The essentials of life mean something quite different for teenagers. Photo / Getty Images
Our son has his 17th birthday in three weeks' time. Amazingly he says there is nothing he really needs, as he has the teenage essentials of mobile, laptop and a few favourite items of clothing we don't like!
As he is planning to study commerce and finance at university in just over a year's time, we thought it would be a good idea for him to learn about shares, stocks, markets, etc. We don't have any stocks or shares so know nothing about it.
If we were to give him $200 to $250 to spend, where should we send him to look for advice on how and where to buy some shares, or is there something else you can recommend - so he can use it as "a learning curve" with a view to keeping it going of course for a few years?
He already has KiwiSaver and a part-time job after school, by the way.
A 17-year-old who wants for nothing? How could that be? Anyway, I like your idea of introducing him to the world of shares.
Rather than spending his $200-odd on shares themselves, he should probably start by spending at least some of it on learning about the markets.
Where? "The New Zealand Shareholders' Association [NZSA] holds education courses that are reasonably priced," says a spokesperson from the NZX, New Zealand's stock exchange.
Formal courses are offered only in Auckland, where there are "two levels of educational course each term", says NZSA chairman John Hawkins.
"One is a basic introduction to the opportunities and pitfalls available to retail investors, and covers everything from term deposits, collectibles, KiwiSaver and other managed funds, bonds, shares and property. The other course is focused more specifically on getting started in the sharemarket.
"These are run at Western Springs College. Details are available at www.leisuretimelearning.co.nz" Each course costs $84.50 including a comprehensive course book.
In Wellington, the NZSA runs "at least one new member evening each year - usually the March or April meeting - where we cover the basics of investing", says Wellington chair Martin Dowse.
"Usually this is presented by members based on their real life experiences. If people inquire about the courses I suggest they come along to this meeting."
If your son is in the Waikato, Bay of Plenty or Canterbury, there are also branches there, where he would be welcome to attend a meeting free and check out what's available.
"The association also offers a student membership for only $25 a year. This entitles student members to participate in everything the NZSA does and receive all our communications, but only electronically - no hard copy," says Hawkins.
"All our branches run local programmes oriented toward members' interests. Often these include high-powered speakers from industry plus related commercial and regulatory participants.
"Auckland also runs company visits to a range of listed companies' operational sites."
And there's an annual investor conference. For more info see www.nzshareholders.co.nz
Elsewhere, many universities run investment clubs or similar. Your son might want to look into that. For example, at Canterbury University, "in addition to the formal academic programme there is a very active economics and finance student group who have developed an association with Craigs and run sharemarket education evenings and an ongoing investment competition", says Canterbury NZSA chair Robin Harrison.
Adds NZX: "We also know that some brokers offer education - it would be worth contacting them directly." That's another option.
Useful budget tool
I think that the couple in the first case in your last column are absolutely ideally suited for using a budget tool I have developed called the KJ Planner. They could play round with the figures to achieve what they both would like.
I am a retired accountant. For a long time I have been of the opinion that many, if not most, people make their spending decisions based on the amount they currently have in their bank.
Most people get by okay, but a reasonable number make the wrong decision and end up in financial trouble.
What they need is knowing not only their current bank balance but an indication of what that balance is likely to do over the next 12 or even 24 months. Unfortunately I have not been able to find a single home budget that tells me this, without spending a lot of time recording, so I wrote a program myself.
It makes a plan for the future, shows future monthly bank balances and eliminates virtually all past recording. I got a proper programmer to rewrite it for the cloud. It is available at www.kjplanner.co.nz
Because I believe it is a program that everyone with a bank account would benefit by using, and I want to get it widely used, it is free of charge. As I am naturally biased about the program I would appreciate your opinion on home budgets in general and my program in particular.
I don't have much expertise in this area, but your budget looks as if it might work well.
Automatic transfer easiest
I have a question in regards to KiwiSaver. I presume that neither the Government nor my employer will contribute during the 52 weeks I plan to be on leave with our first baby - is that correct?
I know that having children is a choice, and if we do have kids we're happy to take a financial hit. However, losing out on my own personal retirement funds, on top of a year's worth of income and career development opportunities, really does seem beyond inequitable.
