The plight of the single parent...where do I start?!
Your assets are halved, your household income savaged, both made worse by your ability - or lack thereof - to work unless you have free, or highly subsidised childcare. Throw in the stress of separation, the emotional aftermath of a bitter ex, and now the crushingly high cost of living issues, and it is no wonder New Zealand's collective mental health is in the toilet.
Having been a single parent myself, without the benefit of free child care from family living living on another continent, I am familiar with the pain.
My childcare arrangement, as a full-time working mum, consisted of a patchwork of friends, other school mums, cheap after-school programmes and a revolving door of young nannies. This was pre-covid and pre-WFH when your absence at work was noticed. If it was a reoccurring thing, you would likely get the axe. Journalism was merciless. Maybe it still is? Stories don't write themselves.
It was a stress fest of unceasing deadlines, juggling of childcare and a lot of running around to manage a household on my own. Student flatmates to make ends meet, sick kids, parent teacher interviews and the elusive goal of work life balance.
It was several years before I was able to carve out a four-day workweek that included a few days of school pick-ups. On the one hand, it was reassuring the kids were at home and not in the after-school programmes they despised, but it was also a pressure cooker trying to get interviews done with kids banging at the office door demanding sandwiches and snacks, and hard deadlines hanging over my head.
Journalism is a tough gig because you have to deliver. And at the risk of sounding ancient, before the media was savaged to its existing skeletal state, there was a fortress of subs to get through, which meant you couldn't just rewrite a press release and file it with a single quote. Single-source stories were (rightly) thrown back in your face, and typically, you had 2-3 sources so you and your readers could be offered differing perspectives. But this is not a pity party. I'm just glad I'm at the other end of it.
I was reminded just how tough it can be after catching up with a good friend going through the wringer with a terribly messy divorce, made even worse by money problems and custody issues.
I shared some resources with her and thought this week's blog might be helpful for others in the same boat.
Know your rights
In the case of my friend, who was the leaver in the relationship, her ex took revenge in the most cowardly way, via the children. Because she was forced to leave the house, she was left homeless, literally. Her access to the kids was another form of control, and abuse, which he used liberally to punish her. It is widely known that unless one parent is an abuser, you shouldn't prevent your kids from seeing the other parent. For some reason, my friend's lawyer advised her to try to get her relationship property matters sorted first, and for almost two years, they have not had a custody order. The effect of this has been soul-destroying for my friend.
Know your rights. Visit the Ministry of Justice website here for Relationship Break up guidance.
Get your finances sorted ASAP.
As dreadful as it may seem to think about doing a budget, getting a second job or figuring out if you'll be left homeless, you need to be pragmatic. Figure out your financial position and try to get some agreements while formalising your separation and relationship property.
If you're the primary caregiver and work a minimum of 20 years, you will likely be eligible for Working for Families, and the additional support is not insignificant. Apply for what you can as soon as possible, and if its child support, make sure you get that in train ASAP via Inland Revenue. One friend, assumed that lawyers would make things happen faster, and to better effect but was left instead high and dry.
She didn't see a single cent and is still waiting for resolution in the courts. If she had gone to Inland Revenue in the early days, at least she would have had help with child care costs. You can work out what your potential support payments are from WFF here.
Get the support you need
Don't stress, if you can't afford a lawyer. You may qualify for legal aid. You can also consult with the Citizens Advice Bureau to get further support.
Like cancer, the longer you let your problems fester, the worse the outcome will likely be. Surround yourself with loving, helpful and supportive people, and try to minimise the time spent wallowing in anger, sadness or bitterness. Easier said than done, I know but focusing on taking some practical measures will not only be helpful for you, and your kids but also distract you from the pain and grieving you inevitably need to process. "Getting through it all" takes much longer than you may expect. Years in fact.
So, it is best to get on with the things you can change, like bank accounts, mail forwarding, and child care arrangements, so you can rebuild the life you desire, along with your tattered finances.
Procrastinate at your own peril.
You don't have to be an economist to understand the effects of inflation. You feel it every time you shop, whether purchasing a flight, veggies or even dog food.
We've all become numb to these sky-high prices but tend to experience at least a weekly price shock.
Last week, I had mine at the Countdown in the pet food section, which has been hallowed out recently due to supply chain problems.
I gasped recently when I saw my dog's favourite brand shoot up by $2 a tin. Not to $2 but up by another $2. I bought one and then went looking elsewhere. I found it $1.30 cheaper somewhere else and loaded up.
Because we don't live off dog food, these are marginal savings. You're not likely to notice a huge difference in isolation. But if you apply the same vigilance in the hunt for savings across all spheres of your personal finance life, you may see a difference, even if you have to squint.
