News | Features
19 Jun 2021 6:56
NZCity News
NZCity CalculatorReturn to NZCity

  • Start Page
  • Personalise
  • Sport
  • Weather
  • Finance
  • Shopping
  • Jobs
  • Horoscopes
  • Lotto Results
  • Photo Gallery
  • Site Gallery
  • TVNow
  • Dating
  • SearchNZ
  • NZSearch
  • Crime.co.nz
  • RugbyLeague
  • Make Home
  • About NZCity
  • Contact NZCity
  • Your Privacy
  • Advertising
  • Login
  • Join for Free

  •   Home > News > Business > Features

    The Investor: Have I Got a Deal for You?

    Pssst, want a fantastic deal? I may be able to get you into an investment with returns of just under 20 per cent a year, every year, after fees and tax. And it’s risk-free...


    By now I hope you are extremely wary. This is classic too-good-to-be-true stuff. But hang about. It is [“is” in italics] true, in effect. Many credit cards have a 19.95 per cent interest rate. If you hold one, all you have to do is repay that debt to improve your wealth as much as an investment earning 19.95 per cent.

    How come? Well your net worth, which measures how well off you are, is made up of your assets minus your debts. So reducing your debts has the same effect as increasing your assets. More precisely, reducing
    19.95 per cent debt is the same as increasing investments by 19.95 per cent.

    This isn’t academic stuff. It’s real, in terms of dollars and cents available for you to spend now or in the future.

    While I would hate to have high-interest debt, there’s one thing I envy about those who do. It’s so easy for them to decide what to do with any spare money, and so hugely rewarding.

    And it seems people are increasingly realising that. Before the global financial crisis, in early 2007, New Zealanders were spending $1.10 for every $1 earned – presumably borrowing the rest. Now we’ve cut it back to spending 99 cents, according to ANZ executive Kerri Thompson.

    As a result, consumer debt has dropped 6 per cent from December 2008 to February this year, she told the recent Financial Literacy Summit in Wellington.

    But the Retirement Commission clearly wants more – and I fully support that.

    In a particularly optimistic moment at the Summit, Retirement Commissioner Diana Crossan made a suggestion. Alongside the minimum payment on credit card statements, she said, customers should be told how long it will take to clear their debt if they make only minimum repayments, and how much total interest they will pay.

    “Be the first to do it!” Crossan challenged credit card issuers. I hope she’s not holding her breath. It is, of course, in the interests of the credit card companies for customers not to realise just how much interest they pay.

    Maybe I’m too cynical. Maybe one issuer will emerge as the “friend”
    of its customers – although giving the information Crossan wants is not likely to make customers love their credit card company. I suspect only regulation would make them comply.

    The Retirement Commission probably stands a better chance of getting its message across via its current “dumb debt” campaign, and the tips and calculators on its www.sorted.org.nz website.

    Dumb debt is the same as what I call bad borrowing. It’s running up debt to buy a product or service that you either consume shortly afterwards or that loses value. Most credit card purchases would qualify as dumb debt. The occasional work of art or vintage car might be an exception, but it’s generally too hard for amateurs to tell which ones are likely to gain value.

    The interest rate on dumb debt is usually high. Some people who string out their repayments can end up paying twice as much as the purchase price. Even when it’s not that bad, if you don’t repay your credit card bill in full every month you’re throwing away money.

    Whatever you are spending on – restaurants, clothes, travel, entertainment – you could have so much more of it, over your lifetime, if you just curb the spending for a while, repay the debt, and get into the habit of saving before spending.

    © 2021 Mary Holm, NZCity

     Other Features News
     10 Sep: Spring clean your finances
     13 Aug: Plan ahead to give yourself a debt-free Christmas!
     10 Jul: Wise up to clear credit card debt
     07 May: Ways to prepare for the unexpected
     30 Mar: Time for a financial progress check
     10 Feb: Studying up on NZ Super
     10 Jan: Managing the back-to-school bills
     Top Stories

    RUGBY RUGBY
    Disappointment from Taranaki head coach Neil Barnes, that loose forward Lachlan Boshier has been let go by New Zealand Rugby More...


    BUSINESS BUSINESS
    The Auckland Tuatara will miss a second straight Australian Baseball League season, citing ongoing uncertainty around Covid-19 More...



     Today's News

    Entertainment:
    Scarlett Johansson is grateful her Marvel alter ego Natasha Romanoff is no longer “hyper-sexualised” 6:41

    Basketball:
    Melbourne United's won the opening game of the Australian basketball league against Perth 73-70 6:26

    Entertainment:
    Dwayne 'The Rock' Johnson didn't have "political passions" until the public called on him to run to be President in the future 6:11

    International:
    Taliban taking back territory as Australian and US forces prepare to leave Afghanistan by September 23:26

    Rugby League:
    Adam Pompey has bounced Rocco Berry out of the Warriors side to play the Knights tomorrow 21:56

    Entertainment:
    Kanye West "likes spending time" with Irina Shayk and is happy to enjoy things as they progress 21:41

    Law and Order:
    Police say they'll be reviewing their footage from a major gang member's funeral...and following up any infringements 21:16

    Entertainment:
    Dwayne Johnson has topped PEOPLE magazine's list of 100 Reasons to Love America 21:11

    Entertainment:
    Cheryl eats a meat-free diet three or four days a week 20:41

    Entertainment:
    Kelsey Grammer has teased "some things will be different" with the 'Frasier' reboot 20:11


     News Search






    Power Search


    © 2021 New Zealand City Ltd