If we paid more attention to wealth creation, we might find the cost-of-living problems take care of themselves.
If we paid more attention to wealth creation, we might find the cost-of-living problems take care of themselves.
THREE KEY FACTS:
New Zealand’s total household net worth has reached $2.34 trillion, according to Stats NZ
That’s an increase of 0.3% for the March quarter and an annual increase of 1.4%
Household net worth peaked at $2.488 trillion in December 2021
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
OPINION
New Zealanders got wealthier in the first quarter of this year ... officially. Last weekStats NZ quietly released its National Accounts on consumer income, savings, interest payments and wealth for the first quarter of 2024.
They showed that New Zealanders’ household net wealth (as opposed to the Crown’s deteriorating position) rose by 0.3% for the quarter and is up 1.4% in the past year.
Of course, Stats NZ always puts out its data quietly, dropping it on the website and sending out press releases.
Whether the data is received quietly is another matter. We all tend to get excited about inflation, interest rates and other indicators of trends that affect our cashflow.
As a nation, we are obsessed with the weekly cost of living, at the expense of worrying about getting rich. If we paid more attention to wealth creation, we might find the cost-of-living problems take care of themselves.
We also stress a lot about the wealth of the Government. Crown debt gets people very animated. It’s easy to bash the Government but New Zealand’s real problem is high private debt and low private savings.
Surely the point of all the economic debate should be making New Zealanders wealthier. Well, it turns out we are - in aggregate.
For the record, we’re collectively worth about $2.34 trillion now. That seems pretty good until you realise housing accounts for most of that figure.
Our net wealth based on just pension funds and insurance assets is $160 billion.
Kiwis store most of their wealth in the family home. At the start of their time as homeowners, they don’t have much net wealth because they owe most of the house’s value to the bank.
Over time the equation shifts. And of course, it is accelerated by housing market booms that push up prices. But unless you’ve got investment property, putting an extra zero on the average house price (as we’ve done in the past 30 years) doesn’t make us any richer.
So, no surprise, the net wealth of Kiwis most recently peaked in late 2021 when the housing market did. Inflated by Covid stimulus - record-low interest rates and government spending - those house prices didn’t create real wealth.
If anything they created a false reality that we now see many new homeowners paying a price for.
Being wealthier “in aggregate” also means we’re ignoring wealth inequality. Just because New Zealand’s private net wealth figure rose doesn’t mean we all got richer.
It’s always possible the richest New Zealanders just doubled their money (they probably did).
Inequality is another topic we spend a lot of time arguing about, with good reason. Everyone - left and right - wants to see the poorest Kiwis get wealthier.
But we have wildly divergent ideas about how best to achieve that.
The left will tell you that more government support is needed. The right will tell you that relying on government support is the exact reason people stay poor.
It’s a dynamic issue for centrist parties like National and Labour as they have to choose how much focus to put on wealth creation (which leans on existing and often unequal structures) and how much to focus on wealth redistribution (which risks undermining some very functional structures for creating wealth).
I’m not going to solve that one today, but suffice it to say the current Government (with Act and NZ First at its side) has decided it’s time for more focus on the former.
Labour, meanwhile, has some serious thinking to do.
Let’s get back to how New Zealand’s aggregate wealth is tracking. Regardless of how you divide it, it seems to me that more is a good thing and less is bad.
So, the good news is that overall wealth is growing again.
That seems like a paradox in an economy that is barely growing, with house prices in the doldrums and where the value of a dollar is still being undermined by excessive inflation.
The solution though is that our KiwiSaver accounts (and other pension funds) are having a good run. They are up 5.5% in the past quarter.
But if we drill into why they’ve done well, it is nothing to do with New Zealand’s economic fortunes.
Global markets have been lifted by an AI-fuelled tech boom, a lot of which looks like a bubble of hype - even if you believe AI is about to dramatically change the world.
The so-called “magnificent seven” tech stocks (Nvidia, Meta, Amazon, Google’s owner Alphabet, Tesla, Apple and Microsoft ) rose by 70% last year.
Nvidia chief executive Jensen Huang. We have the AI boom to thank for boosting our KiwiSaver funds. Photo / Getty Images
The local sharemarket certainly hasn’t been a driver of Kiwi wealth. It is becalmed - up just 0.14 per cent in the year to date.
I’ve enjoyed the healthy look to my KiwiSaver balance this past year but it is a bit sobering to think about how reliant it is on Silicon Valley hype.
There’s one more obvious but problematic reason why Kiwis are getting wealthier on aggregate.
We’re getting older as a population. Older people have less debt and more savings. Given the current demographic trends, it would be weird if we didn’t see net wealth rising.
Unfortunately, none of the reasons for rising net wealth look economically transformational. The statistics are flattering and they are a decent reminder that we are not a poor nation.
But if we want to be a rich nation, we need to do better. We need to save more and invest more outside of housing.