You might need to stock up on eye wrinkle cream the way things are headed.
Despite the government hoping for inflation cooling, the latest numbers show no change. Okay, it dropped 1/10 of 1% from 7.3% to 7,2%. Big deal!
To add insult to injury, we've also been dealt a further blow with a sharp decline in asset values in both the housing sector and the share market. The average KiwiSaver Growth fund is down by 10% year to date. Yup, it's painful.
You may console yourself by remembering that KiwiSaver (unless you're saving for your first home) is a long game. So think long-term and take a deep breath, right?
Even then, when you look at the long-term returns, those sunny days of 11% p.a. returns are fast fading from memory. Across all peer group averages, they've sunk around 2% p.a., pulled down by the recent meltdown, er, should I say 'correction.'
To compare returns and fees over the life of KiwiSaver, follow Morningstar's quarterly KiwiSaver reports here.
Looking on the bright side, you could choose to look at today's deflated share prices as a discount. We're entering a bear cycle, but it won't last forever. So anything you buy now will likely rise again. We just don't know when.
When KiwiSaver first launched in 2007, it was around the time of the Global Financial Crisis. Back then, default funds (which were Conservative in profile, not Balanced as they are now) and actual Conservative Funds, withstood the blows better than their Balanced, Growth and Aggressive counterparts.
It was demoralising for first-time retirement savers still trying to wrap their heads around KiwiSaver, but those who stuck it out were rewarded in the end with much higher returns.
From that low, we saw one of the longest bull runs in some time, including housing. Markets were almost gravity-defying. They kept going and going, even through Covid, a byproduct of Central banks printing money to prevent total economic ruin.
Fast forward to 2022, when we should be celebrating to return to quasi-normalcy in a sorta-post-covid world, we get slammed.
The effects of all that cheap money finally caught up.
Hence, inflation is at 7% and higher in some places. And interest rates creeping back up to levels that younger investors will have never experienced.
I still remember when my sister bought her first home. We were all very excited for her. Her interest rate was a whopping 14% something that is unimaginable to today's borrowers.
I'm not forecasting or suggesting we're headed back to these crazy highs. Far from it, it would create mass homelessness in New Zealand.
Banks deliberately build a buffer when assessing your ability to service a mortgage. It's called stress testing. Currently, many of them are stress-testing would-be borrowers at 8%. With inflation, what it is, many hopefuls will be knocked out before their first meeting.
Since June 2021, fixed-rate mortgages have increased by almost 4%. On an average mortgage of $650k, you'll be paying around $1,000 extra monthly to service your debt.
The pain is real if you have kids or pets, drive a car, and like to eat.
Personal loans are rising in popularity, and food banks are busier than ever. People are struggling.
So easy wins to reign in costs include the following:
It is increasingly hard to save but not impossible, and if you approach it like a challenge, you'll find more joy in it.
When it comes to money, attitude and behaviour are everything.
We may not be out of the woods yet, but sitting idly with fear, worry and/or apathy isn't going to move the dial. That's on you.
(The usual caveat applies. This is not personalised financial advice. If you need some, see fee based authorised financial advisor. Check out the FMA website to find out more.
8/10/2022 0 Comments
You've heard it many times. Those who don't learn from history are doomed to repeat it.
It wasn't that long ago I wrote in this blog for Simplicity KiwiSaver about the cost of knee-jerk reactions to investment market jolts.
It was back in March 2020, around the time the first big wave of Covid had a tsunami effect on the markets. As usual, when significant market movements make mainstream news, investors wakeup. In the case of KiwiSaver, it jolted many erstwhile apathetic investors to log in to their accounts for the first time and look at their balances. Naturally, when you see balances drop and returns move into negative territory, you feel seasick and search for solid ground.
A quick recap for those who don't remember: We saw an unprecedented rush of DIY investors switching fund types and doing it without any proper advice. Like buffalos fleeing a bushfire, fear drove them from one precarious situation to another. In that case, right over a cliff's edge.
The exodus at that time was from Growth funds, which were getting hammered the hardest, into Conservative funds, then perceived as a safe harbour.
As I explained in my blog, losses in KiwiSaver, or another investment-type product, are only paper losses until you make a tangible move, like withdrawing them. The losses are therefore realised when you take action. In this case, investors crystallised those losses by selling one fund type, and buying another.
Given all that is happening in the world these days; geopolitical instability, the Wild West of investment trades and structures, cheap credit, quantitative easing, and now unprecedented inflation and interest rates, it is very difficult to know how best to sail these rough seas. When hedge fund behemoths like Ray Dalio start chiming that "cash is no longer trash" you know times are really tough.
