Updated 12 September 2019
You may love chemistry, art, rugby or netball. Whatever your interests, the entire world runs on money. Many adults are clueless when it comes to understanding money, which means life can be stressful, tiring and frustrating. However, a few necessary skills outlined in this guide which you can learn at an early age will help you manage your money.
Know this first – we live in a 24/7 Consumer Society
Why have we published this guide?
Know this first – we live in a 24/7 Consumer Society
- We see and hear ads every day telling us to buy buy buy. We never see advertisements telling us to save up and buy something later.
- Companies love to sell us something today and have us pay for it later – they expect you to pay interest on what you owe.
- 0% interest, zero repayments and, generally, anything offering pay later terms are debts that often cost you more in the long run.
- It takes discipline to resist the relentless advertising – who doesn’t want a giant TV, Xbox or new clothes right now
- The financial crisis in 2008, which made millions of people homeless, started by loans being taken out by people who spent more than they earned. Spending money you don’t have happens all over New Zealand, and it ALWAYS leads to misery.
Why have we published this guide?
- We believe that financial literacy is lacking throughout New Zealand, and it's not based on household income. We want to share the same knowledge that wealthy parents teach their children, so everyone has the chance to avoid being a slave to debt.
We've put together our top 12 list of the most common money mistakes. Yes, we live in a 'have it now' world, but you don't need to make yourself poor and stressed by thinking you need to follow. Instead, relax and read our list to avoid common pitfalls. MoneyHub is well aware that many New Zealanders don’t know where their money is going - don't make these mistakes:
- Overspending on credit cards – it’s easy to spend on non-essentials because you don’t see the money going out of your bank account per item. Unless credit card bills can be paid off in FULL every month, the debts incurred cost a small fortune.
- Always buying the latest technology – new TVs, new iPhones and flash sound systems look good, but do you notice the difference after a few days? Worse than that, many people take ‘buy now, pay later’ offers – this means your $3,000 TV will cost over $5,000 and keep you chained in debt for five years.
- Bling and Beauty – rich people don’t flash around diamonds, brands and new haircuts every week; look at Bill Gates and Mark Zuckerberg. ‘Fake rich’ is all around us, but it’s lame and the money spent doesn’t make anyone happy…other than the retailers!
- Impulse purchases – do you need four phone cases, three watches and four perfume bottles? Marketing is INTENSE for this stuff, but unless it’s a need, you’re wasting money. And seeing heaps of stuff sitting around gets depressing.
- Food waste – New Zealanders are bad with this – Food waste is a $1.8 billion problem in New Zealand - around an eighth of what Kiwis buy each week being thrown away. Rather than buy big, just buy what you'll use.
- Games and In-App purchases – this can get out of control very quickly, with US$ here and US$7.99 adding up to NZ$200+ a month. Have restraint when you game and you’ll have more money.
- Balling at a club – bars in New Zealand are crazy expensive; the real ‘boss’ is the owner of the club, not you. Spending excessively on a night out isn’t fun when you relive it on your card the next day.
- Gambling – poor people spend the most on lotto tickets and instant Kiwi. The odds are bad and the success stories so few. It's basically a tax for poor people.
- Smoking and vaping – $20+ for a pack of cigarettes means a ‘social’ pack-a-week-a-day purchase could cost $1,000 a year. Vaping is also expensive and not healthy.
- Bank fees and overdrafts – banks make a fortune from overdrafts (see our overdraft guide) and fees. Pick the right bank account – zero fees, low transaction costs and freebies. Our student bank account guide picks the best options for those 18 and over.
- Bad value insurance – when it comes to insurance, if you don’t compare, you’ll pay more. Our insurance guides help make sense of the best options.
- Trying to look rich – fake it until you make it is a joke. The goal is to BE wealthy, not to LOOK wealthy. You are only going to drag around debt and worry at night.
We outline the ten most important facts that let you navigate money life as a young adult. The message is clear - if you want a happy relationship with money, avoid impulsive purchases, shop around and don't buy the latest stuff.
Debt CAN be good. Some debts make you wealthy, and some debts make you poor.
