A global slump in economic growth followed along with a considerable amount of pain resulting from losses in failed financial institutions, mortgagee property sales and failed businesses. In response to the crisis, central banks and Governments rushed in with bags of money to shore up the ailing financial system and to stave off what could have been the worst economic event since the Great Depression.

The trouble is central banks and Governments now find themselves in the same position as the fabled Dutch boy with his finger in the hole in the dyke, trying to prevent a major disaster. Somehow this temporary measure needs to be replaced with something sustainable. There is a limit to how long a finger can be held in a dyke and the challenge for the financial system is how to deal with the increasing amount of debt faced by governments, particularly in Europe.

There is potentially another crisis looming.

Already share markets are reacting nervously to the situation in Greece, where the Government budget deficit has now reached around 13% of GDP. Ireland, Britain Portugal, Italy and Spain are not far behind. Yields on Greek Government bonds have increased dramatically as the risk of default rises.

If the Greeks do not regain market confidence, they may not be able to refinance debt that falls due in the next few months and then the government would default or have to be bailed out. If Greece falls over, the cost of borrowing for other euro countries would go up as well.

Investors in international bond markets will need to proceed with caution over the next few months.

This was clearly a report for which the headline had already been written, aimed more at using sensationalism to sell magazine subscriptions than providing consumers with an objective review.

There are already numerous initiatives underway to improve standards of competence, ethical and professional behaviour, disclosure and dispute resolution for financial advisers, none of which will be enhanced by the findings of the Consumer report. The principal outcome has been the destruction of public confidence in financial advisers, which means that sadly many people who need good advice won’t ask for it.

Consumer asked 11 mystery shoppers to obtain financial advice from 33 financial advisers and then rated the financial plans that were written. The complexity of financial advice is such that a mystery shopping exercise is an inappropriate methodology to test the quality of advice given. Financial advice is a process, not a written plan and the quality of advice is best measured by the outcome of the advice; something that is not easy to do objectively. It most certainly cannot be measured by the quality of documentation.

A major focus of the Consumer report was what were termed ‘pre-retirement plans’. Consumer have correctly identified that there is a huge gap in the market in that people with low equity, high levels of debt and little in the way of savings find it difficult to obtain financial advice.

The reason however, is not as contended by Consumer that the standard of financial advice available is scandalously low; it is quite simply that such people either cannot afford to pay for advice or are unwilling to do so.

Advisers who offer written pre-retirement advice generally do so at a loss and hence many choose not to offer this service, or to give verbal advice only, often with no charge.

Consumer described the average cost of pre-retirement plans (around $700) as expensive. Based on an average hourly rate of $200, this would cover around 3 ½ hours of time, of which at least two hours would be taken up by meeting with the client. Few are willing to pay the $2-3,000 I estimate it costs to prepare a detailed pre-retirement plan. For Consumer to say on one hand a $700 plan is expensive and on the other hand to reject 5 of the 7 pre-retirement plans on the basis that they lacked detail is absurd unless they consider that advisers should be offering a charitable service.

Consumer’s recommendation to investors that they only use advisers who charge an hourly rate rather than a percentage fee is difficult to fathom and would result in advisers being nothing more than transactors unable to give pro-active advice.

Had Consumer intended to use a fair process with this study there are several things they would have done differently. The panel would have omitted those with a known anti-adviser bias; the rating scale (good, disappointing and rejected) would have been objective rather than sensational; reasons for ratings would have been given and mystery shopped advisers would have been offered the right of reply.

It will be interesting to see what effect this Sunday tabloid style of journalism has on Consumer’s credibility.

Very often, giving money or gifts is associated with giving love and the first point to make is that the amount of love you give your children has very little to do with the amount of money or gifts you give them. Money buys neither love nor happiness. Parents who do not put limits on what they give to their children often do so for a psychological reason that has more to do with themselves than their children.

Perhaps they feel guilty about not spending enough time with their children, or perhaps they want their children to have a better life than they had themselves. Single parents can find themselves giving too much to their children to help remove their guilt over their failed relationship.

It is the duty of every parent to raise their children in such a way that they are able to lead independent and successful lives, no matter how you might define success. An important part of parenting is instilling the values and beliefs in your children that will enable them to achieve what they want in life. There is an old adage ‘give a man fish and you feed him for a day; teach him how to fish and you feed him for a lifetime’.

Giving too much to a child creates dependency and most importantly, it allows your child to develop a lack of respect for money that can lead to financial problems later in life. Lack of respect for money usually goes hand in hand with wastefulness, an inability to save for longer term goals and sometimes a life burdened with debt.

While most parents are prepared to make huge sacrifices for their children, this can be taken to extreme and some parents incur huge debts or forego their own longer term goals in order to give their children a good life. This is undesirable for both parents and children. Parents who lack financial stability may find that their ability to help their children becomes more limited over time and they are less able to help their children with really important things later in life such as buying a house or setting up a business.