Not unlike climate change, we tend to be experiencing the opposite of what we expect, or at least what was forecast. And in many cases, the outcomes are more dramatic than expected too.
Those who switched in early 2020 from KiwiSaver Growth funds to Conservative funds, were reminded of the wicked temperaments of the markets when Growth funds shot back up only a few months later. The returns seem to defy gravity, until just recently.
Those that ended up switching out, then back into Growth fund when returns appeared healthier, paid the price. Literally. They crystallised their losses, then paid more to buy back into the fund they had just abandoned.
Those who went into Conservative from Growth and stayed, are now seeing history repeat itself but this time the fund fortunes are reversed. Conservative funds are now trending down worse than Growth funds, which had years of unnaturally high returns to cushion the latest meltdown.
The tech revolution has been fantastic for so many areas of our modern lives, but in the investment space tech's ability to serve investors responsibly has moved ahead of people's ability to use the technology wisely and knowledgeably.
I hate to think of the aggregated account losses in all those $250 fractional share accounts where investors bought on impulse, trend or in some cases, even allowing their kids to select based on the colour of the fund that appeared in their app. I'm not making this s-t up. In one of the more popular finance forums, where a legion of newfound DIY investors share their 'expertise' with one another, I read that colour choice comment from a mother when (she) was responding to another person's questions on how to choose the right fund type for a kid's account.
Previously, if you wanted to choose or switch your investment portfolio up, you had to do that via a financial advisor or a broker, or someone else (presumably smarter and more-savvy than you).
I'm not saying the 'good-ole-days' of being forced to use a financial advisor or broker at a much higher expense, and being turned away at the door for less than $25,000 is superior to our current environment but it was some measure of protection that is absent now. And yes, there are plenty of examples (pre-fin tech revolution) of bad eggs fleecing too trusting mum-and-pop investors. Think BridgeCorp and the like. But that unfortunate time shouldn't be used as an excuse to ignore the hazard that easy DIY investment platforms have created.
A little too late to the party, we have the regulator posting on Facebook or Linkedin with educational tips that barely anyone reads. It is like the horse has bolted, and they have set out the neighbourhood watch to round them up with dog whistles.
KiwiSaver may be getting on in age (it was introduced in 2007 when I moved to NZ from Canada), but in relative terms, it is still spanking brand new.
It has only been in the last few years, that many enrolled in the scheme have woken up to the fact that KiwiSaver is not one single entity that swallows money from their pay cheque each month, but a range of individual different players all vying for a slice of that juicy pie.
Just how big is that pie?
According to the latest FMA report on KiwiSaver, the honey pot now holds close to $90 billion, the collective savings of close to 3 million New Zealanders.
From the very beginning, when I first started reporting on KiwiSaver, it was speculated that at the point at which members' accounts reached the equivalent value of a small car, they would begin to take note. With average balances now hitting the $29k mark, that's precisely what we are seeing.
Investors have become more knowledgeable about the fact that they have agency i.e. they can switch to one of several dozen providers who among them, offer hundreds of different fund types.
They now feel like they have some buying power and can demand more from their provider, which is great. They ask questions about performance and fees and how much they pay in tax. Also awesome.
But there is still a huge gap to close beyond those basics and more fundamental questions about risk tolerance, contribution rates, and how much they are on track to have in expectation of their time frames for needing their money i.e. buying a first home or hitting retirement at age 65.
For a price, some providers build in 'advice' for their investors, but few are aware of that and even fewer take advantage of it. How do I know? Because I've sat at roundtable discussions where fund managers have been attacked for their higher fees (justified because of the advice component) and admitted that people don't know, don't care, or can't be bothered to get advice.
Until people start to care more, history will continue to repeat itself, and some expensive mistakes will be made. When is that magical turning point? My guess is when balances hit the equivalent valuable of a more expensive car, the one that you baby, clean weekly and get annoyed by parking lot dints. So maybe somewhere in the order of a Tesla for example, at $70k ish.
Until then, there will be plenty more crash and burn and angry investors getting upset at fund managers and/or the FMA that they weren't better warned, prepared, or educated.
There is always someone to blame and more often than not it is a deflection for not taking more personal responsibility.
Don't let that be you.
Check your Fund Profile here using the Gov'ts finance website Sorted.
Your Provider will also have fund profile tools and or advisors in some cases, so check that out too.
Amanda is a personal finance specialist and published author based in Auckland, New Zealand. She is also a certified meditation and yoga instructor which informs her teachings on financial wellness.