What other pros and cons or pitfalls would we want to consider, versus a reverse mortgage?
A: What a creative idea – assuming your mother and the neighbours get along really well. And that your mum would get two or three professional valuations of her property, to make sure she gets a fair price.
But the more I think about it, the more concerned I am. Plans like this sound great at the time, but circumstances change. What if the neighbours get into financial trouble – perhaps through a job loss – and find they need to sell your mum’s house?
Or a developer overshadows their house on the other side, so they want to move on?
Or your mother’s new landlords don’t respond quickly to any maintenance problems? The power balance between landlords and tenants could be quite different from the balance between neighbours.
Or, soon after this plan is set up, your mother finds she would rather live elsewhere, or has to move for health reasons? The neighbours would have gone to lots of trouble for little gain.
Or who knows what?
There’s another issue too. With a reverse mortgage your mum can borrow as much or as little as she wants, while keeping her home as an investment.
On the other hand, if she sells the house, she will have a large lump sum that she’ll need to invest elsewhere. There’s nothing wrong with that, but does she want that responsibility – or the task of finding a good financial adviser to help her?
It just all feels rather complicated to me. A reverse mortgage would be simpler, and can work well for someone your mum’s age. And she would still be in full control of her own accommodation.
Drop the insurance
Q: My question is about life insurance and whether we still require it?
Hubby and I are paying $800 per month on life insurance. My policy is (life only) $300 a month. Hubby’s is $500 a month for life plus trauma. Hubby has just retired, and I have two years to go. We own our own home mortgage-free, and we have about $1.5m in savings.
If Hubby became unwell, our position remains unchanged unless he needed 24-hour care. He has good health, so this is unlikely. One option would be to discontinue mine and keep his going for another few years? We have Southern Cross health insurance too. Appreciate your opinion.
A: Sometimes it seems that all the wrong people have life insurance. We hear of uninsured families with young children who would be financially ruined if one of the parents died. And then there are people like you.
The questions to ask are:
Could the surviving spouse cope financially if the other one dies?Could you both manage financially if your husband has a medical mishap?
The answers are clearly “yes” and “yes”. So I suggest you stop the insurance.
And please don’t think paying for life insurance all that time was a waste of money. It gave you peace of mind when you needed it. And not claiming certainly beats claiming!
Annoying but small
Q: Following up on the issue of “shrinkflation” in the calculation of the CPI, I would be interested to know if Stats NZ will be including the insidious cost of credit card and Paywave surcharges at some point.
I understand currently these fees are not included in the CPI calculation. However, now that the use of contactless payment methods is widespread, will it be reconsidering this decision? Surely the roughly 2% transaction fee should be a factor in the official CPI calculation. After all, this is money out of the consumer’s pocket.
A: Stats NZ confirms that the CPI (Consumers Price Index), “does not currently measure price change for credit card and Paywave surcharges”. It does, however, “measure price changes for similar types of household expenditure, including bank account fees and charges”.
The department uses household expenditure data to decide which goods and services to include in the CPI.
The latest data “does not show a significant enough level of household expenditure on credit card and Paywave surcharges for it to be included as an item in the CPI”. That could change if households report spending more on this, it says.
But, it adds, “some of the higher weighted items in the CPI (such as rent and home ownership) are unlikely to attract” these charges. Same goes for “utility bills such as electricity and telecommunications, as well as rates”. These “are more likely to be paid online or via bank transfer so may also be less likely to attract these surcharges”.
What’s more, “for items where a credit or debit card may be used to pay for a purchase in a store, such as food from the supermarket, clothes from a retailer or fuel from a petrol station, not all stores apply a credit card or Paywave surcharge, or consumers may opt to not pay them by using a debit card in different ways”.
In other words, while these charges can be really annoying, they are not yet a big deal in our total spending.
However, Stats NZ adds: “There could also be a case of this expenditure being under-reported by survey respondents as they might report the value of their groceries or fuel purchase but forget to report the additional Paywave fee. Where areas of potential under-reporting are identified, Stats NZ look for alternative data sources to independently confront this data to determine if the under-reporting is likely to be significant.”
Modern caravan ignorance
Q: Hello. I love your column and the sensible guidance you give people. But I am sensitive about one matter – you seem to think motorhomes are more spacious than caravans and have more amenities.
We have a 22-foot caravan with a queen bed permanently set up, bathroom with shower and toilet and sink, fully equipped kitchen and club lounge which sits five or six easily. My point is caravans and motorhomes come in all sizes with all the comforts. Motorhomes are just more expensive because they have a motor built in.
