The regular Mary Holm column is on holiday until January 29. In the mean time, the New Zealand Herald will be publishing extracts from her book A Richer You - How to Make the Most of Your Money.
OPINION:
In August one year I put a note in the column
Mary Holm: Should this teenager get a credit card?
Whether it's Fathers' Day or any other event, something homemade can be as welcome as a big-budget present. Photo / Getty Images
AdvertisementAdvertise with NZME.
Q: For Father's Day I and my daughter cook a meal together and invite the other fathers and family around.
Spending a day in the kitchen with her is one of the best days of the year. Feeding a dozen people for less than $20 shows her how to be creative and good with money.
Lasagne this year, yum. No gifts.
A: I love it. And your letter suggests that a wonderful gift from a child is to give their parent an opportunity to teach them something in a fun way.
AdvertisementAdvertise with NZME.
Birthdays, too
Q: I was interested in your comment re 'Message to dads'. I had a birthday luncheon, and on the back of the invitation I wrote, 'If you are thinking about a present, I am passionate about the NZ Bible Society. Here's their bank account number, or I will have an offering bag available.'
The donations from my friends that I know about were over $500! Others gave directly and anonymously. As you say in your message, we don't need lots of last-minute shopping.
A: Or any shopping at all, when it comes to gifts. It's great to acknowledge someone's special day – perhaps with a phone call, a snail-mailed card, or a handmade or grown gift. There's nothing inherently wrong with bought gifts, but not just for the sake of handing over something expensive because it looks bad if you don't.
Should teen get a credit card?
Q: I am 17 and I will be turning 18 in June. I currently have a job as a waiter that pays me reasonably well. I was thinking of applying for a credit card to build my credit score and get some practice around borrowing money. What are your thoughts on responsible young people getting a credit card at 18?
A: Some people would say credit cards and teenagers shouldn't mix. There's too big a temptation for a young person to run up huge bills they can't possibly handle.
But that's underestimating you and others like you. From the few sentences of your letter I get the feeling you would handle a credit card well. And it would be good for you to have one.
The basic rule: it's fine to have a credit card, as long as you're confident you will always make the full payment each month. By doing that – as you note – you build up a strong credit history, which will help you in all sorts of situations.
If you want to go flatting, or apply for a job, or sign up for an electricity account, the landlord, employer or power company is quite likely to run a credit check on you. Later on, you might want a mortgage, and the lender will definitely check out how you've handled loans in the past.
AdvertisementAdvertise with NZME.
While having no credit history is better than having a bad history, it's better still if you have proven you can responsibly handle a credit card.
A good way to be sure you always pay your credit card bill in full is to set up an automatic direct debit from your bank account. But of course you must have enough money in the account on that day. Perhaps make a note in your diary – or some kind of electronic reminder – to check a couple of days before the payment date.
What if you're in a short term crunch, maybe because you've lost your job?
Make sure you pay at least the minimum amount that month, then stop using the card, and plan to pay off all your debt in the next month or two.
While we're on the topic, other readers might want to check their credit score. If you Google 'credit record NZ' you'll get lots of advice on this, including from the government, the Citizens Advice Bureau and sorted.org.nz. You can check your scores with three different agencies free, and there's advice on what to do if your score is low, or if there's incorrect information about you.
Reluctant to splash out
Q: I feel like I have always scrimped and been very careful with money – firstly when I was in my twenties as my boyfriend and I saved up to travel overseas as well as buy a house (it was easier back then), and then later when I was a single woman and buying a house on my own.
I met my husband when we were both 40. It was stressful financially for me, as he was in debt and was paying child support, so we made no headway on our mortgage for years.
Now, we are 55. And due to starting a business that became successful, we are in an excellent financial position (mortgage free house plus two rentals that cover their expenses), but I still don't feel relaxed about money and financial security. It's like my emotions and feelings around money haven't caught up with the new reality. I feel like I should be more generous with money now, but I just find it hard.
A: Your problem is one that many readers will have trouble relating to. But that doesn't make it easier for you.
It's often obvious that a person's attitude to money comes from their past. People in my parents' generation who went through tough childhoods in the 1930s depression were often reluctant to take on any debt, except a mortgage, until the day they died.
