, budget cuts in the education sector have meant a drastic reduction in the funding available to support it. Money habits are formed early in life and changing the attitudes and behaviours of young people is an effective way to change the financial literacy of the population over time.
In the UK, a recent initiative is the Money Advice Service, which brings free, unbiased financial advice to people online, over the phone and face to face across the country. Our Retirement Commission is able to provide people with information and resources, but is not able to give advice. Free advice is available from the Federation of Family Budgeting Services, however the public perception of this service is that it is somewhere you go when you are on the verge of financial ruin. What New Zealand needs is low cost, highly accessible advice for all.
June 27, 2011
 Get Rid of Dumb Debt
The most common financial mistake people make is to borrow money at a high rate of interest in order to buy something they don’t really need or without considering whether they could borrow at a lower cost. This type of borrowing is what the Retirement Commission calls ‘dumb debt’ and they have launched a campaign aimed at encouraging people to get smarter with their debt. Examples of dumb debt are:
- Paying only the minimum repayment on your credit card
- Buying a large item such as a car without shopping around to find the best finance deal
- Buying on hire purchase without checking all the additional charges such as set up costs and insurance
- Being tempted by interest-free offers on hire purchase without being able to pay off the debt in the interest-free period
There is a very useful debt calculator on the Retirement Commission’s website, www.sorted.org.nz, which helps you work out the total amount of interest you pay over the period of your loan. For example, if you make a purchase of $2,000 on a credit card with an interest rate of 20% and monthly repayments of $100, you will take just over two years to pay it off and you will pay $453 in interest. If, on the other hand, you save $100 per month at 3% interest, you will be able to save the $2,000 you need within just over 19 months.
The best way to avoid dumb debt is:
- Never borrow money to buy things you don’t really need
- Always shop around for the cheapest deal on finance, taking into account the interest rate and additional charges
- Don’t borrow unless you know you can afford the repayments
- Save the equivalent of your debt repayments before you make your purchase
June 20, 2011
 New Era for Financial Advice
As we edge closer to 1 July, 2011, financial advisers are spending most of their waking moments preparing for the new regulatory regime which will clearly identify those advisers who are authorized to give financial advice on investment products and those who are not. Financial advisers who are not authorized have some significant decisions to make about what happens to their investment clients. Investment products generate ongoing commission or fees and this stream of revenue is an asset which can be sold. Some advisers have chosen to sell their clients to authorized advisers. Some have sold their investment business back to the product providers using a ‘buyer of last resort’ facility. Some advisers are hoping, rather foolishly, that no-one will notice they are collecting fees or commission from investment clients to whom they are not authorized to give advice. An even more disturbing response is that some advisers are planning to ask their investment clients to sign a waiver stating that they do not wish to receive personal advice, that they wish to make their own decisions and therefore that they are transactional clients only. This could be seen as a blatant attempt to sidestep the new regulations and any investor asked to sign such a waiver should seek expert advice before signing it. No doubt the Financial Markets Authority will be taking a keen interest in this practice. The additional costs for authorized financial advisers, including registration and authorization fees, levies, membership of a dispute resolution scheme along with the increased amount of time required to document advice mean that inevitably investors will have to pay more for advice and commissions are likely to be replaced with fees. Investors should regard this as a positive move as along with the increased cost will come improved service and quality of advice.
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