Why would some families pay for private school for their sons but not their daughters? Photo / George Heard
Q: Help me understand a generation that believes only the sons of the family should get help to buy their first house (and they now live in blue chip areas due to property gains), daughters not helped and who now struggle, and private school fees paid for the son’s children but not the daughters.
Any idea how this could possibly be acceptable these days? It seems so archaic, and the left-out grandchildren are asking why this disparity as they see their cousins at private schools? How to explain the reasoning? Shouldn’t siblings all be treated equally regardless of gender? Odd!
A: That is extraordinary behaviour, and I can’t explain it. Perhaps it’s traditional in some cultures. Tradition can have a lot to answer for!
Of course, if the sons were in some way more needy, perhaps because of disabilities, that would make sense. But clearly that’s not the case here.
Actually, there would be some justification for doing the reverse – giving the daughters more support. While the gender pay gap in New Zealand has halved – from 16.3% in 1998 to 8.2% last year, it’s still there. And it’s significantly higher for Māori, Pacific and disabled women.
“The differences in education, the occupations that men and women work in, or the fact that women were more likely to work part-time only, explains around 20% of the gender pay gap,” says Manatū Wāhine, the Ministry for Women.
“The majority (80%) of the gender pay gap is driven by harder to measure factors like conscious and unconscious bias and differences in choices and behaviours.”
It seems some employers behave rather like the parents in your example. And partly because of this, women tend to save less for retirement than men. The average KiwiSaver balance for men is 25% higher than for women.
But rather than suggesting parents support their daughters more than their sons, let’s see the gender pay gap disappear. Come on, employers!
Meanwhile, what should the children in your letter who have missed out be told? For one thing, private schooling isn’t necessarily better. (Please, other readers, don’t write to me about this! We discussed it in some depth in this column a few years ago – with no clear conclusion. But there’s no doubt that some state schools are excellent.)
Beyond that, perhaps issue the kids a challenge: Show your grandparents you are every bit as good as your more privileged cousins!
Q: On giving money to grandchildren, there’s no one right way.
We know a couple who thought 21 was, in general, too young for major gifts to grandchildren. They set things up so their three grandchildren got nothing until they were 28, but if the grandchildren were deemed “responsible” then the gifts would be released sooner. Two of them received gifts at 21. The third grandchild had to wait. Love is tough.
In our case, we decided to gift our “responsible” adult children, and they apparently have paid down their mortgages and provided enhanced educational opportunities for their own children.
Our own direct gifts to the grandchildren are in the form of an unending supply of books. We aren’t the most popular of grandparents in this day and age of electronic geegaws.
A: Gosh. How do you define “responsible”? Still, I suppose the giver has the right to judge, even if the judgement is lousy, as in today’s first Q&A.
Good on you for giving your grandchildren books. Despite all the alternatives, books tend to have more permanence. You still hear young people talk about their favourite early books, often read to them by mum, dad or perhaps grandma or grandpa.
Q: I have read with interest your advice to savers to put emergency funds into 30-day term investments just in case they need funds.
With these short terms the interest rates are considerably lower than savings accounts.
The best thing to do is have a serious savings account where you put these monies. If at the beginning of month you need funds, transfer the total balance to a working account, leave what you need and transfer the rest to a new savings account. That way you still get a better interest rate and don’t have all these deposits due each month. With most of these savings accounts you only need to deposit a minimal amount to get premium interest.
The current 30-day term investment rate is 2.5%, whereas savings accounts with premium interest are 3.25%. My system cuts down on always having to contact the bank to get the best rate on deposit.
Time to move on to more up-to-date advice.
A: You are clearly an expert at the Juggling Bank Accounts game. And your system does sound like one way to receive good interest rates while still having access to your money when needed.
It would work particularly well if we’re talking about money that you don’t withdraw often. If you were moving the money around every second month, I wonder if the bank would start objecting.
With my alternative, you don’t necessarily have to use 30-day term deposits. Interest.co.nz shows us that three-month deposits are paying around 4.1 to 4.3% these days – a fair bit better than your savings accounts. And you can get access to some of your money every month by laddering the three-month deposits.
To do this, divide your savings into three. Put one-third in a one-month deposit – just for now. Put another third in a two-month deposit, and the rest in a three-month deposit.
