KiwiSaver ≠ First Home Buyer Deposit

May 21

May 21 KiwiSaver ≠ First Home Buyer Deposit

Debt, Index Funds, Investment, KiwiSaver, Money Education, Mortgage, Personal Finance, Retirement, Saving, Shares, Term Deposits

May 21, 2017

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This is for my nephew who is about to turn 15 and has just started his first job. This is your BIRTHDAY PRESENT you gorgeous dude! This may be the WORST present you have ever received but I think it is more useful than the 3D printed fidget spinner I was about to post to you. You would have fidgeted with that for ten minutes and tossed it aside whereas ADVICE FROM YOUR FAVOURITE AUNTY will last you a lifetime! I will be phoning you to check you have read it, so take notes! And stop rolling your eyes right now! XX

Just an observation…

Is it just me or are people confusing saving for a house with saving for retirement? I’m sorry to come back to housing again; for a woman who claims to have little interest in it I do seem to mention it an awful lot! BUT, I keep hearing about first home buyers all the time and how difficult it is to get into the market. I wholeheartedly agree, no dispute there. A deposit is a huge chunk of change to have to save and you have to do it well before you even get to go to an open home and really ignite your excitement.

But the question I keep asking myself is “why do people use their KiwiSaver as their primary mode of saving for a deposit?” I was thinking this through while out running with the dog, he was confused as well, and remembering the people I have come across who were going through the confusing paperwork labyrinth of getting their money out AND applying for a grant from the government at the same time in order to secure finance for their first home.

In researching this I tried to make sense of how you get your money out of KiwiSaver AND the KiwiSaver HomeStart grant. These are two different things but I concluded that I didn’t have the brainpower at 6am to write down as concisely as I needed to exactly what benefits would apply to an array of situations up and down New Zealand. Suffice to say there are MANY strings attached if you want to get both your money out of KiwiSaver AND especially if you want to apply for a grant.

The repeated use the words “may, as long as, may qualify, if eligible…” rang alarm bells with me. The subtext had other words such as “hurdle” and “jump”... OK, I may have made that bit up!

If you want to know more visit the Housing New Zealand website or any bank will have information on this as well. If you can sum it all up in a single paragraph, for the benefit of others, please do email me or add it to the comments section below!

KiwiSaver was set up as a retirement tool, for like, when you retire. Like, stop work for good at aged 65. Now, I follow the F.I.R.E community (financial independence retire early) and KiwiSaver was not aimed at them - they are retiring at 25 (seriously, some are! This could be YOU nephew!). For the rest of us, it’s awesome that we have worked out that we need to invest in our retirement and a large proportion of us are enrolled in a scheme. And we are all pretty chuffed with ourselves for having learned to save but there seems to have been a switch from:

Saving for retirement in KiwiSaver

Saving for house in KiwiSaver.

I have met a handful of younger people actively saving for a house saying “I’m chucking as much into my KiwiSaver as I can because I’m saving for a deposit”. And they are keen on the grant on offer as well. My take out would be this... It’s probably not your best financial plan to rely on the government for your financial security and first home deposit. It will ALWAYS be complicated and there will ALWAYS be strings attached, even if most of the money you are trying to access has come directly from your wages. Fair enough too if you are applying for a grant, they have to use our taxpayer money carefully otherwise they will get stern letters of disapproval from taxpayers with the time to complain. Getting money out of KiwiSaver requires paperwork and applying for a grant to help you is doubly difficult.

So, what are my options for saving for a house deposit I hear you ask? Nephew, this is where you need to listen up!!! You just have to save your arse off from as early on in your working life as possible. Form a habit early on before a partner and kids arrive (I know that sounds like a horrendous prospect right now but look around you, life will happen). The more money you save at the start the less you will need to borrow and pay interest on in the future. Saving for a deposit is the equivalent of mortgage training wheels - it is teaching you to set money aside each month so you can make a mortgage payment on time, every time AND still have a life.

But where to put your savings until you find that perfect house (or the crappy one on a good street) to put an offer on? When saving up a deposit for a house you want to always preserve your capital right? Every $1 you put in there needs to stay put and preferably grow? They say you should be careful when saving for a deposit not to put your money at risk, and many think investing is risky. BUT when you use KiwiSaver as your deposit fund you are in fact investing, which has its risks! So, why not invest OUTSIDE of KiwiSaver in the same fund? That way your money is on hand when you want it with fewer strings attached. It is so much easier to access.

What would I do if I found myself aged 15 again and just starting out? Start EARLY, like the F.I.R.E. community I mentioned above. Sign up to KiwiSaver for sure because I want to invest in my retirement from an early age (my daughter, your cousin, started at a month old, she is going to be so sorted!) I would put the minimum contribution in from my wages and gratefully receive the contribution from my employer. I would ensure that I was putting in the minimum of $1,042 per year to get my member tax credit of $521. At the same time as saving for my retirement my focus has to be on saving hard for a house deposit so I have to take on as little debt as possible for my future home. I would open a savings or investment account somewhere outside of KiwiSaver and go hammer and tongs at pushing as much of my spare dollars in there as I could! www.simplicityfunds.kiwi just launched investment funds which are the same as their KiwiSaver funds, I would find a product like that. Low fees too! Google it, there are new options appearing on the market all the time.

So, because I am a woman I AM multi tasking. I’m saving for my retirement, just a small amount I grant you, AND I’m saving for my first house. If I’m going to be taking on debt my primary focus will be on saving as hard as I can, borrowing as little as possible, buying as cheaply as I can and then killing that debt as soon as I can. Get the banks off your back as early in life as possible. No debt = Freedom. All the while I’m quietly investing in my retirement and when that house debt is GONE I’m going to redirect that now spare cash into my retirement AND other investments that are not locked away until I retire. Boom! Kiwi’s are clever and adaptable, I’m sure we have the capability to save for two things at the same time.

When the time came to search for that first house I would have my cash ready to go and would have the seat closest to the auctioneer as I would be primed and ready to bid. And I would not have to put in an offer subject to asking my KiwiSaver provider or Prime Minister Bill English if I could have my money out of KiwiSaver please. If there were some other lollies on offer such as first home grants I would look into them, I’m all for free money, but they won’t become front and centre of me trying to achieve my first home.

Now, I may be wrong about all this, I may be out of touch. But I’m only 43 (it’s the new 30!) and it was not that long ago that I bought my first house. But it was before KiwiSaver. At that time we raised the deposit through managed funds and savings accounts, there are different (cheaper) channels available to you today. I’m not a financial advisor, this is just the conversation I was having between myself and my dog while out running. I’m yet to test my theory out on a 15 year old just starting out in the workforce (who has NO CLUE that they may even want to buy a house in the future), but it seems like a rational plan to me. Maybe you could be my guinea pig nephew? And the rest of my subscribers could help me out and corner your daughter, son, nephew, niece, granddaughter, grandson or students and let me know if they rolled their eyes OR said “gosh darn it, I think that woman is on to something”!