The "silver tsunami"; Financial stress testing; A cynics guide to investing; Women and money; 30 min savings habit

By Amanda Morrall

1) Silver Tsunami

Michael Littlewood, of the Retirement Policy and Research Centre, puts a positive spin on the "silver tsunami'' that threatens to suck dry the national pension fund as well as cripple the health care system in his latest commentary.

One of the upsides to having a disproportionate number of oldies in New Zealand, is that they'll also be pumping money back into the economy as eager consumers, says Littlewood. 

He's forecasting a four-fold increase on spending on food and entertainment by this group.

After last week's dismal retirement expenditures report released by the new Center for Personal Financial Education, I'm a bit doubtful about their outlay on food (the 'no frills' group were getting by on NZ$55 a week for food) however I have no doubt this cohort has more to offer than what they are commonly credited with.

Littlewood says it's high time employers recognise the potential contributions to be made from the plus 65s poised to occupy a higher-than-ever chunk of the workforce in coming years.

Here's a few myths he dispels for their benefit:

•  Myth 1: Older workers cost more and are less productive – Truth: Not so – US evidence suggests that older workers take longer to recover from injuries but that they take fewer sick days and time off on family issues. There are also lower levels of absenteeism; lower turnover along with better interpersonal and customer skills. According to Peter Capelli, Director of Wharton’s Center for Human Resources: “The evidence is unbelievably huge. Basically, older workers perform better on just about everything.”
• Myth 2: Older workers lose interest in jobs– Truth: Knowledge@Wharton cites a US report Working in Retirement: A 21st Century Phenomenon (Brown, Auman et al., 2008). It found that those who worked past retirement age became more, rather than less engaged. They also rated ‘job challenge and learning’ as a top source of satisfaction with their work: “Contrary to the assumptions of some that older workers want to “coast” until they can permanently exit the labour force, we find that when those working in retirement have jobs that are challenging and provide learning opportunities, they are most likely to be engaged in their jobs”
•  Myth 3: They shut younger employees out and deny them job opportunities– Truth: This is an old worry for which there is no evidence across countries. It is based on what economists call the ‘lump of labour’ fallacy; that there is a fixed ‘lump’ of work available to be shared out amongst all workers; if older people are working the fallacy suggests that younger people cannot work. Belgium spent large amounts of money encouraging early retirement in order to clear the way for young workers. However: “We could not observe any positive link between early retirement and youth unemployment.” (Jousten, Lefèbvre and others, 2008).

2) Financial stress testing

Whether you want to strike out on your own,  move to part-time or take a year off to have a baby, gambling about the financial outcome is risky. Wellington-based authorised financial advisor Liz Koh has a solution to overcome the angst: a self imposed financial stress test. Koh, in her latest blog, calls it the "As If Principle".  She explains it like this:

One of the most useful techniques for planning ahead with your money is what I call the ‘As If’ Principle. It is a really simple technique that clearly identifies in advance whether a specific goal is achievable, while at the same time, helping you achieve it! The time to use this technique is when you have a future goal which has the effect of either reducing your income or increasing your expenses on an ongoing basis. Examples of such goals are:

• Choosing to retire or work less
• Sending your children to a private school
• Preparing for possible redundancy
• Planning to take parental leave
• Moving from full time to part time work
• Taking a job with less stress and less pay
• Giving up your job to study at university
• Buying your first house
• Buying a bigger house with a bigger mortgage
• Borrowing to buy a car

Here is how it works, and it really is simple!

Step One: Prepare a new budget for yourself, ‘as if’ you are already taking your planned action; that is, a budget based on less income or increased expenses.

Step Two: Start living according to your new budget ‘as if’ you are already in your goal situation.

Step Three: Save the difference between your current and planned income or current and planned expenses into a savings account.

This allows you to test your ability to achieve your goal, while adding to your savings. The more time you have to plan ahead, the easier it will be to test your budget, increase your savings and achieve your goal. If you find you are unable to live on your new budget without dipping into your savings, review the cost or timing of your goal and whether it is achievable.

To read other blogs by Liz, see her website here.

3) Cynics guide to investing

Rob Carrick, of the Globe and Mail newspaper, explains in simple, albeit sarcastic terms, some of the concepts, professionals and products in investing. I particularly enjoyed the definition of hedge funds: "Expensive mutual funds for rich people seeking exotic ways to lose money."

4) Personal finance flunks with degrees

A degree is no guarantee of success or any above average financial literacy apparently. Time magazine reports on some fresh research looking at the financial literacy levels (and habits) of female college graduates in the United States. As one might expect, those with degrees in business and finance showed a higher than normal aptitude however those with fine arts and other specialties showed unimpressive results.

5) 30 minutes a week

A half an hour a week spent on budgeting and or money saving strategies could have annual savings in the thousands. The Telegraph reports on research out of the U.K. looking at how financially conscious consumers have reformed their ways since the global financial crisis and  how coupon clippers, reward points and thrift is putting more money back in their pockets.

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter @amandamorrall