It seems your history is not about hardship as much as careful money management, at least in your early adulthood.
You learnt that if you saved you got ahead. But then came the tough times. And then came the easy times. It must all be rather confusing for what we might call your financial psyche.
I'm not a psychologist, but I know that a really good first step towards change is to realise you have a problem, which you have done. It's also a good idea to set yourself a challenge made up of little steps.
Maybe every month splash out on a small purchase, gradually raising the spending amount. There must be something that excites you – books, art, music, travel – that you would enjoy buying and owning.
Also, research suggests that many people get more pleasure from spending on others than on themselves, so perhaps buy for family or friends, or make significant contributions to a charity.
Postscript: A couple of days after this letter ran in the paper, the woman wrote to me again.
Q: Thank you for publishing my letter and your reply. I've now decided the best thing I can do with our money is to buy myself more time to do the things that I love (getting outdoors, arty pursuits and spending time with friends).
So I have organised to get myself a cleaner, which is pretty damn exciting, and will make a bigger difference to our lives (mine in particular) than anything else we could possibly spend money on!
The other thing to add is that we have a teenage son. So it's not just a matter of us being freer with money as a couple. I guess I feel happy that we are passing the idea of careful money management on to our son, rather than being splashy with boats, baches, boy's toys, fashion and overseas trips, etc.
As I try to spend more on things that matter, I hope that I can also show him that it's okay to spend money on himself if it's for things that are going to improve the quality of his life, not just keeping up with his mates. At the moment, he's just dead keen on saving for a car!
Also, I feel that going second-hand or borrowing is fine in terms of sustainability, even if we can afford otherwise. And you are definitely right about the feel-good factor of giving to others.
A: Buying time to do what you want is a great idea. With so many things in life, you can spend either time or money, and it makes sense to spend the one you have more of.
On money and teenagers, it can be surprising how much they learn by watching their parents – although it must be confusing if one parent is a spender and the other a saver. It's great that your son has set himself a goal. Getting there, with some sacrifices along the way, is a skill some people never learn.
I gave my teenage son a yearly budget for 'toys' and clothes – except school uniform and undies – that he could spend however he wanted. If he blew the lot in January on one garment, that was that. It was hard to watch him do that without interfering, but he learnt some useful lessons.
P.S. Hiring a cleaner, if you can afford to, is a great way to get around the unequal housework issue!
Sorry, but that's silly
Q: We have recently retired and are both 71. Sold a property and I wish to use that money to live on. It will be approximately $35,000 per year and will take us to our late seventies. We do have one more property that when sold will take us through another ten years. Also, we live in a $1.4 million mortgage-free house.
But because we had always struggled and been very careful with money (due to low paying employment – best thing we ever did was get into property) my wife is scared to spend anything. I am ready to spend, travel, motorhome!
The proceeds of our house sale are in KiwiSaver and managed funds. We have no other debt. Can you please explain that we will not get into trouble if we place $35,000 into our bank account – in two lots of $17,500 – every six months?
I realise you are very busy but would ask you to answer our question as soon as possible, as my wife goes into overdraft each fortnight waiting on our pension money, rather than transferring our funds into our bank account.
A. Your last sentence worked! I hate to see someone going into overdraft – and paying interest on it – when they've got plenty of savings. Sorry to your wife, but that makes no sense.
You two are probably better off than three-quarters of all retirees. There's absolutely no reason why you shouldn't spend your savings as you've outlined.
Your letter is reminiscent of the letter above ('She can't learn to spend'), except that that correspondent knows she's well off. Your wife seems less aware of her situation.
Given your wife's concerns, I suggest you keep your savings in lower-risk KiwiSaver and other funds, so their value won't ever drop much. That means the balances won't grow fast either. But you should still get high enough returns that your spending can grow with inflation, and your savings will probably last into your nineties.
NZ Super covers everything.
In case your wife is still not convinced, as a backup you could always get a reverse mortgage later in life, or move to a less expensive house. But I doubt you'll need to. In the meantime, do travel, get a motorhome, and have fun while you're young enough and well enough to enjoy it.
- A Richer You, by Mary Holm. Published by HarperCollins NZ.
- 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. 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.
