A couple who want to give their kids a baby brother or sister should go ahead - but they might have to watch their spending. Photo / Getty Images
OPINION:
Q: My husband (early fifties) and I (much younger) have managed to save $200,000 (inclusive of KiwiSaver) for a house deposit, and we have two young children.
We would love to expand our family with one more child, but I worry if we can afford three children and a mortgage on a combined income of $150,000.
I also worry about his eventual retirement and what that will mean for myself financially. It feels so cruel that we would have to choose between having a family or buying a house, and that it could all be on my sole income. Who could provide help in figuring out what is realistically possible for us?
A: You could perhaps ask a financial adviser or mortgage adviser for some guidance. But much depends on the price of your house, your future incomes, and so on.
Perhaps of more importance, though, is how you spend. There's a huge gap between the "essential" spending of the Big Splash family and the We Don't Need All That Stuff family.
From clothes to cars to holidays to interior decorating, so much spending isn't necessary for a good life. Look around you. Do the big spenders seem happier? Do their kids — despite the heaps of toys?
A good source of ideas on how to cut spending is websites and articles about the Fire movement, which stands for financial independence, retire early. These people live frugally, sometimes extremely frugally, with the idea of saving enough to retire at, say, 45.
That's not in your plans, but you can still pick up all sorts of ideas on how to reduce your spending, and how to regard that as a challenge rather than a deprivation. Be proud of how little you spend on clothes or food or toys. Maybe have a competition with other families.
And look around for all the fun stuff a family can do in this country that is free.
The less you spend, the faster you can pay off your mortgage, with the idea of getting it down to a manageable level by the time your husband retires.
Speaking — well, writing — of which, does he have to retire at 65? Even if he loses full-time employment at that stage, he could perhaps do part-time work or start his own business. He might be able to plan for that from now on.
The number of people working well into their seventies is growing fast, so hopefully your husband can be one of them.
It seems to me that you two will make this work if you are determined. Make that baby, and enjoy your new home!
Q: After a rough few years renting in Wellington with children (but we had a fantastic time workwise!), we have returned to Christchurch for both family support and reasonably priced housing. We are preapproved to buy a home, but we are struggling with our decision making.
Do we spend every penny we have on a house in what we consider to be well-zoned schools or less on the house with maybe not so great schools and the ability to save more to help our children into homes one day? We feel very lucky to be able to buy at all.
A: Good on you for being appreciative of your situation, and of your experience in Wellington.
You may have been following this column over the past few weeks, when readers have been commenting on the quality of state versus private schooling, whether boarding is a good idea, scholarships, tutors and so on.
One point made is that parents' attitudes and helpfulness are probably more important to a child's success than the schooling they receive.
Another point is that the reputations of schools can change. As a recent reader pointed out, a good new principal can make a huge difference to a school, as can a weak one.
Still, I'm sure you don't want to send your children to schools with a really bad name. A weak principal probably doesn't attract many good teachers — although I'm sure there are some stalwarts who keep working miracles regardless of who is running the show.
But this is all getting well beyond my area of expertise. I would lean towards schools with good reputations, but not necessarily the "top" ones. The higher property prices in some school zones seem out of whack to me.
Q: My son said I missed an important point in my letter, published in your column last Saturday, about the drawbacks of his and his twin brother's private school education.
He said that those friends they made at the private school played a big part in them being motivated to do well. He also said that it might be easier to fall in with the wrong crowd at a public school. Financial and socioeconomic circumstances make it harder for these kids to come out of that rut they get themselves into. He knows of some rich kids at his school who did fall into the wrong crowd, but have since come right and have successful careers.
The outcomes for private school kids are statistically better with higher grades, high UE rates and they go on to earn more money.
However, it is arguable from a return on investment, risk-benefit point of view if it is worth the money spent.
I stand by my advice to this particular solo mum using her house deposit for a private school education. Sure, by all means send your kids to a private school if you can well and truly afford it. There are no guarantees. Just a calculated risk.
A: Some counter-arguments for your son:
• The crowd a child falls in with at a private school might not be everyone's ideal. Attitudes of privilege are perhaps more common — and not helpful in a society that strives for equal opportunity. And state schools have no monopoly on problems like teen law breaking.
