KEY POINTS:
Matt Standing and Jenna Clark might be in their own house today if they hadn't bought a car on credit four years ago.
They were both 17 at the time and both had good jobs in Whangarei. They didn't have the $9000 they needed for a Mazda 323, but Oxford Finance was happy to lend them the money with repayments of $90 a week for three years - meaning that they ended up paying just over $14,000 for the vehicle.
It was the start of what became a pattern. Standing, a trained mechanic, borrowed another $6500 from Five Star Finance and others to transform the car with new mag wheels and a body kit.
He can't recall the interest rates but they were "very high". He agreed to repay $55 a week for three years.
Shortly afterwards, the young couple moved back to their home town of Auckland and had to borrow $2000 from the Money Shop to put down a bond for a flat.
They spent another $6000 on furnishing the flat with a bed and a fridge from Harvey Norman, a washing machine and drier from Hill and Stewart and other items. They used a Q card, a credit card run by Fisher and Paykel Finance that can be used at more than 100 retail chains, offering no interest for the first three months.
After those first three months, the card charges interest on the unpaid balance on a daily basis, but allows customers to set their own repayment rates.
Clark was given a $4500 limit on her card and Standing $1500.
"We both used all the money on our cards," Standing says.
They got a flatmate in to help pay the rent, but found the flat too small so moved to a bigger one. They couldn't get their bond back because of "pet problems" and had to borrow another $2000 for the new bond.
They moved back to Whangarei where Standing got a job in a quarry and borrowed $5000 from Geneva Finance to buy a Mini for Clark, paying back $60 a week.
The new job earned him $1000 a week in the hand and they started to plan an engagement. He took a Visa card to buy a ring, but instead used it to spend $1500 on new brakes and shock absorbers for the Mazda. He let his overdraft at the ASB run up to another $1500.
Then he lost his job. The income stopped. But they owed a total of $47,000, including student loans for Standing's mechanics course and a flight attendant's course for Clark. Their repayment obligations carried on.
"When the crunch came I was paying out about $400 a week if not more," Standing says.
"We came back to Auckland with no job and nowhere to live. That's when we decided to kick it in the guts."
Both their cars were repossessed. They resorted to Mercy Mission's Drury foodbank several times before Standing found a job again at a nearby quarry. They moved in first with Standing's parents and now with Clark's.
They also went to the Papakura Budget Service, which negotiated with their creditors to get a feasible repayment schedule for their debts.
Three years later, and a year after first telling their story on Fair Go, Standing's debt is down to $1500 owed to six creditors plus $2000 owed to relatives. The couple also owe just over $6000 to Clark's parents.
Standing now works as a courier from 5am-6.30pm five days a week. Clark went back to work as a part-time night receptionist at four medical centres when their son Sean, now 16 months, was six months old.
"Having capital stripped away from you really sucks," says Standing.
"But we were looking to a positive future because of the baby, that was the main motivation for us. We both knew we were in trouble and needed to stick together."
On average, all of New Zealand is in much the same position. We have slid in a single lifetime from saving 14.6 per cent of our household incomes in 1960 to last year spending 14 per cent more than we earned.
Our profligacy has been offset by the Government, which has switched from regular deficits to mounting surpluses, and by business, which banked ever-increasing retained profits for investment from the early 1990s through to 2004, although these have fallen in the past two years.
The result is that our total national savings have fluctuated mostly between zero and 5 per cent of our national income without any clear trend.
But this has been consistently less than the average saving in rich countries and has not been enough to fund investment, so as a nation we have also been net borrowers in every year since 1974.
Our household debts have ballooned from 50 per cent of our after-tax annual incomes in the early 1980s to 140 per cent in 2004.
Most of us have our debts under control. But in a 2000 survey, between 8 and 12 per cent of people said they had been unable to keep up payments for their mortgage or rent, power, gas or phone bill or payments for goods such as cars and appliances.
This Sunday, the Government begins the first serious public effort to change our spending culture since tax breaks for retirement saving were abolished in the 1980s.
Its KiwiSaver scheme will be packed with inducements to save, including the chance to roughly treble 4 per cent employee contributions with a matching 4 per cent from the Government up to $20 a week and, by 2011, another 4 per cent from employers.
But spending habits are so ingrained that 52 per cent of people polled by the Herald/DigiPoll last month said they did not plan to join the scheme.
Household saving has declined in most Western countries for the past 30 years as capitalism's early need for funds for investment has given way to saturated markets and consumer-led growth.
Our incomes can still grow only if we put part of our productive effort into planting seeds and investing in new machinery, buildings and research. This spirit of self-denial now for future reward still drives fast-growing economies such as China and Singapore.
But once almost everyone has a car and their own nuclear-family home with all mod cons, this drive for growth may weaken, growth may slow, and so less saving may be needed.
The well-off, who have always done most of the saving, may opt to spend their money on expensive yachts and overseas trips rather than ploughing savings back into the family business or other investments.
This process seems to have gone further in New Zealand than anywhere else. On average, we have virtually stopped saving. Our investment has had to be financed with overseas savings, and the returns from that investment now flow out in dividends and interest payments to our overseas owners and creditors.
