The savings surge
Many New Zealand households should be well placed to cope with rising interest rates thanks to the newly conservative financial habits that have emerged since the global financial crisis (GFC).
Reserve Bank figures show there has been a surge of money into conservative investment vehicles such as bank deposits, superannuation schemes including KiwiSaver and other interest-bearing investments such as bonds, since the onset of the GFC in 2007.
That means many people are likely to benefit from rising interest rates on their cash investments, which would boost their incomes and provide them with even more money to invest. And although mortgage debt has increased over the same period, it has done so at a slower rate.
The Reserve Bank figures show that household financial assets, which include bank deposits, managed funds, shares and superannuation schemes, rose from $197.4 billion in September 2007, to $255.7b in September 2013, an increase of $58.3b (30 per cent) over that period.
Significantly, the increase was in spite of the huge financial losses suffered by many investors as a result of the finance company collapses which occurred as the GFC unfolded. Over the same period mortgage debt rose by $34.9b to $186.2b, a 23 per cent increase. So household debt has increased, but savings and investments have risen more.
And homeowners have also benefited from rising house prices, with the estimated equity in their homes increasing by $55.6b (12 per cent) over that period. So overall, average household wealth increased from $304,568 per household in September 2007, to $331,766 in September 2013, a 9 per cent rise.
David Kneebone, the executive director of the Commission for Financial Literacy and Retirement Income, said the fallout from finance company collapses was a major reason for people's more conservative financial habits.
While the most obvious impact was on those people who lost money they had personally invested into finance companies, their plight also had an impact on their families, friends, colleagues and neighbours, making them more cautious as well.
"When you get good news you spread it to seven or nine other people. But when you get bad news, particularly when you've had a really dreadful experience, you talk about it a lot more.
"There were over 50 finance companies that collapsed and the number of people that were affected and lost money was well into six figures," he said.
"So the impact of that can't be underestimated. Those 100,000 people who were burned quite severely have caused a ripple effect, without a doubt.
"On top of that, since 2008 we've seen a lot of coverage of the GFC and that has, I think, caused some pretty conservative investment behaviour."
Unfavourable coverage about the behaviour of some financial advisers, which had emerged in the wake of the GFC, had also created an atmosphere of mistrust, Kneebone said. That may explain why managed funds are one of the few investment categories with no growth.
The Reserve Bank figures show that in September 2007, households had $34.1b invested in managed funds (excluding superannuation schemes), but by September 2013 that had declined slightly to $33.9b.
However Kneebone said there were signs that attitudes were starting to change.
Sunday Star Times