• On the stats, the average private school student probably does better than the average state school student for all kinds of reasons, such as parents tending to have more education. But good state schools seem to hold their own. And, as I said above, the home environment probably matters at least as much to a child's academic success as the school environment.
• I would hope that we don't measure a school's quality by the incomes of its former students. Many people making huge contributions to society are poorly paid — starting with teachers actually.
Still, it's great your son feels so good about his schooling.
Q: I have noticed your comments regarding KiwiSaver — stating that for over-65s the account can be run like an "on call" account from which you can withdraw amounts as if it were a current account.
Is this true? I am aware that it could take a couple of days to have the money paid out to your bank account.
The reason I ask is because I have just under $100,000 in the bank — part of which I would normally put in a term deposit. With the term deposit rates at the moment, would I be better off putting it in my KiwiSaver account?
A: Most people can probably cope with KiwiSaver withdrawals taking a few days. It certainly beats waiting for a term deposit to mature.
And if you have a low-risk KiwiSaver cash fund, you will probably make a slightly higher return than in a term deposit, especially if it's a low-fee fund. Note, though, that the return will move around a bit and is not guaranteed.
You can use the Smart Investor tool on sorted.org.nz to find these funds. If your provider doesn't have a cash fund, move to one that does. I wouldn't use a higher-risk KiwiSaver fund for savings you expect to spend soon.
Q: I read with interest the question in your column two weeks ago from the single, bored, low-debt woman. That was me 10 years ago! I was not unhappy in my work but bored, mortgage paid off and was single with no debt or dependants. So I left my job, I had a bit of time off then started a business.
In hindsight, it was the best decision ever. Actually, I often wonder if I should have done it sooner. I feel like I've gone from living my life in black and white to full-on colour! The only two pieces of advice I'd give your reader are:
• Don't sell your house, it's security, and it can be hard to get back into home ownership and hard to get even a small mortgage without permanent work.
• Try and pay your mortgage off as soon as you can, maybe with a bit of high-paying contract work. Life is delicious without a mortgage!
A: Thanks for writing. I'm sure our reader will appreciate your encouragement.
At the risk of being a killjoy, though, I need to say that many new businesses fail. We tend to hear only about the successes.
It's great when people start their own businesses — including retired people. But it's good to also have a Plan B.
Q: Just a comment on the reporting of house prices. A lot of this is reporters trying to make a story. We have no idea of the true price change of a house to live in.
Can somebody please adjust to not include development properties and land use changes? One house selling for twice its valuation is obviously usually about to be developed to maybe seven residences, so was never sold to be lived in. Can we compare actual houses that will continue with the same purpose as when sold?
Our house price rises will then reflect more closely what is actually going on — compare apples with apples. It just causes more hysteria when properties are touted at selling at twice their valuation.
A: I can see your point. We've all heard about — or driven past — sections on which one old house is demolished or moved and replaced with three or six or sometimes even 10 townhouses. So we're hardly surprised to learn the developer paid a million dollars more than expected for the old place. Lucky sellers!
Where this happens several times in one suburb, you would think that would really boost the average price increases in that area.
The fact is, though, that at least one major source of house price data takes this into account.
"I think there are two parts to answering your reader's questions," says Nick Goodall, head of research at CoreLogic NZ.
"Firstly, the large majority of sales are to first-home buyers, other owner-occupiers moving house and 'small' investors (with one or two properties). So the greatest contributor to the measures we produce at CoreLogic are influenced by the sales of properties that are for 'living in' (as the reader puts it). Brownfield development is a very small part of the market, particularly outside Auckland.
"Secondly, and I can't speak for other organisations or measures in the market, but the CoreLogic House Price Index has a number of measures in place to exclude any outliers when it comes to calculating property value movement over time.
"One of those is excluding properties selling for well over their 'expected valuation', which would probably capture sales such as the example provided (one property sold to be replaced by seven residences)," says Goodall.
P.S. In defence of my colleagues, I have to add that blaming reporters is a classic messenger-shooting exercise!
- 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. 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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