By Susanna Stuart
Forget the election rhetoric. The main underlying problem in our society isn’t in the hands of the politicians, it’s in the hands of the income-earning public. If as a nation we saved and invested more, we would have less national debt, we would have more resources for health and education. We would have more wealth. We would be ready for retirement.
By saving more, and – most especially – by investing more we would each be better off. The big question is: Why don’t we do it? Here are two theories that may explain some of the story.
- The money psychology theory. This is the “mean gene” hypothesis that suggests that humans are genetically wired to consume when the going is good. Hey, our property has gone up in value – let’s get a plasma screen TV.
- The risk tolerance theory. In times of rising wealth our outlook becomes less cautious and we spend rather than conserve. We act as if a rainy day will never come.
I think there’s some truth in both these theories, and there’s no reason why in thousands of years our species should have evolved a specific “Retirement Gene”, but I think it’s a cop out to believe that we’re merely the victims of some missing fiscal DNA.
There are two obstacles to saving and investment. The first is that too few people set clear goals for themselves. Without a clear long-term goal it’s too easy to get distracted by the shop windows along the main street of life.
Goals are not just about money: They are about finding meaning in our lives. In ancient Greece, Aristotle said: “Man is a goal seeking animal. His life only has meaning if he is reaching out and striving for his goals.” For anyone thinking about their investment strategy, it is best if your strategy is wrapped up in your greater goals and dreams. Money isn’t the objective so much as the tool to reach that objective.
Goals and dreams motivate people into planning and working out strategies, and I’m prompted to quote Ed Hillary on this one: “You don't have to be a fantastic hero to do certain things - to compete. You can be just an ordinary chap, sufficiently motivated to reach challenging goals.”
So what are your goals? What gets you out of bed in the morning? What things are you passionate about? If you won Lotto, what wonderful thing would you most like to achieve?
When I ask older people about the things they are most proud about in life, I’ve never once heard anyone boast about something they purchased. It is unlikely that we’ll tell our grandchildren that really, that plasma TV was the defining moment of our lives.
One thing is for sure, if you have a clear vision of what you want in life it makes implementation of any financial strategy a whole lot easier. Your personal Everest Expedition has a timeframe, a budget and, above all, your motivation to see it through.
The second thing that stops so many New Zealanders from a saving and investing strategy is the presence of day-to-day barriers. Here are a few to prepare yourself for:
- Lack of time. Prioritise your time and resources. Be uncompromising with your savings and investment strategy. Set up an emergency fund to cope with short-term financial crises.
- Conflicting goals. This is a common problem for people in their 30s and 40s – parents in particular. The needs of family (or different objectives and money attitudes of you and your partner) can derail you from your personal long-term objectives.
- Lack of money. Okay, you won’t get to base camp without cash. You need to work out your actual needs and your budget to see if the problem is a shortage of income or really just a case of over-spending on less important stuff. You may need to think seriously about your income earning strategy, and whether for example, you might need to keep working past age 60.
- Queue jumpers. Set up an automatic payment facility that diverts your savings or investment money before other needs jump to the front of the line.
Talk about these things with your partner. My advice is also to make an appointment with your investment adviser and be ready when he or she asks you about your life goals. That’s where sound investment advice should start. Susanna Stuart is a financial adviser and author who is also a regular financial columnist for Next magazine and has appeared as an Adviser on the television series ‘Money Doctor’.
The views or information given in this article are not necessarily the views of AMP or AMP Adviser Businesses. It provides general financial information and is not intended to provide financial advice. For personalised financial advice, we recommend you contact us.