The Savings Gap: Why New Zealand Ranks Last Globally
A recent graphic from Visual Capitalist, utilizing OECD data, has sent shockwaves through the financial community. The data reveals a stark reality: New Zealand’s net household savings rate sits at negative 1.3 percent, placing it at the bottom of the global comparison.
To put this in perspective, Sweden leads the table with a robust savings rate of 16 percent, followed by Hungary at 14.3 percent and Czechia at 13.7 percent. Even neighboring Australia maintains a significantly healthier position, sitting in the middle of the table at approximately 6 percent.
While New Zealand struggles, other nations like Latvia (0 percent) and South Africa (-1 percent) also show low or negative rates, but New Zealand remains the outlier at the bottom.
The Property Obsession: Saving or Speculating?
One of the most critical drivers of this trend is the New Zealand mindset regarding wealth. Many Kiwis do not save in the traditional sense—through cash or financial assets—but instead “save” through the property market.
The expectation has long been that house prices will continue to appreciate, creating wealth through asset growth rather than disciplined saving. While this strategy worked for many over the last three decades, economists warn that it is a precarious position.
If house prices stop appreciating or experience a downturn, those who relied solely on property discover themselves in a structurally weak position. High house prices relative to incomes have already made affordability poor, suggesting that the current model is not sustainable in the long term.
Financial Assets vs. Real Estate
Unlike some other nations, there is a distinct lack of bias toward saving via shares and other financial investments in New Zealand. This leaves the economy less resilient and households more vulnerable to market shifts.
The ‘2023 Anomaly’: A Matter of Timing?
Not everyone agrees that the negative 1.3 percent figure tells the whole story. Westpac chief economist Kelly Eckhold suggests the data may be distorted by timing. The data was drawn from 2023, a year when the interest rate tightening cycle began to hit households hard.
During this period, many families were likely drawing on their existing savings to cope with the rising cost of living. Westpac’s more recent internal data indicates that the savings rate has improved markedly since that specific low point.
Comparing the Tasman: The Superannuation Secret
The contrast between New Zealand and Australia is particularly telling. While Australia also faces a cost-of-living crisis and high house prices, its savings rate remains far superior.
The difference lies in policy: Australia utilizes compulsory Superannuation, where 12% of wages are locked away. This has created a massive savings pool valued at approximately $4.1 trillion.
In contrast, New Zealand’s KiwiSaver has helped improve financial savings, but defaults have historically been as low as 3.5%. While there are proposals to increase KiwiSaver contributions to 8%, some experts argue that without making it compulsory and higher, New Zealand will continue to lag behind.
Future Trends: Shifting the National Mindset
Moving forward, New Zealand faces a choice between continuing its reliance on property or shifting toward a more productive, resilient economy. Several factors will influence this transition:
- Policy Changes: Increasing KiwiSaver contribution rates could provide a forced mechanism for wealth accumulation.
- Market Realities: If homeowners experience price drops (such as the 15 percent drops seen in some areas), the “sure bet” of property may lose its appeal, driving more people toward financial assets.
- Government Reliance: There is a lingering expectation that the government will provide for retirement. As warnings grow about the unsustainability of this position, individuals may be forced to seize more responsibility for their own savings.
For more insights on managing your wealth, check out our guide on financial planning for New Zealanders or visit the OECD New Zealand Economic Snapshot.
Frequently Asked Questions
Why is New Zealand’s savings rate negative?
A negative rate indicates that households are spending more than they earn. This can be caused by drawing down savings to cover rising living costs, high debt levels, or a cultural preference for spending over saving.
How does KiwiSaver affect the savings rate?
KiwiSaver has improved financial savings in New Zealand compared to the 90s, and 2000s. However, lower contribution rates compared to Australia’s compulsory Superannuation mean the overall impact is smaller.
Is investing in property considered “saving”?
While property increases net wealth through asset appreciation, it is not captured as a “savings rate” in the same way as financial assets. Economists warn that relying solely on property is risky if prices stop rising.