The Government has stepped back, removed the rules that encouraged saving and restricted borrowing, and allowed people to spend their own money as they wished.
"Back in the 60s you couldn't get a loan if you were under 21," says Grahame Lee of Nga Ture Kaitiaki Ki Waikato law centre in Manukau, which picks up many of the most hopelessly indebted borrowers.
"You couldn't finance a car without a two-thirds deposit. Then progressively over the last 30 or 40 years that has gone to 100 per cent credit."
Diane Harris at the Papakura Budget Service recalls: "When I was younger, if you wanted something on hire purchase you went through stringent checks, and you crawled in to the bank manager on your hands and knees. Now they are throwing money out the door." Banks were regulated to direct lending into farming and other productive sectors, with strict limits on purely personal loans.
They had to hold higher cash reserves for personal loans than for loans to other sectors. Other finance companies needed licences and their numbers were kept low.
There were also tax breaks for retirement saving, for mortgage payments and for a range of investments including research and export development.
In the 1980s all these regulations and incentives were scrapped. Not surprisingly, Winston Watt of Papakura's Christian Care budgeting service reports that "what's happened in the last four or five years is the explosion of the finance company".
Denise Smith at Papakura Budget Service says: "They were hidden in the back streets. Now they are on the main streets. They have a high profile and are on TV advertising."
A survey last year for the Ministry of Consumer Affairs counted 185 "fringe lenders", ranging from nationwide chains such as Instant Finance, Avanti and Geneva down to purely local money shops such as Mangere's Lelei Finance and South Pacific Loans in Manukau. The banks have joined the party since the arrival of credit cards in about 1980.
Jan Herman, student leader at Auckland University of Technology, says: "From the time students hit university, you have every major bank trying to offer you some sort of deal to take out an interest-free overdraft. Banks are out there encouraging our students to get into debt and that it's all right to have a credit card and max it out and pay for it later." They have a receptive audience because student debt has been "normalised".
"Student loans started changing the culture of our kids," says Raewyn Fox of the Federation of Family Budgeting Services.
"From the day they leave school they need a loan. In those five years at university it becomes a way of life."
Budgeters report a vicious circle as drinking and gambling get people into debt and then those in debt drink more to drown their worries and gamble in desperation.
"We ask how do you see yourself getting out of debt and quite often people think they will win their way out, they just need one more win on the pokies," says Darryl Evans of Mangere Budgeting and Family Support Services.
Another vicious circle has seen the better-off use easy credit to pay higher and higher prices for houses, pushing up the value of housing from 162 per cent of household after-tax income in 1980 to 435 per cent in 2004. Since then average house prices have gone up a further 40 per cent.
Higher house prices, in turn, have made homeowners feel wealthier, encouraging them to spend more. And in a third feedback loop, the widening gap between rich and poor is widening further as those at the bottom borrow to "keep up with the Joneses".
Otara budget adviser Rakanui Tangi says low-income parents find it hard to say no when their children ask for the X-Boxes or widescreen TVs their friends have.
And when the debts mount, as they did for Matt Standing and Jenna Clark, families feel forced to cut back on food to meet their debt repayments.
"People often skimp on food," says Raewyn Fox. "We see people really struggling to feed the family because all the money has gone on the bills."
Beneficiaries, predominantly sole parents, still account for most food parcels and two-thirds of budget service clients. But the number of employed people resorting to budgeters has crept up from 31 per cent of the agencies' clients a decade ago to 36 per cent last year.
A Manurewa woman who was forced to seek help after she was made redundant last year speaks of a feeling of hopelessness after a creditor threatened a mortgagee sale of her house unless she paid $922 by the end of the month.
Darryl Evans tells of a woman who forced him to shut the office for a day this month because she became hysterically suicidal. "The mess is so huge that she can't see any way out of it.
"One client committed suicide last August as a result of the power being disconnected," he says. "I've got a new social worker who had three clients contemplating suicide in one week."
Vai Harris of Mangere's Vaiola Pacific Island Budgeting Service has had other families where marriages have snapped under the stress of debt.
"I had one family with five children where they got into problems with the mortgage. She woke up one morning and the man had just gone overseas and left her with the children," she says.
Cars like Matt Standing's, she says, are often the root of the problem.
"Cars are causing a lot of mortgagee sales. Some are freehold houses, and because they sign as guarantor for their friend [for car finance], they are not aware of the risk."
Harris, like many budgeters, boasts that she has never lost a house to a mortgagee sale. Simply applying a fresh, unstressed mind to the problem can often help people to make the hard decisions they need to prioritise their spending, sacrifice less essential items and negotiate realistic repayment schedules for the most vital ones.
"When they come to us, they can't breathe," Harris says. "Their health suffers, they have marriage break-ups, their kids get into trouble, it just goes right through the family.
"When we have negotiated to save the house, they come in two days later and we don't recognise the person. Once you get the debt problems sorted out, you can see them walking tall."
As an individual, Matt Standing draws the obvious lesson: "Don't just rush in and pick up a car on finance without finding out what the interest rate is on top of the price. It's always best to save up and pay in full, even though it might take you a lot longer to get it."
Arguably the same kind of lesson applies to nations. But it may prove harder to learn.