Spending too much on your children is not desirable, but saving on behalf of your children also needs to be done with careful consideration. It is common for parents to want to set up an education fund for their children to cover the costs of going to university. If your child has access to an interest free student loan then it is best to make use of borrowed funds rather than use invested funds on which you are earning a return.

The best ways of helping your children save for the future are to enrol them in KiwiSaver, which will entitle them to tax credits and employer contributions once they turn 18, and to help them save a deposit for their first house.

So before you give money or gifts to your children, think about what values you are teaching them, your own financial stability and how you can best help your children achieve their longer term goals.

There are two ways of interpreting the concept that money doesn’t buy happiness. The first is to consider that it implies that those with a lot of money often find themselves in a state of unhappiness and the second is to consider that it implies that happiness comes from something other than money. In either case, the adage contends that there is really no direct relationship between money and happiness.

Wealth is nothing more than a state of mind. Whether you describe yourself as wealthy or not will depend on how you feel about your current circumstances and who you are comparing yourself to. Wealth is a relative concept. Some people feel wealthy even if they have a small amount of money because they have more money than what they need to live the life they want. On the other hand, others can feel poor even though they have a large amount of money because they don’t have enough to live the life they want. The difference between these two groups of people is that the first group, who feel wealthy even though they don’t have a lot, get their enjoyment in life from things that don’t require a lot of money.

Being happy is being accepting of what you have already. Happiness is not about having it is about being. Just like wealth, it is a state of mind and it has very little to do with tangible possessions that are bought. In saying that though, there are basic necessities that everyone needs in order to meet their physical needs and to feel secure. People who don’t have enough money to feel secure will worry and will therefore be unhappy but beyond security, true happiness comes from relationships, friendships and simple enjoyment of life. Those who focus on money for its own sake will find they are never satisfied with how much they have and as we know, dissatisfaction creates unhappiness. Happy people place less emphasis on income and wealth and more emphasis on relationships. They are content, without being complacent.

You are responsible for your own happiness, because you are in charge of your own feelings. It is never the fault of another person, your employer, another organisation or the Government that you are unhappy. Happiness comes purely from within, from focusing on the good things about life and not the negative things. Finding happiness should not be conditional, that is, you should not be saying to yourself that “I’ll be happy when…” or ”I’ll be happy if….” Happiness is about accepting things unconditionally as they are now and being grateful for what you have. The really interesting thing is that because happy people place less emphasis on money and wealth, paradoxically they are more likely to become wealthy. There is a simple reason. Happy people spend less and save more. Be happy and be wealthy.

Things aren’t all that bad, and in fact there is now some light at the end of the tunnel. Economists are now predicting an imminent end to the recession. That means a return to economic growth, albeit at the low end of the scale. For investors, it is time to review portfolios.

A long term investment portfolio should be diversified between the main asset classes; that is cash, fixed interest, property and shares. While it is important to maintain that diversification, it pays to fine tune the weighting given to each of the asset classes when economic conditions change.

Many investors have had heavy weightings towards cash and fixed interest investments over the last two years while interest rates have been high but trending down and growth assets (property and shares) have been in turmoil. We are now at a stage where interest rates are probably at the bottom of their cycle and likely to increase in the medium term.

Cash is looking less attractive as an investment option, as are bonds, which could well fall in value as interest rates trend upwards again. Investors requiring income from their portfolios now have a dilemma; do they stick with conservative, income-producing assets (cash and fixed interest) at low rates of return with the risk of a drop in the value of some assets, or do they increase their exposure to growth assets where the returns are likely to be greater but where there could be continuing volatility in the short term.

A sensible way forward for most investors requiring income is to have three to five years worth of income invested in cash and fixed interest and to invest the remainder in a diversified portfolio that contains growth assets. That way, it is possible to get the best of both worlds. By the time the short term investments in cash and fixed interest have been used up to provide income, the growth assets have had sufficient time to produce a good return that can be used to top up the income funds again.

The growth potential of investing in shares has been clearly demonstrated over the last few months. Since the lowest point in March this year, US share prices as measured by the S&P500 index have increased by over 55% in value and in New Zealand the NZX50 has increased in value by over 30%.

It is not possible to identify the lowest point in the share market until well after it as passed, so it is only with hindsight that we know that March may have been the best time to invest. The best gains in shares are often had within the first year of a low point, so make the most of the light at the end of the tunnel.

To have a strong asset base means owning assets such as property or investments which increase in value over time. The best measure of a strong asset base is the difference between the value of those assets and the amount of debt you have. It’s all very well to own a million dollar property, but if you have a million dollars owing by way of mortgage and other debts then you really have no asset base at all. A good asset base will give you the ability to stay strong when things don’t go according to plan.

