Inside Money

Business writer David Chaplin blogs on personal finance

Inside Money: Can we be saved by financial literature?

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A financial literacy program might help ease resistance to lifting the contribution rates to KiwiSaver. Photo / Thinkstock
A financial literacy program might help ease resistance to lifting the contribution rates to KiwiSaver. Photo / Thinkstock

I had to pass on a multi-million dollar investment opportunity this morning despite the warm (burnt?) offering from Evangelical Pastor Pactrick A. kulala.

"Hello Dear," Pastor A. kulala began (reminding me of Great Aunt Ivy) before launching into a couple of religious-based pleasantries.

With the god stuff out of the way, the Pastor cut to the chase, explaining he was "personal spiritual adviser" to Mr Charles MacArthur Gan-gay Taylor, former president of Liberia and renowned war criminal.

As such, Taylor had materially advised Pactrick of some US$95 million (plus some gold bars and diamonds) he wanted "quickly transferred out of the financial institution with a foreign identity as quickly as possible".

As a long-time consumer of financial literature I was able to spot the weak point in this offer when the Pastor noted he had identified me as a "reliable person", fiscally speaking.

Also, he rolled out the old faith-based argument ("believe you can realise it is real") to clinch the deal when I require a whole bunch of graphs before I invest.

By contrast, Peter Clare, Westpac NZ chief, makes no appeal to the gods in his recent column but he still wants us to believe that we can be saved - by financial literacy.

Specifically, Clare argues that an early-intervention financial literacy program will help ease resistance to lifting the contribution rates to KiwiSaver - currently at 4 per cent (2 from employee, 2 from employer) but due to rise to 6 per cent next year (3 plus 3).

"Lifting the contribution level may affect the take-up rate further but tying in a sustained education piece could help create the understanding and acceptance of the need to lift the contribution level for the benefit of individuals and the country," he says.

On one level it's hard to dispute this: 6 per cent is probably low and it can't hurt to teach kids about money.

Like everybody else in New Zealand's finance industry, Clare used the example of Australian superannuation as something to aspire to. Across the Tasman the contribution rate is 9 per cent, heading up to 12 per cent by 2019 (not 18 per cent going up to 24 per cent as one respondent to Clare's column erroneously added).

But a direct comparison is not justified. As it stands, KiwiSaver will work in conjunction with a non means-tested universal pension - so taxpayers across time will take on some of that retirement savings burden.

The Australian system, however, is meant to produce a nation of self-funded (ie no government pension) retirees - hence the higher contribution rate. The aim is to reduce the strain on Australian taxpayers in the future.

What's usually left unsaid - and I didn't see it in Clare's column - is that the burden is instead shifted to current Australian taxpayers.

As Ross Gittins points out in this Sydney Morning Herald column, the annual tax breaks on Australian super amount to about A$30 billion and will rise to A$45 billion in a few years.

According to Gittins, the Australian super system may not even efficiently achieve its principal aim of weaning people off the government pension.

"Treasury does project that, by 2047 - in 35 years - the proportion of people of pension age not receiving the pension will have risen by just 3 percentage points to about 20 per cent," he says in the article.

"The main effect of all the concessions will be to increase the proportion of people receiving only a part-pension by 15 percentage points to about half of those on the pension.

"From this [researchers] estimate the saving on the pension bill in 2047 will be about $14 billion a year in today's dollars. That's only about half what the super concessions are costing - meaning the other half represents clear cop for the better-off superannuants."

New Zealand doesn't have that problem. KiwiSaver, I recall, is costing current taxpayers about $1 billion a year in subsidies, with even those mooted to be dumped at some point.

It might take more than a government-funded financial literacy campaign to get New Zealanders to lock-in a greater proportion of their money with financial service providers for 40 or more years; most other places just use tax incentives.

"But," as my new friend Pastor Pactrick says, "if otherwise you are not convinced or you have doubts and bad intentions towards this,then please do forget it, to avoid my time wasting or me dealing with the wrong person.(please and please make sure you keep it to yourself .)"

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