National’s new policy would allow under-30s to use their Kiwisaver to pay their bonds. Robbing pensioner Pete to pay propertyless Paul or pragmatic youth-driven policy during a cost-of-living crisis, asks Anna Rawhiti-Connell in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.
As rents rise, so do bonds
In the late 90s, you could punch some numbers into a telephone and draw down student loan living costs, the minimum amount being $400. Without my parent’s knowledge (I was over 18), I would irresponsibly bolster my bank balances ahead of weekends. I have remained full of regret and slightly bitter about that empowerment ever since. Student loans didn’t become completely interest-free until 2006 so I well and truly paid for my tabs at bars across Dunedin. I’m not bitter about the introduction of interest-free student loans after I graduated but I’m just not sure I fully understood what interest was at that age. My financially illiterate decisions would follow me, albeit eventually interest-free, for nearly 20 years. Nowadays, living costs are paid out in weekly allocations, bar a course-related costs allowance. I usually paid about two weeks’ rent in bond as a young person which came to a grand total of $130. Nowadays it’s common for bond to be four weeks’ rent. Trade Me’s Rental Price Index shows New Zealand’s median weekly rental price rose to $610 for May. Young people looking to contribute to what could be a $2,500 bond for a flat as rents continue to rise could be forgiven for wanting to dip into their KiwiSaver to cover that cost.
New National policy came from Young Nats
A new policy announced by the National party yesterday, developed by the Young Nats, would allow people under the age of 30 to dip into their Kiwisaver to pay for their bond. The money would be transferred from KiwiSaver directly to Tenancy Services and returned to their savings when the tenancy ended, provided they can get their bonds back. You can review some of the issues renters have had with getting bonds back, including quibbles over fluff in the lint tray of the washing machine, in Toby Morris’s Side Eye for September 2022. Tenants would be able to use their KiwiSaver to cover their rental bond for up to five years.
The policy comes with a financial penalty
New research published yesterday by Research NZ shows those aged 18-34 are feeling the cost of living squeeze more than any other age group so you could argue there’s an element of sticking-plaster pragmatism about this. However, while students aren’t being penalised with interest costs on their student loans as I was, there is still a financial penalty to this policy. Any money sitting with the Tenancy Tribunal is not sitting in a Kiwisaver account earning a return and it’s those without financial support from parents or savings who will be most likely to need help with bond payment. Factor in the 25% gender gap in KiwiSaver balances, which is most pronounced in the 18 to 25-year-old and 31 to 35-year-old age brackets, and you could argue it’s financially disadvantaged young women who would bear the biggest financial penalty for the costs of putting a roof over their heads.
Experts ‘hate it’
That’s how interest.co.nz’s Dan Brunskill’s piece on the policy is headlined. David Boyle, head of sales and marketing at Mint Asset Management, said he was concerned that politicians saw Kiwisaver as a “little pot of gold” that could be used to tackle specific problems. This morning, BusinessDesk’s investment editor and host of the “Cooking the Books” podcast, Frances Cook writes (paywalled) that “Using KiwiSaver for rental bonds is the most financially irresponsible thing” she’s heard in years. “Allowing people to take money out of their KiwiSaver when they’re young is exactly the opposite of what financial advisers would tell you to do. I constantly tell people that when you’re young and broke is the perfect time to invest. That’s because you have time on your side, so a little bit of money can go much further,” she writes.