New Zealand households have become better at living within their means

Thursday, 21 November 2019

Spending temptation is everywhere. Each of us has to develop household cultures to resist it.

OPINION: Great news. Households have got better at living within their means.

The number wonks at Stats NZ have crunched the numbers and tell us that on average households spent $340 more than they earned in the year to the end of March.

Okay, it could be better, but it used to be a lot, lot worse, so I'm inclined to thank my blessings, rather than wring my hands.

Before we got the shock of our lives in the global financial crisis (GFC) of 2008 we were spending between $104 and $105 for each $100 we earned. Now it's just under the $101.

* 'Buy now, pay later' is sexist

* Thank you, Baby Boomers

* Too many zombie KiwiSavers**

New Zealand didn't get hit with the worst of the GFC, but it felt like a near miss, and came at a time when we were reeling from the costs of fixing leaky homes, and losing money in finance companies.

The resulting shock of seeing the government scramble to guarantee bank deposits in a bid to prevent their collapse, converted households from years of spending more than they earned, to savers.

In 2010, 2011, 2012, 2013, and 2014, households saved.

Since then we have been slipping, though we're still more prudent, and a close look would probably reveal a portion of that $340 average overspend was the result of property-rich Baby Boomers pre-spending a bit of their housing equity.

You can't understand people's spending choices by only thinking about their incomes. It's a lot easier to buy a new car when you're house has gone up in value by $300,000.

Nick Tuffley, ASB chief economist, told me: 'We are living within our means a lot more than in the 15 or 16 years before the GFC.'

I'm comfortable with that. Living within your means on a day-to-day basis is the first rule of personal finance.

You need to develop your mental self-defences to do it, and to say no to convenient consumer debt.

Families have to find a way to avoid falling for the marketing hype (including from their mis-guided friends and family) on how they should be living, and what they need to be spending their money on.

But Rosalie Grant, manager of the Nelson Budget Service, reminded me that people need skills to budget, plan their savings and anticipate future spending needs too. Not everyone has those. They are a priority, and only individuals can take a decision to develop them.

Christmas is a good example. It's an event that falls on the same date every year, and yet it still results in a debt-fuelled spending binge.

Christmas should not come as a surprise requiring debt to pay for it. Households need to create their own Christmas traditions that make them happy, not miserable and indebted.

Until people hit crisis, they can bumble on for years, living a little beyond their means, and juggling their bills.

But change is possible, as our improved national household spending habits show, and I'm convinced it leads to greater national happiness.

Desperate, miserable people come to the Nelson Budget Service seeking help. They walk out again with a little of the spring back in their steps.

'We really do dial down the stress and the strain. It's wonderful,' Grant says.

GOLDEN RULES:

* Take control

* Spend less than you earn

* Experience the joy of living without consumer debt