Good savers not necessarily rich

By Mary Holm

Monday 19th August 2002

Who is most likely to save? Those on highest incomes? Not necessarily.

"Attitude is everything when it comes to savings - income is not the motivator or the key barrier," says a recent research report.

The report is based on surveys by Colmar Brunton for AMP, no doubt to help the big financial firm to encourage people to save, preferably using its products. But the report contains some interesting insights and advice for savers and would-be savers.

Lower income people are not the only ones living pay-to-pay, it says. "Those on household incomes of over $100,000 sometimes stated that saving was hard work as well.

"We certainly spoke with some very wealthy spendthrifts, and some very financially constrained savers. Personal resources thus may impact on the AMOUNT of savings that are done, but from our perspective not on the DESIRE."

Among the factors that affect attitude are upbringing - "people who were born to a level of wealth had developed more money handling skills"; and age - "mature people tended to feel that saving was a responsibility."

The report also notes that, "People have no idea how much they need to save for their retirement. If they do get some advice they're overwhelmed by the magnitude of it."

An example of what they might be told comes from a recent paper issued by Women in Super.

If a man wants $100 a week of tax-paid retirement income to add to New Zealand Super, he needs to have saved $85,000 by retirement.

For a woman, the number is $100,000, because she is expected to live longer.

The money would be used to buy an annuity, which would be paid out until the person died.

Says the report: "People who struggle to keep $2000 in the bank can't imagine how they'll ever be able to accrue $50,000 or $100,000. So this knowledge, whilst fundamentally essential, generates its own sense of paralysis of action."

All of this may be rather discouraging, especially to younger people who grew up in poorer households.

Still, many of those who don't save want to, and know they should, "but can't find a way to do it effectively."

So what is the "way"?

"Successful savers put money away before they see it. Less successful savers try and find the money after they've paid for everything else."

When you get a pay rise, perhaps you can save some or all of the extra money before you start to rely on it. And it's a good idea is to set up a direct debit out of a bank account into your savings fund.

If you do that, "Money just disappears, is not missed, and eventually a sense of safety begins to develop as the saver realises that a 'nest egg' is developing without them having to do anything."

A different section of the report contains some timely words for students.

Many young people who have had student loans spoke of a shift in attitude after they started repaying the loans.

"Prior to repaying, participants said that the loan just seemed like 'money to burn'."

"It was only after the fact that the realities of the situation became apparent - or when it was too late."

"They used words such as 'millstone' and 'onerous' to describe the feeling of debt and repayment."

That's not to say borrowing to get an education is a bad idea. For most people, tertiary education leads to higher pay and, once the loan is paid off, the capacity for higher savings.

But clearly it's better to keep a student loan as small as possible.

Mary Holm is a freelance journalist and author of "Investing Made Simple", commissioned by the New Zealand Stock Exchange to write an independent personal investment column. She can be reached at maryh@pl.net. Sorry, but she cannot respond directly to readers.

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