KEY POINTS:
New Zealanders who spend more than they earn are burning up the legacy that they might have left to their children, economists say.
On average, New Zealand households have swung from saving 14 per cent of their incomes in 1960 to spending 14 per cent more than they earn today - by far the highest rate of over-spending in the developed world.
"It's like Mum and Dad have gone on a trip overseas spending my inheritance," says Berl economist Kel Sanderson.
"If New Zealand keeps doing it, then New Zealand will not be investing in expanding the economy for the future, so our standard of living will probably stay around about the same. In a relative sense it will decline."
It's a simple economic truth that if you set aside part of your income now to invest in something that will earn income, you - and your offspring - will usually be better off in the future.
If you borrow now to pay for something that doesn't earn future income, such as a car or a world trip, you and your offspring will be worse off in the future by the amount of repayments plus interest that you pay on the loan.
To that extent, the experts agree: saving matters.
But there is far less consensus on what should be done about it, and specifically on whether the new KiwiSaver scheme starting this Sunday is the right answer.
Sanderson believes KiwiSaver is "quite a good first step" towards shifting culture from spending to saving.
"It's not a high percentage of income," he says.
"It's really simple - it's zero or 4 or 8 per cent." He pulled out of private super schemes when the returns were so bad in the early 1990s that your investment ended up being worth less at the end of the year than it was at the start.
"This time there are a number of providers and you have to think there will be competition, so you'd think that your money in there will at least keep up," he says.
"And you can shift from one to another, so there will be provision in there for performance, and there are quite a few incentives in it."
He says the other policy change needed is to change monetary policy away from setting interest rates purely on the basis of targeting inflation.
"Unfortunately there is so much money flooding in from overseas because our interest rates are so out of kilter that actually the banks are doing everything they can to encourage us to spend," he says.
But Waikato University economist John Gibson warns that the Government is jumping into a costly savings scheme when there might not actually be a problem to fix.
He says Statistics NZ's new Survey of Family Income and Employment ("Sofie") has found that only 25 per cent of people aged 45 to 64 are spending more than they earn, and only 15 per cent are spending more than 15 per cent above their income.
People in every age group below retirement are actually saving more today than previous generations did at the same age. Yet households in total are supposed to be spending 14 per cent more than they earn.
"There is clearly something amiss between our micro [household-based] and our macro [economy-wide] statistics," he says.
In the absence of clear evidence on savings, he suggests the policy focus should be on the one sure prerequisite for adequate retirement incomes in the future - higher productivity.
And from another perspective, Auckland University economist Susan St John says KiwiSaver will mainly help better-off, older people who already own their own homes and have money to spare.
For them, she says, the extra nest-egg at age 65 will just be money to blow on a world trip.
Below the well-off is a middle-class group with mortgages. St John says the best thing they can do for the economy is to pay off their debts - yet the subsidies for KiwiSaver will now encourage them to save before they have done that.
Below them again is a group on low wages and benefits who are sinking further into debt. St John says they can't afford to save and need "subsidised budget assistance, not subsidised saving".
