We’ve run persistent current account deficits, which is a mismatch between savings and investment. The gap in the middle has been filled by bank borrowing or selling off assets. New Zealand has a net external investment deficit of $204 billion equivalent to 46.8% of gross domestic product (GDP). It would be far worse if it were not for the surge in global equities. Our portfolio of international assets has risen 31% in the past three years whereas liabilities have risen 23%.
Here’s the thing: you don’t need to be a great saver if you invest in the right things. But smart investment allocation only works if people are actually saving in the first place. Changing tax settings and policy alone won’t solve this. We need innovative tools that make saving as frictionless as spending. The answer isn’t just convincing Kiwis to save more – it’s about building saving into everyday life so it happens automatically, without the mental load of manual transfers or the willpower to resist spending.
We hear a lot about the prospective impact of lower interest rates on borrowing rates but little about the impact on savers.
Lower interest rates screw the scrum towards putting money to work.
When term deposit rates were around 5%, term deposits rose sharply, peaking at around 49% of total deposits. It dropped below 40% when rates were low around 2021 and 2022.
Bank interest expense on deposits peaked at $5 billion in September 2024. A year later it’s down to $3.4 billion. Bank interest income has fallen from $11.1 billion to $9.3 billion – that’s $1.7 billion in people’s pockets versus $1.6 billion out. They effectively cancel each other out, though bank net interest margins actually rose.
Despite falling term deposit rates, people have been slow to reallocate balances elsewhere. Term deposits are still up 1.9% on a year ago, even as overall bank deposits have risen 5.2% – above the 4.5% rise in bank lending.
I’m all for saving as an investment in tomorrow, but we need to get real about what’s changing.
A slowing property market prompts renewed scrutiny of the role housing plays in New Zealand’s wealth and savings system. Photo / Getty Images
Housing is not the investment it has been. Lower interest rates have failed to really fire up the property market. Valuations, the supply/demand situation, costs (rates/insurance), and easing rents are leaning against lower interest rates. Money remains parked in term deposits, savings and transaction accounts.
People are also getting savvy with managing their money. Rather than just enjoying lower interest rates, many are directing savings towards paying down principal. According to ANZ’s latest financial results, “more than 40% of home loan customers are now ahead on payments by six months or more”.
That sacred cow – NZ Superannuation as an entitlement and not means tested – is going to be debated.
It’s encouraging to see the National Party proposal to increase the default KiwiSaver contribution, raising default rates to 6% for the employee and the employer, making it 12% overall, by 2032 if re-elected next year. Winston Peters and NZ First also tabled a compulsory retirement savings scheme, reminiscent of the one proposed in 1997.
Saving involves a sacrifice. Consumption for today is sacrificed for investment and consumption down the track.
New Zealand faces growing pressure to boost long-term savings as economic headwinds challenge traditional financial habits. Photo / Jason Oxenham
New Zealand needs to be on a better growth and productivity trajectory if employees and employers will be able to fund required contributions. An A for admirable on what is trying to be achieved but D for dunno where the money is coming from.
Here’s the thing: you can be a high-savings country and completely misallocate the resources. Wealthy countries such as the United States run persistent current account deficits. You can argue it’s a problem, but it’s an equal problem for the lenders on the other side.
Proposed reforms to KiwiSaver and retirement policy highlight shifting expectations around how New Zealanders fund their futures. Photo / Getty Images
Even if New Zealand saves more, we won’t get wealthier if bank lending continues flowing primarily into housing. Banks have an essential role taking pooled savings and allocating it into the real productive part of the economy, not just property.
There are many keys to saving in my mind.
Start early. We need more financial literacy in schools.
But here’s what really matters: regularity. The challenge is that traditional saving requires active decisions – transferring money, resisting temptation, remembering to contribute. It’s cognitive load most people don’t have bandwidth for.
New digital saving tools offer automated, small-scale contributions as Kiwis look for effortless ways to build financial resilience. Photo / 123rf
This is where technology can help. Saving doesn’t have to come only from wage deductions. Small, invisible sacrifices can be redirected automatically – rounding up when you swipe a card, diverting spare change before you even see it. New tools and apps like Feijoa make this feel almost invisible, turning everyday spending into a mechanism for building KiwiSaver balances without the mental overhead.
The beauty is that these micro-contributions add up. You’re not consciously sacrificing your flat white; you’re just rounding it to the nearest dollar and banking the difference. Over time, compounding does its work.
Saving has many creative vehicles beyond a deduction from wages, and that’s exactly the kind of innovation we need to see more of.
The mood of the nation is turning on many levels.
The latest economic jolt – a 5% fall in GDP per capita and 15% fall in house prices – seems to have woken society up.
So yes, save more for tomorrow. Squirrels hoard nuts and bees gather honey. But you also need to know what to do with the nuts and honey – and increasingly, you need systems that make the hoarding automatic rather than aspirational.
The good news? Lower interest rates, shifting attitudes toward housing, and emerging technologies are all pushing in the right direction. The question is whether we’ll build the habits and infrastructure to take advantage of it.
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