Housing charity can teach us all
Shaneel and Amanda Kashyap watched their new home delivered to its site in the Auckland suburb of Weymouth late last month.
It was one of those moments in life when the future looks distinctly brighter.
"It's very exciting," says Shaneel, who had found himself trapped on the wrong side of Auckland's housing divide.
With his wife staying at home to raise their children, the finances just didn't stack up to buy and put down roots in Auckland. Shaneel says: "Even two incomes doesn't really cut it sometimes."
The pair got their home through the charity, Habitat For Humanity's home ownership programme, which aims to eliminate poverty housing and homelessness in families.
After spotting an advert in a local paper, the couple went to a Habitat for Humanity open evening. There were hundreds there. Refusing to be discouraged, they applied, and were successful.
As part of the qualification process, the pair had to agree to do a Money Smart course on money management and financial literacy taught by Habitat for Humanity, but created by Dr Pushpa Wood from Massey University's Financial Education and Research Centre.
The aim of the course is to provide recipients of homes, which they help build and are sold to them on a not-for-profit basis, with the money smarts to stay on track with repayments and to adequately protect what they own.
The couple were happy to agree. "Habitat are investing a lot of their money in us," he says.
Missing repayments was something they would go a long way to avoid.
Shaneel says on their one income the couple managed to end up with a $20 surplus on their monthly budget while renting.
That's the kind of surplus that doesn't leave a lot of room for error, though the Money Smarts course they have just done has been a huge help. "I think everyone would learn and take something away from that course," he says.
Wood says many of the financial failings she sees in lower-income families are also common in more affluent parts of New Zealand.
One particular bugbear for Wood is the failure of people with mortgages to actively manage them. "People are not proactively looking to reduce their debt."
Money Smarts teaches people to revisit their debt repayment plans in a bid to reduce debts more rapidly, saving on interest, and building equity faster.
The course teaches people to ask questions like "What would be the impact of paying off $25 more a week?"
"We try to teach people to play around with a calculator and see what savings they can make."
Wood aims to always use the tolerance in her mortgage at the end of the year to make an extra 5 per cent of repayments without incurring early repayment fees, and she does this out of savings she makes during the year.
To achieve that people need to budget, and track their spending, two more things middle and higher-income people often don't do particularly well either, in Wood's experience.
"The key thing I am finding is that regardless of which group people are coming from, I am finding people don't have an understanding of what their spending habits are.
"I still get amazed when people can't tell me what their total income and spending is in any given month. A lot of people don't have any idea."
And, she says: "They don't have any idea of where their spending leaks are."
Wood religiously keeps a spending diary, carrying a little notebook around to record every bit of spending in. "It's a kind of mirror on their spending, on where their money has gone in the week."
It's a practice people from every walk of life could benefit from.
Another thing Wood has noticed that is not unique to lower-income people is the failure to build up emergency savings. "It's amazing how many people don't have it. A lot of high income people don't have it. A lot of very educated people don't have it."
The next step for Shaneel and Amanda is a home maintenance course with Habitat for Humanity because anyone who's paid to have a plumber replace a cartridge in a tap knows the financial pain paying tradesmen can cause.
Shaneel says: "Kids don't grow up learning about money in school. We learn reading and writing, not how to fix the car, or do the plumbing."
Wood agrees, and reckons too many homebuyers woefully under-estimate the cost of owning a place, which has led to a running down of some housing stock.
"People can be so obsessed with buying a house, they forget to inquire about some fundamentals," Wood says. "One thing they fail to plan for is the cost to maintain it."
Rising house prices in recent years have contributed to this lack of financial foresight.
"People have had to just close their eyes, gulp and hope for the best," Wood says.
WHAT'S IN THE MONEY SMART COURSE?
Module 1: You and your money, dreams and goals: Setting written goals is something too few of us do, but Dr Pushpa Wood says writing down goals and talking about them make them more likely to happen.
Module 2: Managing the money - budgeting: Common mistakes are to plan for every cent, and to make budgets too tight. A budget needs a margin of error built into it to cope with the ups and downs of life. "You should try at all costs to avoid a deficit," Wood says. "If you don't have it, you can't spend it."
Module 3: Tracking my spending: Keep a spending diary. A small notebook suffices. Write every purchase in it. Wood makes students promise to keep it for three weeks. By the end, it has generally become a habit.
Module 4: Saving for a rainy day: New Zealand has a deregulated labour market, and structural unemployment. An emergency fund is needed in case joblessness strikes.
Module 5: Saving for retirement: Whenever Wood addresses a group, she always finds, to her amazement, people who are not in KiwiSaver. The tax credits and employer contributions make it the place where every wage-earner's retirement savings plan begins. Some have heard of it, but never bothered about the details, or sat down and thought about how it would work for them.
Module 6: What do banks do? Many people don't know how to take "maximum advantage" of the banks, says Wood. "They don't know they can sit down and ask a number of questions." That includes asking for a review of their accounts to see if there is a cheaper way of banking or a better account for their savings.
Module 7: Borrowing money: This is the longest session on the course. Debt is a key tool in building a life, including to buy a home, and to get an education. But too many people don't understand the difference between good debt (for appreciating assets like homes, or necessary assets like cars to get to work) and bad debt (for depreciating assets like TVs, or consumer spending), or the real cost of their debt.
Module 8: Protecting what you have: This session covers wills, powers of attorney and insurance. Not everyone can afford the "luxury" of a complete portfolio of insurance but everyone needs a will. At their simplest, they need be no more expensive than a DIY wills kit.
Sunday Star Times