Your employer doesn't have to contribute while you're not working - although some probably do. You can always ask nicely.
And the Government will give you a tax credit as long as you continue to contribute directly to your provider. They'll put in 50c for every dollar you contribute, up to a maximum of $1042 from you and $521 from them.
That's how KiwiSaver works for non-employees and self-employed people, and it's worth taking part. The easy way is to automatically transfer $20 a week or $87 a month to your provider. Ask the provider how to set this up.
High fees hit savings
I recently left an employer and received a letter from the subsidised retirement savings scheme run by AMP giving me my account balance and a form to continue my savings. But to leave the fund I had to ring them and download a form myself and provide a whole variety of other info.
But what amazed me was the fees to continue to invest, and I quote directly from their letter:
Monthly fee - $8.96 every month ($107.52) per year.
Contribution fee - 3.7313 per cent on all payments
Trustee and Admin Fee - 1.4925 per cent.
Investment fee 0.2 - 0.6 per cent.
I'm no mathematician but if you had say $5000 in there and contributed say $200 a month, at the end of a year (excluding earnings and costs) you would have $7400.
You would pay:
$107.52 in monthly fees
$89.55 in contribution fees.
$92.53 in admin fees (using the mid-point balance).
$24.80 in investment fees (assuming the average and the mid- point balance).
That's $314.40 in total. So you would have put in $1200, but more than $300 would have gone in fees - which is a quarter of the funds you are investing. And on an overall mid-point investment balance is a 5.07 per cent fee take.
I am no fan of term deposits, and no one ever got rich investing in them. But you can get a risk-free and fee-free return at the bank of 4.50 per cent (at a time when our interest rates are close to the lowest in decades). So AMP would have to guarantee an average return above 9.5 per cent to make its scheme worthwhile? Seems a big ask.
Yes, in the subsequent years you wouldn't be paying the 3.73 per cent contribution fee on the dollars already in, and as a percentage the monthly fee would reduce. However, it is very obvious to see why many Kiwis are disillusioned with retirement schemes.
I think these fees are outrageous. As I had a small balance and was contributing reasonably large amounts, my actual fee take was close to double figures.
As the investment returns were less than this, effectively I was going backwards. Sure if I had stayed in that job I would have received some of the employer's contributions (which is why I joined), but life isn't always that easy.
I share your dismay.
Your calculations are mostly correct, says an AMP spokeswoman. "However, there is one correction to the total contributions figure. If your reader contributed $200 every month this would amount to a yearly contribution of $2400, resulting in the level of fees being 13 per cent rather than 26 per cent.
"It is also worth clarifying that all the fees highlighted in the letter are before tax (rather than after tax), therefore, a deduction would be received on their PIR (Prescribed Investor Rate). Additionally, contribution fees would only be charged when/if members make ongoing contributions."
Okay, but the fees would still be horribly high.
The spokeswoman goes on to say that when you were working for your previous employer the fees were lower. When somebody leaves, she says AMP outlines several options for them, "including staying in the scheme (albeit at a higher rate), moving their savings to a KiwiSaver fund or considering another retirement savings option altogether. We then provide the necessary support to implement the decisions made.
"While the fees to remain in this scheme may at first glance seem high, it is because we are no longer able to pass on the lower fees that were offset by the administrative support provided by the employer - for example, collecting and remitting contributions, reporting and communicating to members."
Usually, says the spokeswoman, "we find that upon leaving their employer, members of these schemes choose to join KiwiSaver with their new employer and transfer their savings to a KiwiSaver fund." Mostly, due to the scale, members are able to access lower fees on their transferred savings as well as the ongoing benefits of KiwiSaver such as member tax credits and compulsory employer contributions.
I hope everyone in this situation transfers to KiwiSaver. While generally it's good to give people options, I'm not sure companies like AMP should offer ex-employees the option of staying with their old scheme while paying really high fees - given that KiwiSaver will almost certainly be better for everyone.
Good on you for looking closely at the fees. I wish everyone would do that.
I fear too many people end up with many thousands of dollars less in savings because of unreasonable fees.
In KiwiSaver, people can now compare total fees on the KiwiSaver Fund Finder on www.sorted.org.nz. In other investments it's not so easy.
• Mary Holm is a freelance journalist, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and 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 Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.
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