Laura Vincent is supposed to be saving for a wedding, but most of her money goes on coffee, wine, candy and brunch, which are reasonable vices for a Wellington public servant and food blogger.
On her blog, she talks about starting out as a cash-strapped student, and now, includes recipes for both low budgets and a payday splurge. She says she has always been able to save money, even when on a low income. “I think it’s good to cut yourself some slack, and think about what the stakes are, in things that you really want now. Because I completely understand that [desire to have things straight away], because I want stuff right now. That’s why a lot of my money goes on candy.”
At 27, Laura would like to own a home one day but she’s only just started thinking about that, and she does worry that she’s never going to have enough money for it. She has budgeted occasionally, but when she’s trying to pay back credit card debt – which is not entirely caused by that candy habit.
Food writer and bartender Laura Vincent Photo: Supplied
“It sounds like a cliché, but often tonnes of things will happen at once, like we moved house, and I needed glasses and a whole lot of other things happened, and we had just come back from a trip, which we’d saved for. And all of a sudden our credit card bill was really horrible and ridiculous, so we set ourselves a really strict budget for the week, and tried to focus on where every single dollar was going. Which was not fun, I won’t lie.”
Laura, like many people in their 20’s and 30’s, doesn’t think too much about the long term future, though she admits she probably should. A survey conducted by Colmar Brunton for The Wireless, found that 82% of people aged 16-30 said yes, when asked if they are saving money for their future. (Based on asking 901 people.) Unsurprisingly, the older people get, the more likely they are to answer yes.
But a survey by ANZ and the Commission for Financial Literacy and retirement Income found that only 15 percent of people under thirty five actually have a long term financial plan. So what’s stopping people making those plans? Well, among other things, low incomes, a lack of financial knowledge, shiny gadgets and expensive fashion, and credit card and finance company debt. And what happens when you had planned, and life throws you a curveball?
Photo: Unknown
A Massey University study with 300 18-22 year olds showed that 77 per cent of them didn’t think it was important to plan more than four years ahead. Dr Claire Matthews, a senior lecturer at the university’s school of banking, says there’s no question that young people think about money, and they think about the right things.
But whether they actually do anything about that is a different question. Dr Matthews says predictions that as the population ages, government –funded superannuation could become unsustainable can be scary. But because retirement is so far in the future, it can be difficult to feel the need to plan.
The Massey University study shows that there are gaps in the financial education we get, but Dr Matthews says a lot of that education comes through experience.
Sarah-Rose Burke agrees. Working as a public servant, she has just bought an apartment with her husband, and says she has definitely made some mistakes along the way. After getting into more debt than she was comfortable with, the 29 year old cut up her credit card. She understands the need to have new shiny things straight away. “Debit cards are just the best things, because that way, if I have the money in the account, I’ll buy it, but I don’t put myself into debt to do it.”
She learned about some big scary money things, like compound interest, from a friend, Hugh McCaffrey, who is a lawyer in Wellington. Hugh, 25, owns a piece of land with his flatmate, and likes to always have a goal of something to save for. But it took him time to learn that, after spending time at university living from paycheck to paycheck.
He says those habits are heard to break, but starting saving early is important. “I still have issues paying off my student loan – I’d rather have the money. At uni, where they’re just kind of throwing money at you, it’s very easy to rack up quite a large debt.“
Someone told Sarah-Rose Burke early on to always save ten percent of what you earn, which she thinks is a good goal, no matter what that income is. She says buying a house made economic sense. “As people who possibly want to move overseas in the next couple of years, that our Kiwisaver is in property earning us interest, rather than the banks. So, we don’t really think all that much about future goals when it comes to saving…it’s more short term future goals, like the tattoo I want to get next month, or the trip I want to take next year, or potentially moving overseas.”
By June 2012, there was close to million people aged under 35 enrolled in Kiwisaver, though not all of them are actively contributing. But the ANZ/Commission report shows that even if people are enrolled in Kiwisaver, most of us haven’t thought about what we might need for retirement, or for an emergency.
