What should a teenager do with money saved from a part-time job? Photo / 123RF
Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance.
OPINION
Q: My daughter started working at a café part time on the weekends as a 14-year-old, two and a half years ago, and has managed to save $20,000 since. She’d like to invest the bulk of it, just keeping a small amount for spending.
Obviously she has a long-term investment horizon and wants to invest in higher-risk, higher-growth potential, but also wants some assurance that although the value might fluctuate, she won’t lose it all. What’s the best option for her?
A: Your daughter is an impressive saver – although I suppose living at home, with presumably few expenses, does help a lot!
I suggest she puts her savings in a KiwiSaver fund if she plans to use the money for a first home, or in a similar non-KiwiSaver fund – they are offered by most KiwiSaver providers - if she might spend it elsewhere.
Almost all higher-risk funds invest in a wide range of shares, and some also hold a range of bonds and property investments. While one or two investments could become valueless, it’s highly unlikely to happen to many of them, and certainly not all of them.
However, your daughter should know that in higher-risk funds, the value will fluctuate – not “might fluctuate”. Occasionally, investments in these funds lose as much as half their value, possibly even more. But they recover, although sometimes it takes a few years.
None of these funds is guaranteed by the Government, but they are regulated. And every fund must have a supervisor – a separate company - that makes sure investors’ money goes where the fund manager says it goes.
If your daughter wants to be ultra-cautious, she could always use more than one provider, but I don’t think that’s necessary.
I suggest she use the KiwiSaver Fund Finder tool and other tools on sorted.org.nz to choose a fund. It’s good to pick one that charges low fees and has a good score for services. Don’t take much notice of past returns, as they change all the time.
She might also want to check out her “finalist” funds on the Mindful Money website, to see how they score on ethical investing.
Q: I am 54, and inherited $300,000 about two years ago. It’s still sitting in the bank. I have no mortgage on my apartment, and no children or partner. I have been getting conflicting advice about how much I will need to retire. My concern is I will always have body corporate fees, so I feel I need to save more.
Is it better to put this money into managed funds or property given my age? If I buy property it would have to be out of Auckland and cost less than $600,000 as I don’t wish to use my equity. On the other hand, I am told managed funds are the way to go. My biggest fear is losing money, and having less than when I started, as opposed to large gains. I hope you can provide some insight.
A: I don’t think rental property is right for you, especially if it has to be a cheaper place elsewhere in the country. Do you really want to deal with crises such as leaks, or tenants who don’t pay – perhaps because of the leaks? While property investment sometimes brings big gains, it almost always calls for your involvement – or that of an expensive property manager – at some point.
Managed funds, on the other hand, just sit there quietly. Given you don’t want to see your balance drop lots, you should choose a lower-risk defensive or conservative fund. Your balance will still dip sometimes, but not often and not far, and you can be confident it will come right, and grow over the years.
Choose a non-KiwiSaver fund, using the tips in the previous Q&A. Then you can withdraw any amount at any time, with just a few days’ notice. And do withdraw sometimes – not just for body corporate fees but for outings or other treats. My guess is the person who left you the money would want that.
Q: I read in your column a couple of weeks ago about a man who entered competitions rather than Lotto, as the odds of winning were better. While this is a good idea, I have a few concerns.
If you give any personal information will it be passed on to a third party? Also, with so many scams out there, make sure that the prize you won is genuine and not from a scammer. Good luck to all who enter competitions but please do not be scammed.
A: You raise some good points, so I asked online safety organisation Netsafe if it has any particular concerns about people giving personal information when they enter competitions.
“The interpretation of a competition, and the many different ways in which a competition can be run, makes for an extremely wide scope of practice around potential concerns,” chief online safety officer Sean Lyons says.
“Generally, you should first be aware of exactly who is running the competition, and what are their stated conditions on the use of your personal information. You should be well informed, and happy with the conditions laid out, before you enter any competition.”
Are there scams around winning prizes, I asked, and if so, what should people look out for?
“There are a huge amount of scams relating to competitions. An even greater number if you include those related to grants and awards (which often work in the same way). The key thing to remember is that you can’t win a competition that you didn’t enter. So if you don’t recall having taken part in the competition, then I’m afraid the prize isn’t real.
“Look out for lottery wins, power tools, handbags and backpacks, even cash prizes loaded onto ATM cards. All of these (and many others) are used as the hook in competition scams, and all of them end in trouble and loss.”
His final words: “Don’t be swayed by the potential gains into not checking things thoroughly, don’t pay to release a prize, don’t provide personal identification documents to prove eligibility to receive a prize until you are absolutely sure that the competition is genuine. And just to reiterate, you can’t win a competition you didn’t enter.”
