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Salient: Victoria University Students' Paper. Vol. 27, No. 15. 1964.

Save now... or pay later

page 11

Save now... or pay later

Is the future worth Having for? Well, after all. Gold-water won't necessarily win the election.

"Why bother to save," says Kiwi Keith. "This is a Welfare State and the Government will look after us. Anyway, the value of money is always getting less with inflation. You might as well spend while you have It."

Well, is Kiwi Keith right? Is it worthwhile for the Individual to save in New Zealand? In particular, is it worthwhile for the student or young graduate to save money? To answer this we should look at several of the points raised by Kiwi Keith, and at motives for saving.

1. One of the basic reasons for saving is to accumulate cash to buy something in the future. Now most New Zealanders (Including most students) eventually marry and find they need cash to buy a house and furniture, or perhaps a car. Suppose you are facing the prospect of buying a house on a mortgage. If you have to pay 6 per cent interest on a mortgage which is paid back over say 25 years the last £100 of that mortgage will have cost you £150 interest. Add this to the original £100 and you have paid out a total of £250. Further, this £250 has to be paid out at a time of your life when your income is spread rather thinly by the demands of bringing up a family. It would have been much easier to have saved the £100 in the first place. Remember, most students will have no hope of joining the privileged classes who get State houses given to them.

2. Another aspect of the interest payment problem is the very high level of interest charged on hire purchase. It is not generally realised that a flat interest rate of 6 per cent on a hire purchase debt actually comes to around 12 per cent on the average amount owing. Why be exploited? If you save before you purchase something you can earn interest instead of paying it. If you have average hire purchase payments of say £2 per week, then over a period of 10 years you could have saved over £100 in interest charges if you had paid cash, assuming a "flat" interest charge of 6 per cent per annum.

3. But what about inflation? Doesn't this rob saving of its value? Not necessarily. Over the past 10 years inflation has been continuous, but even so a deposit left in a savings bank at Post Office Savings Bank rates of interest would have risen in value somewhat faster than prices rose. Further, a savings bank is not the only form in which savings can be kept. Funds invested in shares or in property over the same 10 years would have risen in value far faster than this.

4. A further factor that you should consider carefully is the tax savings that can be gained from some forms of savings—i.e. life insurance and superannuation payments. Up to a limit these can be deducted from Income for tax purposes. This means in effect that the Government is subsidising your savings to the extent of the tax you are remitted. If your marginal rate of tax is 5/- in the pound this represents a 33 1-3 per cent subsidy.

5. Finally, Kiwi Keith suggests that our all-benevolent Government will protect everyone from hardship in old age. If you really believe this then go and have a look at the way some of our old age pensioners have to live in Wellington.