Over recent months the government, through tax cuts and reductions in the Official Cash Rate (OCR), has tried to provide stimuli for the economy and to provide more cash in your pocket – the question is, what are people doing with this additional cash? Are they planning to spend their way out of the recession; are people simply squirreling the money away to be able to survive any future demands on their spare cash; or are they paying off their debt?
In conjunction with TNS Conversa, we surveyed Kiwis to find out what they were doing and the key conclusion is that over the next six months 80% intend to maintain or increase their savings.
The concept of spending your way out of a recession is obviously a task people struggle with, in particular when you take into account the constant messages of the past 12 months or more about saving more for your future (KiwiSaver and PIE tax benefits are two key programmes to make saving “easier” and “more attractive”). Also 80% of those surveyed said they had to dip into their savings unexpectedly, with reasons given being cost of living and helping out family.
Term deposits continue to be very popular (45%), particularly amongst the retirees and On Call savings come in at 24%. Interestingly though property still ranks relatively well with 20% saying that it was their preference, Bonds 19% and Managed Funds 19%.
There was also an interesting age split. Younger people are saving more, the middle-aged are trying to retire debt as quickly as they can, and the elderly are focusing on their investments (presumably to grow their capital and the income generating ability).
For those who do have any spare money (23% claim to not have any spare money) they are paying off debt (56%) and putting money into savings accounts (39%).
Over the past three years we have surveyed Kiwi's to see what are their top priorities are when choosing a savings or investment opportunity – what's interesting here is to see how those priorities have changed over time:
2009 Priorities
- Fees and charges
- Security of money
- Access to money
- High interest rate
- Reputation of financial provider
2008 Priorities
- Security of money
- High interest rate
- Reputation of financial provider
- Access to my money
- Fees and charges
2007 Priorities
- High interest rate
- Fees and charges
- Reputation of financial provider
- Credit rating
- Ability to manage online
With the benefit of hindsight, and taking into consideration the changing environment, the above are somewhat no real surprise.
- In early 2007 the classic “risk vs return” question wasn't being asked by investors. People were not doing their homework when considering how their savings were being invested. There were still a reasonable number of people who had yet to be “burnt” by the collapse of finance companies. So interest rate was #1.
- In 2008 we saw this all change. People had lost a lot of money and obviously started to look at how risky an investment was. Safety was paramount and we saw the flight to safety in terms of looking at banks as the safest place.
- In 2009, with all major banks including RaboPlus , covered by the retail deposit guarantee, safety has lost top spot to fees and charges. Once again a very logical result particularly when all the banks are offering comparably high interest rates for deposits - investors are looking at ways to maximise their income and when interest rates are much lower than they have been for some time, bank charges are proportionately higher nowadays.
If you want to see how Rob Stock (Sunday Star Times) interpreted the survey results – here is a copy of the article from the weekend (14th June).
16/06/09: Correction
Sorry, I've just realised there was a couple of typos in this blog post.
The research we conducted was with Perceptive not TNS Conversa – apologies Perceptive!.
Paragraph #3 - the percentage of people unexpectedly withdrawing money was nearly 20% (not 80%) i.e. “In the past six months nearly 60 per cent of people made withdrawals on their savings, a third of which were unanticipated.”
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