Examples of ‘good debts’ are:
Examples of bad debts include:
As you get older, when you plan to buy something and don't have the money, ask yourself - am I creating a bad debt, or a good debt? Some things can be good debt or bad debt, depending on the need of the loan:
In many school subjects, there is a right and wrong answer. For example, maths, chemistry and geography are black and white. But money is not like that. It’s uncertain and requires crucial judgment, so the sooner you get experience in dealing with money, the better off you’ll be.
We live in a competitive consumer economy. There is no debt education in schools – if you run up a $1,000 bill at 18 on a standard credit card and only make the minimum repayments, it will take you ten years (!) to pay it off. If you put $5,000 on a GEM Visa or Q Card and only make the minimum repayment, it will take you 18 years (!!) to pay it off. It’s scary stuff – being stuck in consumer debt in your 20s is bad, but in your 30s it’s terrible.
People will always buy stuff they can’t afford. The latest phones, new clothes, brand new car and big nights out. But they go home to bills to pay, which cause worry and health issues. School doesn’t teach you about avoiding the trappings of being an adult – and Instagram is full of fake lifestyle photos which doesn’t help self-control.
For example, an asset is a house you own and rent out – your asset makes you money. A liability is a credit card debt for a holiday. Assets are valuable as they pay you money, whereas liabilities cost you money. If you have money in the bank, it's an asset. If your bank account is in overdraft, it's a liability.
The best way to explain this is with an example:
What does this all mean?
Basically, you can spend your money to look risk, but you may end up poor. Wealthy people often look very ordinary, but they use their assets to make them richer. For example, their rental property pays for overseas holidays and renovations in their own home.
Babysitting, lawn mowing and dog walking are just some examples of in-demand jobs. Many companies hire students year-round. Our student jobs guide outlines how to take the next step. If you work for yourself, you can full control of when you work, which may be more suitable than committing to fixed hours.
Want to get a part-time job right now? We've made it easy. Our student job guide lists plenty of options. Our student CV, cover letter and job interview guides help you succeed in your application.
MoneyHub was founded with the purpose of comparing prices, and we spend a long time getting to know the different options available for everyday purchases. We invest a lot of time updating them to make sure people can compare accurately. If you are determined to get a credit card or car, read some of our most popular guides first:
Question 1: I’m always being told to save, but what am I saving for?
Question 2: Why does my bank only pay me 2% on my savings when I see them advertising loans for 10%?
Whatever your salary may be, this is not your 'financial limit'. If you save and invest, rather than spend and rack up personal debt, your wealth will grow over time. You can then use that money that buy what really matters to you. There is no limit of money in the world - how much you make comes down to your choices and how you invest your time and income.
Banks credit cards and high-interest finance options like the GEM Visa and Q Card all offer credit to anyone 18 or older. But even with a good grip of how credit cards work, it's all too tempting to overspend. Once started, it can lead to debt being dragged around for years to come.
Credit cards are best later on when you are in full-time employment. Banks love to issue credit cards - stay strong, resist and be proud to be above it all.
- Working for money, i.e. exchanging your time for an income, isn't the only way to make money. For example, if you start a business and hire people, you can make money from the business, with the work.
- Delayed gratification is essential to get ahead financially. Buying things impulsively to feel better, or giving up on something when things are too hard, means you won't get anywhere. No one is rich or successful overnight. It takes a lot of time, patience and hard work.
- The best way to make money is to help others. The most valuable work is that which solves problems. This is why medical work, engineering and legal jobs are well paid when compared to work such as Uber driving and working in a fashion store.
If you need further reading beyond the easy-to-action list above, some options exist. By including them in the list below, MoneyHub is not endorsing them in any way.
- Sorted in Schools – This government-led program is being rolled out to schools all over New Zealand - the website outlines what's on offer.
- Young Enterprise – There are a select number of workshops that fall into the ‘financial literacy’ category, which can be accessed from the organisation’s website. By listing Young Enterprise, MoneyHub is in no way endorsing the business development and challenge programs.
- Banqer – Despite several requests, Banqer has not responded to MoneyHub’s requests to allow it to review the platform. For this reason, we cannot provide any insight into what the platform offers.