Personally I believe many people prefer a motorhome only because they don’t have the ability to reverse a trailer (my husband is an expert).
So please don’t think all caravans are like the ones we had in the ’60s and ‘70s (like my family). They are equally as comfortable as a motorhome!
A: Oh dear. I clearly showed my modern caravan ignorance in the last column.
I thought caravans were still like those wonderful ’60s and ‘70s models – such as Bob the Caravan, which gave my family holiday accommodation years ago, and later served as a spare bedroom in the backyard. Kids loved staying in Bob.
But the collective wisdom of readers of this column is formidable. Another reader made similar points to yours, adding: “Lastly, by the time you buy a caravan of a decent size and a reasonable tow vehicle there is not a lot of difference in cost to a motorhome. We have tried motorhomes, fifth wheelers and caravans, and currently are very happy with our caravan setup.”
Apologies to all owners of big flash modern caravans. And congrats to those who have that formidable skill – being able to back them!
Anything’s possible!
Q: I thought your advice last time for the reader with a large inheritance was a bit light.
With $3m and two houses this young lady could borrow money and buy a dairy farm, with the aim of getting up in the world. Or borrow a million to buy a quality commercial building.
A: Indeed she could. Or take any number of other steps that might or might not bring happiness. I could have filled the column – or indeed a book – with suggestions.
But it all depends on her circumstances and wishes. It seemed wiser, to me, to help her find an adviser with whom she can go into all that in depth.
Student loan ethics take 1
Q: I feel compelled to write a response to the letter in your last column titled “Doing the right thing”.
I’m sure it’s easy for that couple to take the moral high ground when their tax amount indicates they have plenty of money to help their children get started.
We’re luckier than some, because since our children were born, we’ve been setting money aside to help with uni, but it’s barely enough to cover fees let alone living costs. (But of course we earn too much for our daughter to qualify for a student allowance).
So yes, our daughter got a loan, and we’re keeping our money earning interest so when it comes time to repay the loan, we’ll have a little more in the kitty.
Please don’t let the rich judge the rest of us too harshly, when we’re just trying to give our kids a fighting chance.
A: To get other readers up with the play, the letter you comment on criticised my response in a previous column. I had suggested the parents of a student postpone helping to pay her fees, so they could earn returns on the money in the meantime – given the daughter can get an interest-free student loan.
The correspondent last time said he objects when people “quite happily use the taxpayer-funded (student loan) scheme to enrich themselves”.
Now you make a counter argument, as does the next reader.
Student loan ethics take 2
Q: Thank you for your recent article in which the person who pays $1 million in tax judges those whose children take out loans. A dichotomous self-righteous view. Ethics are often dimensional and contextual. I have it on good authority from our eldest child that those whose parents paid for their university fees promptly – and often without the knowledge of their parents – took out student loans anyway and lived the life of Riley at university. How does this help anybody? Our guilt was partly assuaged by being able to take our children to spend time with grandparents and other relatives overseas, which we would not otherwise have been able to afford. Priceless I would argue.
Had they not taken out a student loan – aside from teaching our children to be responsible for their decisions and not to have mum and dad’s bank payroll their decisions – our much-needed surgery and avoidance of wait lists in hospital and days away from work and further loss of income might not have been possible. I think when the wealthy judge others through their lens it is problematic. When the tax benefit system works against you, you have to suck it up. Just occasionally the system works in your favour.
Surely the overarching goal of society is to educate our youth and our workforce and build a stronger economy. Anything that can be done to encourage that is best.
Perhaps your correspondent should be paying a lot more tax to decrease a burden on the stretched middle classes who are struggling in this stagnation economic environment.
A: That’s telling him – although some might say you are also hardly poor if you can afford those overseas trips! Anyway, you and the previous reader make some good points.
The sort of behaviour you mention – of students living it up on loans they don’t for fees – is worrying. As the correspondent you’re criticising put it, this “reinforces the belief that it is acceptable to rort the system”. When normally good citizens break the rules because “everyone else is doing it”, we’re on a slippery slope.
Sigh! It all makes me long for my university days, when we paid tiny fees that were easily covered with income from holiday jobs. Maybe New Zealand should go back to virtually free university, which is still offered in many European countries.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a former director of the Financial Markets Authority, the Banking Ombudsman Scheme and Financial Services Complaints Ltd. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
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