Then, when the first one matures, roll it over into a three-month deposit. And when the second one - and every subsequent deposit - matures, do the same.
From then on you’ll be able to get to one-third of the cash every month. This works well if you pay for any unexpected expenses with a credit card. By the time you have to pay the credit card bill, a term deposit will have matured.
Q: In last week’s question on retirement savings, I note in your response that some people are getting confused over the figures for each of the examples as they do not look right. I was also a bit confused. So I reviewed Massey University’s Fin-ed report, and when I saw table five in the report I understood the amounts needed by each category.
The figures are easier to understand if the difference between NZ Super and the weekly expenditure is added as a column into the table, as I have done in the attached. Could I suggest that you use my table, or similar, to help clarify the savings needed for retirement?
I note that using your rule of thumb on savings needed, of $100,000 to spend $100 per week, the savings needed would be less than in the table. So, $169,000 rather than $183,000 for one-person no frills, and $941,000 rather than $1,142,000 for the two-person choices metro.
A: Thanks for this. Last week I had considered including weekly spending over and above NZ Super in our table, but I thought that would mean too many numbers. But you’re right, including them does make it much clearer where the required savings totals come from. See our new table.
Actually, adding the new “Weekly spending above NZ Super” column raises an interesting point. NZ Super is the same – assumed by Massey to be $519 a week for one-person households and $799 a week for two-person households – regardless of where you live, even though spending can be quite different in different areas.
Of course, it would be a nightmare to pay people differently depending on their location, what with people moving, and arguments over the definitions of metro and provincial, and so on.
In any case, as our table shows, provincials don’t always spend less than metros – as in the case of two-person no-frills households. It’s one of several puzzling aspects of this research, which is based on the reported spending of people in Stats NZ’s Household Economic Survey.
On my rule of thumb, read on.
Q: As a tragic for finance, I never miss your column! However, last week’s column wasn’t as consistent as you usually are.
Consider the metro couple wanting a “choices” lifestyle. Your “rule of thumb” is that $100,000 savings at age 65 should sustain a weekly income of $100 from 65 until death.
If the two-people metro choices required income is $1,740 per week (as indicated by the expenditure survey) that requires, according to your rule, savings of $1.74 million. That is a lot more than the $1.142 million the table indicated as the required amount of savings, which you say seems “too high”.
Sadly, unless we can be persuaded that such a lifestyle needs a much lower weekly spend than $1,740, I think the bigger number is indeed what is needed for the city-slicker choices lifestyle!
(I am a retired finance professional with several decades of international experience in implementing nationwide financial sector infrastructure developments; a great life but happy now to settle here…)
A: You’re overlooking NZ Super! See the previous Q&A. “My” rule of thumb is about the savings you need assuming you receive Super, which in many cases will cover the bulk of retired people’s spending. Okay, I didn’t spell that out last week. But it’s a fair assumption that readers will get NZ Super.
Still, as the correspondent above points out, my rule gives us lower required savings totals than Massey’s figures. So, is my rule any good?
Two actuaries, Alison O’Connell and Ian Perera, tackled that question for this column. They note that under the rule, you spend the same dollar amount each year, without any increase for inflation. But, as discussed last week, their research for the NZ Society of Actuaries found people tend to spend less as they get older, so this is probably not an issue, unless inflation soars way above about 2% a year.
The actuaries’ research found that under the rule, if you start spending at:
As I’ve said before, many people say that once they are about 85 or 90, NZ Super gives them plenty of income.
The difference between the required savings totals under this rule and the Massey numbers will be because Massey uses somewhat different assumptions. For one thing, Massey assumes everyone retires at 65, even though about half of 65 to 69-year-olds work full- or part-time, and many continue work after that. Massey also assumes the money lasts until you are 90.
One more point: Massey and the actuaries both assume all your savings are held in a balanced fund, with half invested in income assets like bonds and term deposits, and half in growth assets like shares. The actuaries’ expected return is 4.5% a year after fees and tax.
But I recommend putting money you plan to spend within three years in a cash fund or term deposits, money for three to 10 years in a balanced or bond fund, and money for more than 10 years in a growth fund.
The average long-term return of such a plan would probably be similar to having all your savings in a balanced fund, perhaps a bit higher.
I received lots of letters about how much you need in retirement. Look out for more in the next few weeks.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
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