Spend first, save what's left is the NZ domestic trend

By BRIAN FALLOW economics editor

New Zealanders are taking on debt with less enthusiasm than in the past as they spend first and save whatever is left.

But household debt is still increasing while the asset side of the balance sheet is shrinking, with the result that households' net worth continues the declining trend of the past three years.

The household savings indicators compiled for WestpacTrust by Morningstar and the New Zealand Institute of Economic Research show households' net worth (assets minus liabilities) shrank $1.5 billion in the December quarter and $5 billion over last year as a whole.

Households have increased their debt by $1.1 billion in the December quarter and $4 billion (or 6 per cent) over the year.

The pace of borrowing has slowed in comparison with the mid-1990s when it peaked at an annual rate of 16 per cent, the bank said.

The slowdown is driven by cooling demand for mortgage borrowing, which makes up 90 per cent of household debt.

Reserve Bank figures show the stock of borrowing for housing purposes in February was $64 billion, up 5.6 per cent on February last year. A year ago mortgage debt was growing at an annual rate of 10 per cent.

Westpac said that with house prices static, compared with annual growth of 8 to 10 per cent in the mid-1990s, it was not surprising borrowing for housing was trending down.

The value of the housing stock, which represents 61 per cent of household assets, fell 1.3 per cent over the year.

Financial assets fell 0.1 per cent in the quarter but rose 1.1 per cent over the year. Following a period of sustained growth, money held in managed funds declined 1 per cent in the December quarter, while short-term bank deposits went up 2.2 per cent. Nervousness about equity markets is thought to be the reason.

Financial net worth, which excludes housing and the associated borrowing, fell 0.4 per cent in the quarter and rose a scant 0.7 per cent over the year.

"It appears households are continuing to spend first and save what's left, rather than showing any signs of modifying behaviour towards saving as a first priority,"said WestpacTrust chief economist Adrian Orr.