On how the rich stay rich, and the poor stay poor in NZ

So I've been thinking about this post for a while now, and I KNOW no matter when and how I write it I'm going to miss things out and get things wrong.  But I need to write it, so I'd best get on with it.

There are many every day things that simply help our wealthy prosper which are simply out of reach for those on lower incomes.  They are so obvious that a lot of people seem to be oblivious to their existence, or at how massive their impact can be long term.  So I thought I'd write about just the few I think about often.

1) Savings Interest Rates
While I fully understand the whole 'more you save the more you earn' thing (as can invest more/return more), I also KNOW that those who are poor cannot usually afford to save - everything they make is eaten up in costs of living. 

Lets look at the following examples:
The Co-operative Bank is currently offering 3.6% PA for short-term term deposits (4 months) of $5000 or more.  So if I had a spare $5,000 to put somewhere for four months, I would make $60 for doing nothing at all.  And lets say I have a spare $10,000 to put somewhere for five years.  Currently, ASB is offering 4% PA for this - in this case I'd make $133 every four months again, from doing absolutely nothing at all.  And if I put $100,000 away I'd make $1,333 in that same time period.  So I get paid about $83 a week for doing sod all.

So the bank will pay you for them to just hold onto your money - more if you have more money.  And this is just looking at small, safe investing - not even thinking about stock exchange or high risk investment.  So people with enough money to spare get given free money from the bank, while those with just enough get nothing (and those in overdraft pay fees on what they owe).

2) Kiwisaver
Poor people just can't afford it.*  That's just the truth.  Sure, it's a great plan and can get you free money if you use it in the best possible way, but that's not an option for a big chunk of us.  For many families even the minimum of 3% is enough of a chunk of money to make a difference in daily life.  Let's say I work 40 hours per week for minimum wage.  Kiwisaver takes up almost $18 of my after-tax income - so I get $479.35.  The average rent for a three bedroom house in Auckland is $482 - which exceeds my wages.  So even if my partner works part time (cos looking after children for instance) and earns about $250 after tax (minimum wage, 20 hours) we'd only JUST be able to afford to make ends meet week to week.  And that extra $18 I earn (plus the $8 my partner would earn) would actually make a big difference in what we could feed our family (or whether we could afford to have internet/a running vehicle/insurances or not).

A few years ago my MIL asked me if I was getting my 'free' annual government contribution of $1000 odd dollars.  I told her I didn't make the payment thresh-hold.  She asked me why I didn't top up to that thresh-hold.  I told her it was because we couldn't afford to do that and still pay rent/eat food.  She just didn't get it.  Again, there is free money for those who can afford it - but not for those who can't.

Yep, it's a great plan and we used my contribution to help buy our house, but Kiwisaver is just not viable for everyone.  So the governments assumption that everyone can 'afford' to have Kiwisaver is just bizarre.

3) Bulk Buying
Many years ago now I worked in an inbound/outbound call centre which did work for a large range of clients.  One of these was Mana**, which at the time worked to help Maori find employment and generally do better/feel better in life.  At that time they had a series of ads running which showed how people had bettered themselves through using the program.  In one, a Mum of a large family talks about how she could only afford to buy toilet paper one roll at a time.  I was not usually on the inbound phones (I worked outbound, then was a teamleader then supervisor) but did small stints on our general inbound team when necessary.  On one such occasion I had the pleasure of being abused by a woman who disbelieved what was purported by this ad for Mana as 'Everyone knows it's cheaper to buy toilet paper in bulk.  It can't be true, it makes no sense'.

It is true that it (usually) is cheaper to bulk buy.  What this woman couldn't understand/believe is that someone could only have the less than $1 to spend on toilet paper per week rather than the $3 that would allow them to purchase many more rolls of toilet paper in a multipack.  For me this is entirely believable.  For those who live paycheck to paycheck, literally every cent counts.  What was implicit in what the woman in the Mana commercial was saying was that if she spent any more on toilet paper, she couldn't have afforded to buy certain food items, or pay rent, or buy petrol.  While I can see how this could be unbelievable to those who've never encountered this type of quandry, it doesn't make it any less real.

In recent times, with all the talk about our hundreds of thousands of kids living below the poverty line I've heard the same line of thought around Weetbix.  But as shown here, you can't purchase single serves at as low a cost as you get when you guy these products in bulk.  And for many, bulk buying items is just beyond the ability of the weekly budget.***

4) Vehicle Ownership
Cars not only cost a bunch to purchase (for those in lower income brackets even the low thousands is pretty unreachable), but cost a lot to maintain.  We are a single income family who earn a decent amount, but I still don't see multi-car ownership as a financially viable option for us.****  I often encounter shock horror at this fact: 'You mean, you are home with two kids and have no car - how do you get anywhere/do anything/stay sane?'  Um, we get by.  We use public transport.  We use our legs.  We appreciate what we have.  And we do have a car.

But having a vehicle gives you a lot of flexibility.  You don't have to base your employment on proximity to transport routes.  Or your shifts around when you can get to work.  You can shop around for the best bargains.  You can send your kids to the most suitable Playcentre/school/kindy rather than the closest one.  Same with extra curricula activities.  You save a lot of time, which you can then spend doing whatever you like (including, working to earn more money).  Having flexibility means you have more options - which can mean better earning (or saving) ability.
 
5) Timely Payment 'Incentives'
We save around $18 a month on our power bill just by paying it as soon as we can.  We can afford to do this because we earn a decent amount of money, and can put the money aside for our bills to do so.  So we save $216 a year just because we can afford to pay one bill on time.  Or around $4.20 a week - enough to bulk buy toilet paper every week if we wanted and have a little extra to spend on something else.
 
