Welcome to the Money Maven's Financial Blog

Money Maven Blog by Sheryl Sutherland, Authorised Financial Adviser and Director of The Financial Strategies Group

Recommended Reading

Recommended Reading by Sheryl Sutherland: Girls Just Want to Have Fund$ - Every Women’s Guide to Financial Independence, Money, Money, Money Ain't it Funny - How to Wire your Brain for Wealth, and Smart Money - How to structure your New Zealand business or investments and pay less tax.

The Financial Strategies Group

We think for ourselves and make unique recommendations. We only recommend investments and insurances that are in the best interest of our clients.

The Financial Strategies Group

Most of us spend 40 years working to secure our financial future; the most important investment you can make is to purchase appropriate financial planning advice.

Contact us for a review of your investments and insurances.

Begin to experience the serenity that accompanies financial responsibility and integrity: email sheryl@strategies.co.nz, call 0800 64MONEY or visit our website http://www.strategies.co.nz

Tuesday, 25 January 2011

Who's Counting?

You could be forgiven for thinking that the health system could save $1.9 billion if tobacco had never existed. That’s what the Ministry of Health says smoking costs the public system. But you’d be wrong. The ministry’s latest estimate of the cost of smoking has nothing to do with the costs that smokers impose on taxpayers or the costs that could be avoided if smoking were to disappear.

After sorting the population by age, gender, income, ethnicity and smoking status, they compared the costs of providing health services to smokers as compared to non-smokers for each group.

But there are two very big problems with this way of estimating costs.

Everybody dies sometime and most of us will incur end-of-life costs that will be paid for by the public health system.

Suppose that a smoker will die at age 65 and a non smoker will die at 75. Comparing 65-year-old smokers to 65-year-old non-smokers and calling the difference the cost of smoking than rather biases upwards the measured costs of smoking.

We ought to be comparing the health costs of a non-smoker dying at age 75.

Finance and Investments

Money illusion feeds into the kiwi obsession with property but as a recent Sunday Star Times article points out, many factors should be considered when weighing up the rent-or-buy options. The article quotes economist Shamubeel Eaqub from the New Zealand Institute of Economic Research who says the case for "active" renting instead of buying a home is stronger than ever.

"I think house prices are completely unsustainable on pretty much every valuation methodology," he said. "It seems very expensive not only from the perspective of buying an investment, but also from the perspective of an owner-occupier."
There may be no bubble bursting, and it may take a number of years of zero house price growth, but Eaqub has a "strong view" that prices will fall in real terms.
The Retirement Commission’s David Kneebone gives two scenarios:

1. The home buyer
To buy a median-priced home in July 2010, a median-wage earning buyer would have had to pay $350,147 and have a deposit of around 20%, some $70,029.
At a 6% mortgage rate, the annual repayments over 30 years would take $20,153 or about 32% of household income. At an 8% mortgage rate, closer to the norm, it would cost $24,665, or 39% of income.

That leaves the buyer with $756 a week (out of $1231) for everything else a household needs: food, electricity, phone, petrol, clothes, healthcare and so forth.
Plus, homeowners have to pay for rates, insurance for the house and maintenance that goes with it. If nothing goes horribly wrong, then budgeting $4000 a year provides a reasonable estimate.

2. The renter
Median rent in New Zealand is $300 a week, making the annual cost $15,600 – about $9000-$13,000 less than what the homeowner has to come up with for mortgage repayments, maintenance, insurance and rates.

If the renter invested that $9000 that the homeowner is spending every year at 7% (as per sorted.org.nz), he or she would have $50,000 saved in five years.
If house prices are stagnant in the period, the homeowner would be $100,000 behind the renter (that is, the $50,000 that the renter has gained and the $50,000 the owner paid in extra costs).

If the renter then bought a house, he or she would be buying at a lower "real" price, given inflation over the five years, and the price of the home would have fallen in proportion to the median wage.

Ultimately of course each householder must make their own decision. Generally speaking though renting is the most fiscally sensible option.


As the number of women participating in the workforce grows, their potential influence on business is becoming ever more important. Seventy-two percent of respondents to a recent McKinsey survey believe there is a direct connection between a company’s gender diversity and its financial success.

