$100k a lot or a little: What's wealthy in NZ in 2019?

Tuesday, 12 February 2019

Pamela Butler and her partner earn a combined $100,000 a year, before tax.

They have owned their own building firm for six years. She works 25 to 35 hours a week, around their four children, and he does 40 hours or more.

They moved from Auckland to Whangarei in 2012, and have paid off their mortgage.

Before they moved, she was a primary teacher and her husband managed IT systems.

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* $100,000: It's not what it used to be**

She said, although they earn a six-figure income, they are not 'wealthy'.

After tax, they are left with about $13,000 per person, per year. 'We are comfortable but we don't have a lot of money.'

Moving north gave them access to a cheaper housing market and fewer transport costs, but everything else remained the same.

Each month, they spend $1200 on power, phone, internet and insurance, $1600 on food, $400 on miscellaneous items, $1000 on kids' activities, school fees and daycare, $500 on their vehicle and $300 on their dogs. Another $300 goes on saving for holidays and Christmas and $700 is for clothing, doctor and dentist visits.

The question of what makes a person 'wealthy' is one that provokes strong responses.

Labour MP Deborah Russell and National MP Stuart Smith weighed in on the issue this week.

Almost half of Auckland households earning between $70,000 and $100,000 a year say they are just able to make ends meet. 

Commentators said what would count as 'wealthy' in New Zealand in 2019 was subjective.

Kim Dotcom requested $220,000 a month in 2012 to cover the cost of security guards, nannies and a butler. But many people live comfortably on the pension.

INCOME VERSUS ASSET WEALTH

New Zealand's median income is $52,000. Sixty per cent of four-person households earn more than $102,500.

Working for Families credits are available to households earning up to $120,500, if they have four or more children.

Economist Cameron Bagrie, of Bagrie Economics, said New Zealanders were not well paid.

'One of the key wellbeing indicators that is not talked about enough is incomes.  New Zealand sits below the OECD average so we don't compare well.  We work longer hours but productivity is poor.  That needs to be addressed but I don't see any game-changing strategy on the horizon.  We seem to be putting more costs into the system.'

Economist Shamubeel Eaqub said people could have a high income and not necessarily be wealthy, or vice versa.

Income wealth would feel quite different to asset wealth.

A young couple earning $100,000 and trying to save for a deposit on a house would not feel as well-off as a retired couple with income from investments of $100,000 and a freehold home to live in.

But a couple with an expensive freehold house and no other assets or income to speak of could feel less well-off than a renting household with a six-figure income.

'Young people aren't expected to be wealthy but they should have income prospects. When you're younger you have human capital but then as you get older you usually have financial capital.'

One of the biggest drivers in how wealthy we feel is whether we have money to fall back on when an unexpected expense arises.

Once you have an emergency fund in place, you are much less likely to go backwards or be knocked off track by something such as a car breakdown or a big bill at the dentist.

SPENDING

Jess Berentson-Shaw, of thinktank The Workshop, said people started to spend more as they earned more. 'If you have a huge mortgage and lots of payments going out to support a 'wealthy' lifestyle psychologically speaking people don't tend to see themselves as wealthy. Even though objectively we could say they are.'

If, like Butler, you do not have a mortgage, you will be better off than someone on the same income with a $500,000 home loan to service.

'The bigger the gap between income and expenses, the wealthier you will feel as this takes away the financial pressure,' financial adviser Liz Koh said.

'It is much easier to spend less than you earn if you manage your money proactively and save before spending. Those who complain about not having enough income tend to manage their money passively, living from payday to payday.'

Eaqub said there would be variation around the country. 'What $100,000 can do in Auckland would be very different to what it could do in Invercargill. If you're a couple earning $100,000 in Southland your rent would be next to nothing, your transport costs next to nothing and you might have family there who can look after your kids. In Auckland you have childcare, travel costs, rent…'

Massey University's latest housing affordability study shows Southland is still the most affordable hosing marketing the country – and improving in affordability.  Auckland and Central Otago are the most expensive.

Pushpa Wood, director of the financial education and research centre at Massey University, said it would not matter whether someone earnt $100,000 or $500,000 a year if they lived beyond their means.

'If you're having to borrow for day-to-day expenses, struggling to pay down debt or build up an emergency fund you're going to struggle. It's whether your expenses are in alignment with your income or not. That's where stress levels start to come in.'

Bagrie said New Zealand was not a cheap place to live. 'We have the obvious issues in regard to housing.  But if we want to get serious about making people better off there are some sectors that need looked at and ways unlocked to drive more competition so people keep more of their hard earned income.   The commerce commission now has the teeth to undertake market studies and they should be resourced to carry out that function properly.'

BUT ARE YOU HAPPY?

For some people, how wealthy they are has nothing to do with the amount of money or stuff they own.

'Wealth is a mindset,' Koh said.

'You are wealthy if you feel wealthy. Whether or not you feel wealthy has less to do with dollars and more to do with your state of happiness, your upbringing, and your peer group. It is entirely possible for a person with assets worth several million dollars to not feel wealthy, simply because the people they associate with have substantially more wealth in dollar terms. On the other hand, someone with modest assets can feel wealthy if they have been brought up in an impoverished environment.'

Wood has seen that first-hand.

'I come from India and I've seen some very happy and satisfied people without even a roof over their heads. They're happy in what they are doing. Then you have multimillionaires who are losing sleep and taking sleeping pills to fall asleep. It's an interesting way of defining wealth.

'For me personally, wealth will mean when myself and my extended family and my friends are all in a state where we are not worried about our wellbeing as whole – that includes financial wellbeing but other aspects need to be considered. You can be financially wealthy and in poor health and you won't be happy.'

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