It has been just over a year now since NZ entered its first lockdown due to the COVID-19 pandemic spreading across the world and entering the country. It made us all extremely aware of the importance of having one’s ‘ducks in a row’ when it comes to your finances. Here are some lessons that New Zealanders have learned during this pandemic that will be useful in being more prepared financially as we move forward.
Lesson 1: Taking more interest in one’s finances
Kiwis are actively looking up information that helps them understand the resources available to them. They are also reaching out to services that offer financial planning and budgeting assistance. It’s a good lesson that came as a result of not just one but several lockdowns we have all had to go through. It’s a good lesson to bear in mind long after this pandemic has shown us its back.
Lesson 2: Paying off debt more urgently
While we all know that paying off debt is necessary, often it happens that debt falls through the cracks into the bottom of the list of priorities. In saying that, as our financial awareness increases, we are all becoming more aware of the benefits of paying off debt sooner rather than later.
Kiwis who could work from home started saving on travel expenses and recreational spending dropped drastically. Due to the closure of physical stores and reduced ability to shop for pleasure, credit card debt in the country reduced by over $1 billion. Now that is quite the achievement. Debt is reduced and eventually eliminated, funds are freed up and can now be put to work for your future. Meaning, we can plan better for our retirement.
The more funds that we put into our KiwiSaver now, the more returns are earned in the long run and the greater our balances at retirement will be. And who doesn’t want that!
Lesson 3: Kiwis are placing greater importance on having savings
It is important to acknowledge two things. Firstly, the lockdown brought about an economic downturn. Secondly, a high percentage of the people affected by the economic downturn were the Maori and Pacifica Peoples and the younger generation of workers. This, however, does not reflect the full picture.
While many were affected by the lockdowns, households were also able to save money. This, because the restrictions brought about the necessity to work from home. Meaning the majority of spending was restricted to basic necessities such as groceries and basic household products. Because of these reasons and the aforementioned debt reduction, people were able to put a lot more money into their savings accounts. Kiwis came face to face with the realisation that we can live on fewer immediate luxuries. Instead, we found the pleasure of investing in our future and creating a solid financial safety net.
Lesson 4: Don’t Panic! - The market will bounce back!
There was something worrying that banks and KiwiSaver providers noticed during the lockdown. As people witnessed drops in their balances, they started moving their money from existing Growth or Balanced funds to more Conservative funds. The fear of losing one’s hard earned money is not something to be taken lightly and that’s why we’re here.
Research conducted by National Capital earlier this year showed that in March 2020 alone around 50,000 people switched their funds to more conservative ones or even lower risk cash funds.
Now, it is important to understand that KiwiSaver funds are invested in a large number of companies from many different industries. This means that while some companies took a hit during the lockdown, others flourished. As governments placed restrictions on businesses, business owners got creative and found new ways to generate value and reach customers. New ways of trading such as online shopping increased. This made up for the drop caused by the initial wave of adjustment.
Although KiwiSaver balances showed an initial dip, the comeback was there and it happened. It is continuing to happen. The market not only stabilized itself out but actually increased in value.
What that means unfortunately is that the people that switched funds or even stopped contributing altogether will miss out on considerable amounts of money. They are large sums now but over the years, thanks to that compounding interest, they will increase into staggering sums. Ten years from now New Zealanders could miss out on up to $925,664,182. Twenty years from now Kiwis will have potentially missed out on $3,578,215,119 in retirement money because they panicked and switched funds.
The lesson here is: Don’t panic! It is necessary to have clear financial goals. Keep in mind the timeline allowed to achieve such goals. This quiets the mind and the pesky fears popping up can make way for that sense of calm and confidence that things will turn around. Oscillations in the market happen and although this pandemic was unprecedented, the market has gone through dips before. It is its natural predilection to bounce back. After all, what goes down must come up. History has shown us that the market is always on the rise in the long run.
So you see, alongside clear goals it is also important to have a clear view of the larger picture and having professional advice can increase your financial confidence. Confidence in your finances will cause you to panic less in the worst case scenario and see emerging opportunities in the best case scenario.
So if you’d like to see what your KiwiSaver can do for you, take the National Capital KiwiSaver Health Check now. The sooner you start, the more money you can retire with and the more comfortable a life you can lead.