Having a positive cash flow means that the income you receive on a regular basis from employment or your business is greater than what you spend on a regular basis. If you have a positive cash flow, then you have the power to add to your wealth over time.

Some people, particularly young people it seems, are impatient when it comes to building wealth. Too often I have seen people with high levels of debt, unable to save, but wanting advice on the investment of a small sum that has come their way as an inheritance or a windfall of some kind. Because they are struggling to get ahead financially, they want to invest their small sum in something that will multiply their money several times over. What they fail to realise is that investments which have the ability to multiply your money also have the ability to fail. In the worst case, you may lose more than you initially invest. Risking everything you have has much more dire consequences than risking a small part of what you have. The stronger your financial foundation, the more risk you can afford to take and therefore the quicker and easier it is create more wealth.

I mentioned earlier that there are two ways to get rich quick. The first is to borrow money to invest in property. The second is to invest in businesses – either your own or somebody else’s. Both of these strategies require a solid financial foundation and two other key ingredients; time and expertise. Use the time while you are building your financial foundation to learn what you need to know to be a smart investor in property, shares and businesses and to put together a team of experts who can help you. Start slow, be strong, do your homework and riches will quickly follow.

Start by setting up automatic transfers and direct debits. Automatic transfers are a useful way of splitting up your pay into categories to help you manage your money. When you are paid, put some of your pay into an account to cover all your fixed expenses, such as your mortgage or rent, rates, insurance premiums, gym membership etc.

Have another amount going into a savings account that will cover any unexpected expenses as well as holidays and home improvements. Transfer an amount into yet another account that will cover your personal expenses such as hair cuts, beauty treatments, clothes, and the fun stuff (coffees, lunches and nights out). What is left behind should be enough to pay for the necessities such as food, petrol and phone.

The next step is to make sure as many of your bills as possible, including your credit card, are paid by direct debit from your fixed expenses account. That way, you will always get your early payment discounts on your bills and you won’t pay interest on your credit card. The trick is to make sure you put enough money into your fixed expenses account each payday to cover these bills. If you don’t like the idea of direct debits, use the internet bill payment facility and set up all your payments in advance so that your bills are paid on the last day they are due but still in time to get your discount.

Most banks now have email and TXT alerts, so that you can be notified straight away if your bank balance falls below a certain amount. This is a great way of making sure your money management system is working and your credit card balance isn’t getting too high. Alerts can also tell you when money has been paid into your account.

Mobile banking is great for when you are out shopping and you want to know how much you have spent. You can use it too if you are dining out and the restaurant will only allow one bill per table. Simply transfer your share of the bill to the payer while you are still in the restaurant.

Snapper cards are now available in the main cities and these are great for keeping track of small amounts of spending not only on bus fares, for which they were designed, but also on coffees and snacks as they are becoming more widely used. You can top up your Snapper card each week with a set amount and that will keep your spending within that limit.

If you want to get serious about budgeting, you can download your bank statements online and import them into money management software (such as Microsoft Money) so that you can easily track where all your money is going and fine tune your money management system.

For those who are serious about long term saving, most banks now offer a good range of investment funds, including KiwiSaver, to which you can contribute online. Some banks even offer online share and bond trading services so that you can build up your own investment portfolio. So go to it and use banking technology to get rich!

The same survey, sponsored by ANZ Bank, also showed that using some simple knowledge tests, only 43% of people in the survey have a high level of financial knowledge and the majority of people have a low or medium level of knowledge.

The good news is that there has been a significant improvement in knowledge levels since the last survey was done in 2006.

Results of the survey can be seen at the Retirement Commission’s new website for financial literacy, www.financialliteracy.org.nz..

All this goes to show how important it is to teach kids about money and the even better news is that the Ministry of Education is finally introducing financial literacy into the school curriculum, albeit in a limited way.

Any competent financial adviser will tell you that a person’s ability to be a financial success in life is not determined by their academic success or their income; it is determined by their ability to spend less than they earn and to make good decisions about saving and investing.
It is almost unbelievable then, that a comprehensive financial literacy programme has never been included in the school curriculum.

While money isn’t everything in life, research shows that in the majority of relationship breakdowns, stresses and arguments around money have been the principal factor in the breakdown. Success with money doesn’t determine how happy you are, but it certainly helps.
Late in 2008, a pilot project was undertaken for the Retirement Commission to test a Personal Education Framework for primary and secondary schools. It was a resounding success from both the teachers’ and the pupils’ point of view.

The Ministry of Education is now set to formally adopt this Framework. While this is great progress, it will not be compulsory for schools to use it and the concepts will be taught across the mainstream curriculum within other subjects such as English, Mathematics and Economics.

