Q I am involved with community education, on basic financial literacy and budgeting. Through my work, I am trying to get people (especially kids) saving. Would you agree that KiwiSaver for kids is very appropriate to get that deposit on a home? Is saving for a first home still a sensible financial objective for young people?
Owning your own home has been a Kiwi dream for many years, and that looks set to continue. KiwiSaver accounts are already helping many young New Zealanders into their first home.
I have written on this topic in previous columns, so I will answer your question by creating a fictitious scenario to illustrate how KiwiSaver membership works for qualifying first home buyers:
Josh is a 23-year-old living in Hastings. His parents signed him up to KiwiSaver at age 17 after talking to their friends, who did the same for their children.
Josh had the $1000 "kick start" credited to his account by the Government and his grandparents paid $500 into his account when he turned 21 in 2010. They told him that it would help him into his first home one day.
Josh left school at 18 and started work at Mitre 10, and with regular contributions his KiwiSaver started to grow.
With his own and employer contributions, government top ups and investment gains, he now has $13,103 in his fund.
Jessie is also 23. She works in a restaurant in Napier. She would like to train to become a chef one day.
She was automatically enrolled in KiwiSaver when she started work at 18 and she now has $11,976 in her fund.
Josh and Jessie met through mutual friends and started going out two years ago.
They have been renting but they find out that they can use some of the money in their KiwiSaver accounts to buy their first home.
They find a three bedroomed home "with potential" for $214,000. Josh and Jessie apply to withdraw their own and their employer contributions from their KiwiSaver schemes. After five years, this amounts to $17,000 between them. They also hear about the First Home Deposit Subsidy through Housing New Zealand and apply for that as well.
The house they like meets one of the criteria for the subsidy as the house price does not exceed $300,000 (in certain areas such as Auckland the limit is $400,000).
They are thrilled to receive the maximum First Home Deposit Subsidy of $10,000 ($5000 each), as they have both been contributing to KiwiSaver for five years and their income and assets are within the required limits.
They are even more excited when they find out that this money does not have to be paid back, as long as they live in the house for at least six months.
They have told the real estate agent that they need time to put in the applications for the First Home Deposit Subsidy and KiwiSaver withdrawals. He has made the agreement "subject to finance" and the settlement date six weeks away.
Their bank lends them the remaining $187,000, and their repayments are set at $550 a fortnight. Josh has gained some useful knowledge from his employer Mitre 10 and plans to redecorate the house to increase its value.
Young though they are, let's hope owning their own home will give our fictitious couple a good start in adult life. People who own their own home are more settled, and their children do better at school as they are less likely to change schools.
Our Government is in favour of home ownership. Raising a deposit for that first home is usually the biggest hurdle, and the ability to finance that through KiwiSaver will see more young people achieve this goal.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email firstname.lastname@example.org.