David Hargreaves is trying to keep tabs on Kiwis' spending and saving habits during the pandemic

New Zealanders don't often get praised for fiscal rectitude.

Over the years we've copped a fair bit of criticism (often from within ourselves as much as anything) as being a bit rubbish with saving.

I think the development of things such as Kiwisaver have probably helped change attitudes and behaviour. I think we are 'better' now than we were. We needed to be. Is there room for improvement still? Oh, yes. Undoubtedly.

The one sure test of behaviour and prudence, however, is always going to be a sharp and sudden shock to the economy. And of course this year we've had that in spades.

So, how are we doing so far financially?

Well, you can only really go on what the various statistics show you. And such statistics inevitably 'average out' spending and savings patterns.

They will show an 'average' pattern and therefore won't tell you if some people are doing well and others aren't

And I say that last bit because it's becoming increasingly obvious that we are developing a 'two speed' economy. This is going to be the big worry over coming months.

The impact of the pandemic is not falling in an even fashion. Some people are being hit real hard. On the other hand there's other people who might arguably be doing even better in this environment than they were, given things like super low (and heading even lower) interest rates and such things as the freeing up of restrictions such as the Reserve Bank's loan to value ratio restrictions.

If you are secure in your job and confident of your future then paradoxically now is (from an economic perspective) potentially actually a good time. Not that anybody's likely to really admit that. And of course nobody is going to say they are 'having a good time' at the moment as such because this has been an unbelievably weird and horrible year. But you can be having a bad time emotionally and still seeing the bank balance go up.

Far worse of course if you are getting it both ways - it's a horrible year, the job's gone and the bank balance is shrinking.

So, anyway, notwithstanding the fact there is this two-speed pattern emerging, here's a bit of a delve again into some of the figures.

Keeping the balance

I've been surprised at what we have seen. Given the shock to the economy that started in earnest in March I might have expected, off the top of the head that credit card balances, for example, would have grown (IE we would have got into more debt) but at the same time overall spending patterns on things such as retail goods would have been down.

In the event, to this point we have seemingly kept a miraculous balance between keeping some money pumping into the economy (when we are allowed out of lockdown to spend it) and to keeping some money set aside.

The crucial factor here has got to be the massive stimulatory measures such as the wage subsidy. The evidence thus far would suggest a lot of people have been stashing the subsidy money for potentially rainy days ahead.

So, what happens over the next few months now becomes very crucial indeed. Clearly the Reserve Bank thinks there's plenty of struggle ahead, as do major bank economists.

The data between now and Christmas on various saving and spending measures is therefore going to be very informative.

My expectation is that we will start to see, quite quickly, a pattern of the savings going down and debts going up. If that doesn't happen to any great extent then we will be doing a lot better than I currently expect. And a lot better, I suspect than the likes of the RBNZ expect.

To go back to March (we went into Level 4 lockdown on March 26) there was the beginning of a sharp increase in the amount of savings held by Kiwis in bank accounts, as measured by RBNZ statistics.

In the house

As at the end of February household deposits totalled $184.486 billion. By the end of July (the latest month currently available), the deposits total had risen to $196.334 billion. So, that's just shy of $12 billion more money in accounts in five months. That's around $2400 more for every man, woman and child in the country.

That's an annualised growth rate of around 15%.

Sounds very impressive, but is less so if we look a little at the details. 

Bank term deposits have actually fallen between the end of February and the end of July - from $100.924 billion to $100.002 billion. 

During the same period, savings balances have risen from $54.981 billion to $61.681 billion.

Balances in transaction accounts have risen from $28.581 billion to $34.651 billion.

So, boiling that information down, the sums of money 'locked up' (in term deposits) have dropped since the start of lockdown in March, while the amount of money 'parked' in accounts and which could be accessed quickly, has risen by well over $12 billion. 

Not really 'savings' then, but money put to one side that people think they might need soon. Well, that's what I would suggest anyway.

One other interesting thing to throw into the mix, and it remains a bit of a mystery, is the extent to which people may or may not have been creating 'mattress accounts' - taking out actual cash and stashing it.

Mattress money

Earlier this year the RBNZ noted that back in March  there was an unprecedented demand for cash from system participants (banks, retailers, the public) in the days leading up to the lockdown. "It is expected a large portion of this increase will be returned to the Reserve Bank once the pandemic is over," the RBNZ said then.

Well, the pandemic isn't over and neither, it seems, is the cash stashing. The RBNZ's balance sheet for August shows that still over $8 billion of cash is in circulation, which is some $1.275 billion more than was in circulation at the same time last year. Did somebody say cashless society?

Anyway, whether it's in the bank, or under the mattress, there's a bit of money being saved, for now.

What about debt though?

Well, there's credit cards. Generally speaking since the emergence of credit cards in New Zealand the amount outstanding on them every month (as a whole) has only kept rising. Not this year though.

Between the end of February and the end of April there was an astonishing $1.58 billion reduction in the amount owing on cards. Now yes, we were all locked up for much of that time, so spending on cards was more problematic than usual, but we are talking here about an actual reduction in past debt - IE people consciously paid down their previous credit card debts. Impressive.

Restraint rules

I would have expected a fairly sharp rise in debt subsequently, but no. That hasn't happened. The amounts outstanding blipped up quite strongly in June, but with the subsequent re-emergence of Covid and the Auckland Lockdown Lite there was then a reduction again between July and the end of August. As at the end of August the amount outstanding on NZ credit cards was $6.071 billion - still way down on the $7.368 billion seen in February and currently at levels we last saw in 2014.

In terms of personal loans, these have dropped as well, from an aggregate total of $9.415 billion at the end of February to $8.624 billion in July.

Okay, mortgages. As we know, the housing market got off to a bit of a flyer this year, pre-Covid. As of December 2019 there was $276.662 billion outstanding in mortgages. By March this had risen to $281.349 billion - but the impact of lockdown was such that the total actually dropped in April, to $280.759 billion. But again, as we know, there's been a fairly strong bounce back of the house market since and by the end of July the outstanding total of mortgages had risen to $285.587 billion.

The strong rise in new mortgages and house buying interest contrasts with reports of significant numbers of existing mortgages in arrears. And the New Zealand Bankers Association reports about 7% of outstanding mortgages are currently subject to a full deferral of payments, while a further 10% are operating with reduced loan repayments. (That's a total of about $50 billion worth of mortgages affected.)

Two-speed housing

This again looks decidedly two-speed and fits with the idea of some people doing well at the moment and others not. So, you've got those that can, climbing into the housing market, while some people might just be hanging on a little. 

My suspicion is that at least some of the people who decided to go for the full mortgage deferral might be among the same people who banked the wage subsidy money and set it aside for that rainy day.

All of which leads me to think that the period between now and Christmas will tell us a lot. 

As the post-wage-subsidy reality bites I think we may well see that $12 billion 'savings' pile quickly depleted and the credit card balances moving up. Whether mortgage money and the housing market keep moving really depends on just how many people are in that 'we are doing okay' category.

If the numbers of such 'comfortable' people are not as many as the recent activity might lead you to believe then the current activity in the housing market may well fizzle. 

Certainly, the RBNZ is taking a very gloomy view of the economy's immediate prospects.

We won't have too long to wait to find out whether they are right.