This means that unless schools and teachers see the importance of teaching kids about money, it may only happen in a limited way. Teachers themselves will have to improve their level of financial literacy so that they can in turn teach their pupils and teaching resources will need to be developed for use in the classroom. There is much work to be done!

If you are a parent of primary or secondary school children, ask your local schools how they are going to implement the new Personal Education Framework and ask your local Member of Parliament how much additional funding is going to be made available in years to come so that your children can be taught financial literacy.

Teaching kids about money is too important an issue to be ignored

That doesn’t mean, however, that you won’t ever get lucky. Every week, some Kiwis receive large inheritances or relationship property settlements or find themselves with large amounts of cash after selling a farm or a business.

Suddenly having a large amount of money doesn’t mean, however, that all your worries are over; your worries are just different from the ones you had before. Large sums of money create fear and uncertainty that stem from a number of different factors: lack of knowledge about the options that are available for spending it or investing it; not knowing how to choose the best option; not knowing who to trust for advice, and worry about losing the money through taking risks.

For some people, these fears and worries are so overpowering that the money either never leaves the bank or it all gets spent.

The first thing to do when you suddenly get a large sum of money is to pay off your debts. It’s great to be able to spend some too, but most of what you have left should be put to one side in the bank for a while.

When money has come unexpectedly, emotions go into turmoil and that’s not a good time to be making decisions.

Spend several months thinking not about what you could do with the money, but about what the important things are to you in life. Money is what enables us to get what we want out of life, whether that is helping our children, helping the community, having interesting and enjoyable experiences, living in a comfortable environment, or enjoying our retirement.

Once you have established what is important about money to you, you can then allocate part of your fortune to each of the items on your list. Inevitably, you will need to prioritise, as you will soon find that even a large sum may not be enough!

There are many pitfalls to be aware of that could lead to unexpected legal or tax consequences. To start with, there is the issue of gift duty. While it is most people’s desire to share their wealth with family members, giving a total of more than $27,000 in any one year to one or more people, even family members, will trigger gift duty.

Be aware too, that any gift you make to someone in a relationship can become relationship property, so that if the relationship ends, it may be divided between the two partners.

One way around this problem is to draw up a loan agreement with the person receiving the money for an interest free loan, repayable on demand. In your will you can specify that the loan is to forgiven.

Donating money to a registered charity is not only free of gift duty, but you can claim a tax rebate for your donations.

Other issues to consider are whether to establish a family trust to protect your wealth, and ways of investing your money so that you don’t pay more income tax than what you need to.

The recent financial crisis has shown that the risks of investing are not always apparent. For all these reasons it is important to find someone you can trust who can advise you and act as a sounding board. Ideally, this should be a person who is knowledgeable about money, but it can also be a trusted friend who can help you get expert advice.

Being a bloke is no excuse for ignoring these facts, because chances are there will be somebody you care about (a mother, partner or daughter) who could benefit from your knowledge.

So what makes women different from men when it comes to money?

There are differences in lifespan, lifestyles, income and attitudes which can have a negative effect on a woman’s financial position.

Fact #1 Women live around 5-7 years longer than men on average and also tend to marry men older than themselves

Fact #2 Many marriages today end in separation or divorce, often leaving women with a lower standard of living and a high economic burden (Statistics show that household income decreases on average 37% after a divorce).

Fact # 3 Almost half of women aged 65-74 are single. Of these, around 30% are widowed, 6% are divorced and 4% have never married.

Fact # 4 Nine out of ten women will be solely responsible for their financial affairs at some point in their lives.

Fact # 5 Women earn around 75% of the income of their male counterparts

Fact # 6 At retirement, the average female aged 15 today will have saved only 75% as much as the average male.

Fact # 7 Women’s careers are interrupted by child rearing or caring for elderly parents. (It has been said that for every year a woman stays home to look after a child, she must work 5 extra years to recover lost income, retirement savings and career promotions

Fact # 8 Only 43% of women are saving for retirement compared to 51% of men.

Fact # 9 Nearly 27% of women think that the Government should take the greatest responsibility for retirement saving compared to 17% of men

Fact # 10 Women in New Zealand are more than twice as likely to live in poverty in old age as men

Procrastination in saving for retirement is something that affects both men and women, however women can be more severely affected.

As a generalisation, men die first and leave their spouses to manage on meagre savings.

While increasing numbers of women are joining the workforce, women are less likely to participate in superannuation schemes or to take out disability and income protection insurance.

Two income families are becoming more common, but second incomes are often used to finance increased spending, larger mortgages and bigger credit card balances rather than being applied to long term saving or risk protection.

In any relationship it is important for both parties to be involved in long term financial planning and to take responsibility for retirement savings and risk protection.

Women need to take steps to avoid ending their lives in poverty and should not rely on some Prince Charming or the Government to take care of them.