Yet companies have not so far successfully bridged the gap between men and women in the top levels of management. This is not surprising, since the survey shows that diversity isn’t a high priority at most companies and that there’s great variability in the number of gender-diversity policies that companies, have pursued. For both of these factors, the results suggest that more is better: at companies where gender diversity is higher on the strategic agenda and more related policies are implemented, executives say that company leadership is also the most diverse.

Among respondents at the companies that include gender diversity as a top-three agenda item and those at all companies, there is a 32 percentage-point difference between those who say women fill more than 15 percent of their C-level positions. The degree of support from CEOs and other top managers is another important factor influencing a company’s performance on diversity, respondents say, so it is notable that few companies; top management teams currently monitor relevant programs. The differences executives report at the most diverse companies suggest some ways all companies can improve their gender diversity and, eventually, financial performance.

Looking forward to seeing some action in NZ businesses and boardrooms.

Musings & Amusings

Marriage is a “public, formal, lifelong commitment to share your life with another person,” as Andrew J. Cherlin defines it in The Marriage-Go-Round: The State of Marriage and the Family in America Today. In the American view, marriage remains the ideal state: only 10 percent of Americans endorse the idea that the institution is outdated, compared to, say, in France, where a third of people think it is. On the contrary, America is seeing a sort of Marriage Renaissance, the impetus for which comes in part from the gay marriage movement, which in itself reflects our reverence for weddings. All the usual explanations for the marrying nature of Americans seem good enough: marriage is seen as a haven in a rough world, an antidote to rootlessness. Marriage says Cherlin is unneeded by people in smaller, more comfortable societies, it developed in response to other historical factors including patterns of life and religion in Colonial America and on the frontier; if is not an innate biological impulse but a socially determined convenience for raising children.

By the time they’re forty, 84 percent of American women have been married, a higher percentage than in other Western nations; and more than half (54 percent) of marriages will have broken up within fifteen years. About the same percentage of “cohabiting relationships” will have broken up even sooner. Americans divorce more often than others do and have more partners, more children out of wedlock, and more abortions.

Along the way, a total of 90 percent of women, almost all of them, will have one partner or more during their lives, and some many, many more. If hypocrisy, as some suspect, is our most salient national quality, Cherlin finds lots of examples in the inconsistency of American religion and law, the one urging us with increasing shrillness to fidelity in sickness and health, the other extending legislation for no-fault divorce.

Cherlin believes that the fragility of the American family is the result of an evolution—an “upheaval”—since the late 1950s, from earlier traditions governing property, progeny, prestige, duty, and God, to a new view that marriage is a “right” on the path to personal fulfilment.

While this an American survey it certainly mimics the Kiwi experience.


It is a tragedy, a horror, a crime against humanity. The details of the murders – of the women beheaded, burned to death, stoned to death, stabbed, electrocuted, strangled and buried alive for the "honour" of their families – are as barbaric as they are shameful. Many women's groups in the Middle East and South-west Asia suspect the victims are at least four times the United Nations' latest world figure of around 5,000 deaths a year. Most of the victims are young, many are teenagers, slaughtered under a vile tradition that goes back hundreds of years, but which now spans half the globe.

Consider the young woman found in a drainage ditch near Daharki in Pakistan, "honour" killed by her family as she gave birth to her second child, her nose, ears and lips chopped off before being axed to death, her first infant lying dead among her clothes, her newborn's torso still in her womb, its head already emerging from her body.

Why does this continue?

Just in case you think this is restricted to a foreign country, in NZ, it is feared a woman, Ranjeeta Sharma, 28, was the victim of an honour killing. Her charred body was found on a rural road, near Huntly in the Waikato. Her husband is at the centre of an international manhunt.

Everyday Money

How do we teach our teenage children how to handle money? The use of money involves logic, facts, and a healthy dose of discipline. These have no place in teenage brains.

If as parents you are over indulging by being the bank of Mum and Dad you certainly won’t inculcate good financial habits so here are some suggestions:

•Give your teenager an allowance after they have completed their appropriate duties, I define these as a contribution to the bottomless well of domestic duties.

•Send your teenager to the supermarket with your shopping list and cash – thus giving them a sharp dose of financial reality.

•Sit down with your teenager and show him or her your budget.

•Suggest that they draft up their own budget – much support will be needed at this point!

•Take your teenager to an advisor and get them started on a KiwiSaver which will give them a kickstart for retirement savings and access to housing finance.

And finally...the best of luck!