6) Internet
With more and more services switching to online only, this increasingly impacts on those Kiwi's who can't afford to have internet at home.   Yes, there are increasingly public places that allow free internet access (public libraries), but I imagine many people are wary of accessing many services via a public access computer - for instance banking facilities or personal accounts (email, social media) - particularly people who don't have a lot of online experience - which will be people who can't afford to have internet at home. 

There are many things I enjoy online at home which enable me to better manage our finances: online banking, mobile account management, access to the latest news and weather (affects whether I wash clothes or not, which affects how much I spend on laundry powder - and many other random things), social media (which allows me to access help, support and trade via friends, family and the broader community), shopping and price comparison websites.  I also do surveys online for vouchers I can spend online - I earned around $350 last year doing this - which is about $6.70 per week.  It really took the pressure off us at Christmas as I used it predominantly for gift buying - but for a family in a trickier situation than us it could mean the difference between being able to afford new shoes and jackets for their kids when they need them - or not. 

7) Insurance
Having grown up quite poor, I still struggle with how much we spend on insurance.  For me, it feels like throwing money up into the wind - most of it floats off into the ether.  And it's not a small amount.  We spend as much per week on various insurances (including house, home and contents, vehicle, life [for both Murray and I] and health [for all of us]) as we do on a months unlimited broadband.  That is an entire food budget (or double a food budget) for some families.

But it's useful.

Life insurance mean that if either of us randomly die the existing one of us can pay off the mortgage, and have a little left to pay for the funeral.  Whilst I don't expect this to happen, the thing with accidental death is that you don't.  It's worth the peace of mind for us.

Health insurance is probably even more important - instead of having to wait around on public lists for random things we can go private for consults and surgeries.  This means there's less impact on our health and wellbeing (and on our work/ability to work).  Both Murray and I have both used specialist medical services in the past few years - both for unexpected things.  Totally worth it for us (especially me with all my random bungness).  And while it costs us, long term I expect it to save us much that you can't really put a price on.

But insurance is a luxury.  When you are living on the bones of your butt and can barely afford to make rent payments or put food on the table it's just not plausible to have it.  Which means that when things do go wrong, life can become even tougher: your house is robbed - you have to start from scratch with all your appliances.  You crash into an expensive car - you have to organise part-payments to cover the costs which eats into the food budget.  Not having insurance can be very expensive.

8) GST
GST impacts more heavily on those who earn less as those on smaller incomes usually have to spend it all on goods and services to get by.  Let's say someone earns minimum wage working 40 hours per week and doesn't have Kiwisaver - that's $497.05 cash in hand per week.  Of that, lets say they spend $480 on their bills, gas and food (being conservative) - that's $72, or 14.48% of their wage.  Someone else earns $60,000 PA (and have Kiwisaver and a student loan) - that's about $796 per week cash in hand.  Because they earn more, lets say they spend more than the first person - but try and put aside about 20% of their income.  That means they are spending $95.52 in GST per week.   So while they're paying a larger amount than our first person, that's just 12% of their income.  This is why increasing GST has a greater impact on those on lower incomes.

9) Buying things out-right
When you have money, or savings - you can do this magical thing where you go to a shop, and purchase a large item, like a fridge or couch without using finance.  Which saves you at least $80+ per application (and if you have a vehicle, or a friend with a vehicle, you may not have to pay for delivery either).

10) Putting more than the minimum on the mortgage
Many NZers in lower income brackets won't ever be able to get a mortgage.  But for those who do, their mortgage will probably end up costing them more in interest, than those who earn more.  Here's an example from stuff.co.nz:

'A young couple buying a $400,000 home over 30 years with a starting deposit of $50,000, and assuming a long-term interest rate of 8 per cent, will end up paying interest of over $574,000, more than the price they paid for the home.' ... If they opted to pay just $10 a week more than the minimum repayments, they'd cut their total repayments to the bank from $809,950 to $783,500. ' 

That's a saving of $26,450.  I put the same information into the mortgage calculator in Sorted.  If you can put an extra $20 on the mortgage per week you save just over $80,000.  If you can spring to $100, you can save around $255,000 in interest over the lifetime of your mortgage.  That's a whole buttload of money. 

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Just to reiterate, these are just a few examples of things I notice in daily life.  There are many, many more things that contribute to this broadening gap between rich and poor in NZ.  The purpose of this post is to make some of these things visible to those who have never had to think about these things.  I found this a very handy tool to help work out the figures I've used, but I'm no expert at accounting, economics or math - so these may not be perfect.

I just want people to think, and realise, and be grateful for what they've got.  And not assume that all wealth is garnered through hard work, and all poverty garnered through lack of it.  There are some very practical things which help keep those with little at the bottom of the economic food chain, and those with more at the top.


* And yes, there are poor working folk in New Zealand.  Many of them.

** I hope I don't get sued for this, confidentiality statements I signed back then and all, but I don't think either company exists any more, plus not saying anything negative about anyone anyway.  Fingers crossed!

*** And yes, these people could shop monthly - but they can't.  Cos they'd need a large sum of money at the outset for the first month.  Which never happens.  As they never have any money.  And if they try and save that money they will have no food for the first month.  And if you don't eat for a month, you die.

**** I also personally feel it is unnecessary for us to own a second car.  We live a mere 20 minute walk from a mall and supermarket.  We are close to major bus and train routes.  We are healthy and able.  It is good to teach the kids to get out and about and that they need to work for what they have.  And it's much better for the environment.  I personally feel the benefits we get from not having a second car far outweighs the benefits of having one.