Q: I read the first letter last week, “Reader finds material wealth falls short on fulfilment”.
I live very well on very little and have a happy and fulfilling life. When I read of some of the fortunate people who have made a lot of money, I would like them to consider helping fund the special schools in South Auckland.
I worked in them for most of my professional life. Some of their classrooms date back decades, buildings that should have been demolished years ago. In these classrooms dedicated therapists, teachers and teacher aides work tirelessly to educate children from ages 5 to 21 to gain skills for daily functional living.
One school has a cracked swimming pool that would cost thousands to fix. When I worked there this tiny pool was used every day by every classroom to have a swim. Now, no longer. Last I heard it was too expensive to fix.
At another school I worked at, the past long-serving principal planned and dreamt that one day her school would have a state-of-the-art swimming pool. I visited schools overseas and brought back pictures and ideas. That pool has not been built.
If I won the lottery, I know where my money would go. How rewarding it would be to work with these school boards to build an all-purpose pool for the pleasure of these children with a full range of neurological difficulties - allowing them to enjoy the thrill of water play, and even learning to swim in an all-weather pool, to improve their physical, intellectual and emotional strength. The reward would outweigh having thousands of dollars languishing in the bank.
Just an idea, Mary, to go alongside your idea of voluntary work. These special schools need help. Not just swimming pools, but play equipment, playgrounds, too, with swings, seesaws and climbing frames. Their budgets don’t stretch to these things, and the parents aren’t in the wealth brackets to fund them.
A: It would be great to see a philanthropist’s money go to these schools – or, for that matter, to a heap of other great causes.
Before others write to me along similar lines, sorry, but we’ll draw a line here. We could fill the column for weeks, while letters on many other financial issues languish.
By the way, last week’s correspondent – the wealthy but unhappy man – sent me a further note: “I grew up in poverty (lots of love), the kind of poverty where my mother had to decide whether she purchased shoes for winter to get to her cleaning job at 5am or school shoes for me in winter.
“The only meaningful measure I have to show that I’ve done okay is that I can buy any shoe at any time, which sounds so bloody ridiculous!”
Not at all.
Q: Further to your final correspondent last week, about Lotto, I occasionally, as a special treat, gather used and discarded Instant Kiwi tickets and bring them home to my wife so she can lose for free.
A: Cheeky! I hope she gives as good as she gets.
Q: Currently I have four $10,000 term deposits, for two years each. But I am finding it hard to live on superannuation, and interest rates are going to go down after briefly being 5.25% for mine.
I am 87, in a small retirement village. Each payday I pay $100 into an “in case of” account, $200 into an account for insurances, car, presents, Christmas, glasses, hearing expenses, medical etc, and $50 for clothes, haircuts etc. This leaves enough for petrol, food, St John alarm, NZ Herald online, U3A group, charity etc, but nothing over.
I am hesitant to use the capital I have as I am aware that I could need a mobility scooter, or wheelchair, for example, as I get older. Plus I would love another couple of trips to Oz to see my in-laws and sons living there. Please can you suggest how I can make life a little easier.
A: Your budgeting is admirable. But I would love to see you take those trips, and I think you should. I hear too often from older people who wish they had travelled while they could.
I suggest you plan to spend your $40,000 over, say, the next eight years. By the time people get to their mid-90s – often considerably younger - most say NZ Super is enough, as they go out less.
If you get an average term deposit return of about 2% after tax – which is fairly conservative - you could spend about $5500 a year, and you’ll have about $4200 left to withdraw in the eighth year, according to a couple of online savings distribution calculators. And if you spend somewhat more in the next few years, the money should still last well into your 90s.
What if you find you need a wheelchair or similar later on, and you can’t afford it? You should be able to get Government or community help.
“To be eligible for support from Ministry of Disabled People – Whaikaha, you must have a physical, intellectual, sensory (vision or hearing) and/or age-related disability,” says a spokesperson. “There is further information about Assessments and Funding, Support and Services available on our website whaikaha.govt.nz”
If you apply for a wheelchair, an assessor – typically an occupational therapist or physiotherapist - will check on your needs, he says. “The wheelchair is loaned to the person and must be returned when it is no longer needed.” A referral to this service is often made by a GP.
The spokesperson adds, “Ministry of Disabled People - Whaikaha fund mobility equipment for use within the home, and for work and education. Mobility scooters are generally not covered by Whaikaha funding and are most often funded through community grants or private purchase.”
Footnote: Interest rates are indeed falling. But term deposit investors should keep in mind that’s because inflation is decreasing. While you receive less interest, there’s some relief in that prices won’t rise as fast.
* 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 or click here. 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.
Demand for bonds may well stay strong, but there's a catch.