Spending way out of recession not an option

NEWS RELEASE

17 June 2009

Spending way out of recession not an option, confirms RaboPlus research

Spending their way out of recession is, currently, not an option for Kiwis. Research conducted by RaboPlus confirms that “save more” and “spend less” is the Kiwi response to recession. Despite earlier tax cuts and frequent drops in the Official Cash Rate, Kiwis have not responded to economic stimuli, the research indicates. In fact, the Government’s budgetary moves to rein in spending and control debt are the population’s priorities, too.

Saving habits are not set to change, either. Over the next six months, more than 80 per cent of New Zealanders plan to either maintain their current saving habits, or to save even more.

“For years we’ve been told to save more, so the concept of spending our way out of a recession is difficult to grasp, and it actually goes against the more conservative Kiwi approach to money,” says Mike Heath, General Manager of RaboPlus.

“What we’re seeing at the moment is that it’s the younger ones who are more likely to want to save. However, the older ones aren’t necessarily spending either. The retirees are focusing on investments, and the middle-aged are paying off debt.”

With any extra money, Kiwis are prioritising paying off debts (56 per cent) and putting money into savings accounts (39 per cent). Of those surveyed 29 per cent are putting their spare money into investments. Then there are those who simply don’t have any spare money – a reality for 23 per cent of New Zealanders.

In accordance with ‘watching every dollar’, Kiwis’ top consideration when selecting savings and investment products are fees and charges (67 per cent) the research shows. Second priority is security of money (59 per cent) and third priority is access to money (58 per cent).

The fourth and fifth priorities, respectively, are a high interest rate (38 per cent) and the reputation of the bank or finance company (32 per cent).

Research conducted by RaboPlus over the past three years shows these top five considerations remain relatively constant. However, the order of priority changes significantly according to the economic environment (SEE TABLE BELOW).

Mike Heath says it’s not surprising that ‘access to money’ has crept into the top three priorities this year.

“In the past six months nearly 60 per cent of people made withdrawals on their savings, a third of which were unanticipated. The reasons given for unexpected withdrawals were the cost of living and helping out family,” he says.

Interestingly, when selecting a savings account or investment, North Islanders are more likely to consider fees and charges and a high interest rate, whereas South Islanders favour the reputation of the financial provider and ease of transferring money.

While the majority of New Zealanders have grasped the concept of saving, less than half are actively seeking ways to increase their returns (only 43 per cent).

Even as interest rates continue to fall, term deposits are the preferred form of investment for Kiwis (45 per cent) and are especially popular with retirees. A total of 24 per cent prefer on-call accounts to generate returns, with property investments at 20 per cent, bonds at 19 per cent and managed funds at 19 per cent.

And despite vigorous marketing by the banks, only 21 per cent of those surveyed had heard about Cash PIEs, and only three per cent of Kiwis currently invest in them.

ENDS

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