Of course, there’s not a lot of point trying to save $50 a week, when you’re saddled with a $5000 debt. Sarah Jane Miller blogged about her experience paying off thousands of dollars, and says it’s easy to get into debt when there is cheap credit available and no concept of how to budget or live within your means. “When I was studying and in the few years I was working in hospo, it seemed that it was super easy to get into debt - credit was cheap, the bank automatically gave students an overdraft, and I needed to get a student loan to help pay for my rent and food.”
She says she maxed out credit cards and overdrafts and her student loan really quickly, thanks to a bad attitude towards money. “But I also think that at the time I was maxing everything out, the culture was pre-recession and very much “spend spend spend!” she says.
Dr Claire Matthews’ study showed people are often really afraid of debt, particularly of credit cards. Many 18-22 year olds don’t have a credit card, and have no intention of getting one. But the debt trap is easy to fall into.
Arlene, who didn’t want to give her last name, had a good job in Gisborne, and was steadily paying off two mortgages. Then she unexpectedly fell pregnant, her partner left, and she was a solo mother on a benefit on the verge of bankruptcy.
A wall of advice at Gisborne Budget Advice Photo: Unknown
She has the mortgages, a car loan, whiteware on hire purchase, and while she thought she was on top of it, her financial situation crept up on her, to the point that she realised that something had to change. “I guess I was really concerned about being judged as a solo parent, people tend to want to take pity on you, so I had this thing where I wanted to make people believe that I am OK financially. So it’s been really hard to maintain that” she says.
Arlene tears up when she talks about telling her parents about her situation, because she feels like she’s let them down. After 11 years of working, and paying all her bills, the debt has now affected her credit rating. “It’s such an easy trap to get caught into. The finance companies make it so easy, with deferred payments and interest free and all that.”
Last financial year, almost half of the Gisborne Budget Advisory Service’s new clients were aged between 18 and 35. The service’s manager, Lynda Markie says for them, debt is the big problem, with many having multiple hire purchases or credit cards.
The deficit in a weekly budget is often the same as what people spend on food. “I can understand…people sort of thinking “oh, I work really hard, I’m just not getting anything, and that’s when they become vulnerable to companies coming in, and saying “well we can give it to you, we can make it easy for you, you only have to pay a few dollars a week and you can have it”, she says.
Lynda Markie says people tend to think as budgeting as giving up on things, but it’s more about making a plan to get the things you want. She tells the story of a client whose hire purchase agreements were the thing going wrong in her budget, the reason she couldn’t afford food. “She said to me, what do you expect me to do, sit on the floor? Because she had bought a couch. And I though well, when I started out, that wouldn’t have been an option, I would have bought the food, and then thought, I wish I had a couch.”
One of the Gisborne service’s clients, Tatum Gerrard, says she first went to see them when she felt like her debt had gotten too much. She had some ‘dumb debt’, like parking fines she had forgotten to pay. “I was in a financial position that was quite compromising. I’m a single parent to three children. My main source of income is a benefit, and I get some part time work on top of that.”
Gisborne's Tatum Gerrard Photo: Unknown
“I think it’s just taking full responsibility of where you are at, and facing reality, and not being scared of what it really looks like”, she says. Her debt is now organised, and while it can still be difficult to make ends meet, she feels on top of it.
Lesley Matia, the manager of Otahuhu Budget Advice Services sees about 60 young people a week, both old and new clients, some on such restrictive budgets, they have $30-50 to spend a week on food, often topped up with a basic food parcel. She thinks people don’t want to wait to have new things. “As soon as they get [money], they want to spend it on a new phone or an iPad, and if they can’t afford it, they go and book up an HP.”
Sarah Jane Miller, after paying off her debt, is now saving for a trip to Europe. “So despite the fact I work a really good job, I am super broke most of the time. However! I am going to Europe and I am travelling by myself, and paying for it myself and I think that’s a really amazing achievement, especially when I think about how much debt I was in five years ago. It’s all very “Independent Women Part I”.”
It means she doesn’t always have the money to buy the most expensive things or dine out a lot, but she’s trying to keep her eyes on the prize. “The key is, if you don’t want to worry about money, you need to know exactly how much you have and where it’s going.”