KEY POINTS:
"Housing price slide could kill wealth effect" - the headline in the Herald this week said it all.
Economists are worried that sales of cars, electronics, furniture and appliances could suffer next year from the housing sector downturn and finance company collapses.
It may be bad for
the economy as a whole. But when it comes to individuals and their own personal finances, weaning themselves off consumer goods and the expensive finance "deals" makes a lot of sense.
I recently read the average Kiwi is three weeks from bankruptcy if they lose their job. That's probably an exaggeration, because most people could sell household goods, cars, and other toys to make ends meet for a short while or perhaps borrow from friends or family. But it's food for thought.
Certainly, very highly geared property investors are probably only a few weeks from their dominoes toppling if all goes wrong. Many are spending $100 to $200 or more a week per property topping up the rent they receive to pay mortgages and other expenses. If they don't have an emergency fund and they lose their jobs, then they're in big trouble.
While the majority of property investors I meet have their heads screwed on, there are also many who are enamoured with their own success, but in fact leveraged to the hilt. Some don't realise that market forces rather than their own intelligence and success have got them where they are - albeit that they had to be sorted enough in the first place to actually buy properties rather than just talk about it. Sadly, this is what happened in 1986 and 1987 with first-time investors marvelling at their success on the stock market. Whatever they bought went up overnight. But come the crash, some found their wealth simply disappeared in a puff of smoke when world stock markets collapsed.
Jeff Matthews, senior financial adviser at Spicers Wealth Management, phoned this week just as I was pondering Kiwis' love of consumer goods.
It transpired he'd been to Harvey Norman for the first time in ages, and was astounded to see a huge queue of people at the finance desk waiting to sign up for a credit contract to buy their boys' toys and other gadgets.
In my spare time this week I'm organising the Stanley Bay School's garage sale. Perfectly good working TVs and computer monitors are finding their way to us in sizeable numbers, disposed of simply because the owner wanted to buy a flat screen version - probably in the mistaken belief it would be all the better to watch the All Blacks win the Rugby World Cup.
The last time Kiwis had such gratuitous spending habits was in the mid-1980s, and we all know what stopped them in their tracks.
If you need any reminding just how precarious our property market is, just look at the comparison of wages and house prices produced by Spicers for its most recent Household Savings Indicators. In the United States, from 1960 to 2000 it took, on average, three times the average salary to buy a median-priced house. Now, it's 5.5 times. Here in New Zealand the median house price is currently 7.7 times the average salary. Cutting the spending isn't that difficult, providing you overcome, as financial planner and author Lisa Dudson of Acumen and moneytv.co.nz says, your myths, fantasies and excuses. "The technical [financial planning] stuff I can do in my sleep. It's more the psychology of it."
Let's face it, a flat screen TV isn't a necessity no matter how much we convince ourselves it is. Nor is a late-model leased car.
It might be going a bit far to suggest that people buy chickens to produce their own eggs (as one rival newspaper did recently), grow vegetables at home or knit woolly jumpers. But there are economies to be made - especially when it comes to debt on cars, consumer goods and just day-to-day entertainment and eating-out expenditure.
Those who simply can't weather a storm, or don't have a three-month emergency fund, need to be budgeting. There's a great book called Budget Wise, Dollar Rich by Anton Nadilo and Andrew Lendnal. But sadly, fewer people buy books about budgeting than they should. The big, bad B-word is just too scary for them. A quotation I discovered recently really put budgets into perspective: "A budget is people telling their money where to go instead of wondering where it went."
There is, of course, the argument that the erstwhile owners of the TVs piling up in our school hall live in one of Auckland's wealthiest suburbs and as a result have the money to buy these consumer goods - so why shouldn't they?
In some cases this may be true. But, says Matthews, some of his clients have all the trappings of wealth, but it's little more than a veneer. Three 50-something couples who have come to Matthews for advice in the past week turned out to have huge mortgages, other debt and very little equity.
Some have borrowed against capital gains on their properties and spent the equity on kitchens, bathrooms, overseas holidays and consumer goods, rather than holding on to it for a rainy day - such as a credit crunch - or for retirement.
Yet, one of the scruffiest individuals Matthews ever saw walk into his office turned out to have $15 million in cold, hard cash.
Staying solvent
* If the property market's on a knife's edge, those without cash buffers need to start spending less.
* Many property investors pay $100 to $200 or more a week to prop up their mortgages.
* The average Kiwi may be three weeks from bankruptcy if they lose their jobs.
* Cutting those consumer goods isn't as hard as it seems.
* Diana Clement is an Auckland-based personal finance and investment writer
