Financial plan for the homeless

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NZ is the arse-end of the world; neverthless within this stagnant economy there are cities which are doing relatively well, such as Hamilton, Auckland, Palmerston North, Christchurch (belatedly). But within those cities, as well as elsewhere, there are people who are struggling to make ends meet. We might well consider this to be the 'doughnut effect'.
From Hamilton, NZ comes this interesting story of a homeless man living on government job benefits but otherwise with $70K in savings. This is an interesting issue both from a personal finance perspective, as well as from a public policy perspective. In this post I want to consider 4 issues:
1. How this man is impacted by National Party policy
2. How he would be effected by Labour Party policy
3. How he would be affected by ACT Party policy
4. My public policy advice to these parties
5. My financial planning advice for this man - even though he is not asking


National Party policy impact
What I like about this guy is that he breaks the stereotype of what we have come to expect of homeless people. Anyone who has been to Japan realises how proud the Japanese homeless people are. Its as if the origin of their pride was their mistreatment by the Japanese government. Yes, another success for representative democracy. Hoorah!

The National Party is the current party and they are paying this guy $180 less $12 per week for the interest earned on his $70K savings. Firstly, the guy should be applauded for saving money, and working prior to his last decade of joblessness. It is not easy to work in a country when you are relatively unskilled, surrounded by more able-bodied persons, and amidst a labour oversupply. Its not all bad. He has a proven track record of working. 

What is shameless about the conduct of this administration, and indeed, all governments is their blatant ignorance and incompetence. Some voice should be shouting inside of them saying that "This guy is a value; not to me, but to someone. His life is not worth zero". Now you might say that the government gives him $168 per week, so they are not treating him as zero. Not right. Governments don't have money. You the taxpayer are financing this man to aimlessly drift around Hamilton in the vain hope of his getting a job. The sad issue is that he is just going to get more mentally ill, he is going to get beat up, so he will no longer be employable, or even 'useful'. Post-traumatic stress will probably ensue. So then we have a 'disability pension', with all the rights and 'obligations' upon you, the taxpayer that that entails. What is apparent is just how detached governments are for the money. If this was your money, you would have some discretion to withhold it if you did not like what the guy was doing with it. Maybe you wouldn't give it to him anyway, because 'it's not your problem'. The thing is - it is. The government is taking $168/week for this guy alone, from you & a great deal of other people. It's your problem! You don't take issue with it because you feel disempowered. It's not kindness. You're indifferent to this guy's existence; and you'd not allow yourself to consider his plight, because it's out of your control. The problem is too big! It's your problem. You have a government responsible for such things. Problem solved! 

I guess the National Party are hoping that this guy should hang on until the job market recovers. The problem is - he is 60yo - and there is going to be an excess of labour for the next 2 decades because of the liberalisation of global labour markets after collectivist (socialist) governments collapsed, and purportedly saw the error of their ways. It will take 20 years for capitalism to solve the problem caused by collectivism over centuries. It's a big backlog. So basically, the National Party is offering voters no respite. They are indifferent to this guy's happiness. It might be argued that it's his decision to stay on the street; but ultimately it's you - the taxpayer - who will pay when he gets beaten up. So there will be a hospital bill and invalid pension. The good news for indifferent taxpayers is that this guy will immobilised, and will probably die early of diabetes. Unless there is more costly intervention.

So, to you this guy is not looking good at a $168/week investment. He's what you might call a drag on the economy. He is right to feel like he deserves his money. He's playing by the rules, he's paid taxes, and so he has a sense of entitlement. Interestingly, in Australia, he could not get a jobless allowance if he had more than $10,000 in the bank or investments. But is that the issue? I know because I claimed for a time between jobs when I was young. It pissed me off too because, like him, I argued, why can't I get the 'dole' when I pay taxes. There are people with $500,000 houses who can get it because they manage to have less than $10,000 in cash. The implication for NZ is that welfare is a form of income insurance, whereas in Australia, it functions more as a form of nominal insolvency insurance. i.e. You get it if you lose your capacity to service costs of living. If you have cash, you can still service your costs. 

My interest here however is not the equity or inequity of welfare, but the waste. This guy could be doing something useful. He is not worth anything in this economy....and that ought not sit with people so well. He could function as a child carer's assistant, a trainee, carer for elderly, cleaning the streets. There are any number of things he could be doing, even if they entailed no sense of efficacy. What a waste when there are things needing consideration. Instead the government says, take the day off....just fill in these forms to say you are looking for a job, you have no chance in hell of getting for the next 2 decades - when he will be 80yo. By the way, I see no reason why he cannot be working until he is 90yo. Old people regret giving up meaningful activity.  

I'd not be surprised to see National take the Australian approach in future. This would in a way be worse because it would give him greater financial apprehension because he's dwindling away his savings, and he might be more frugal with it, to the point of diminishing his diet, resulting in the decline of his health. It would incentivise him to find work if he was capable of competing; but realistically he is not. He has not worked in a decade. 

Labour Party policy impact

Now, looking at the NZ Labour Party. They have always advocated minimum wages. That will only make him less employable...even if he had a running chance. At 60yo, he doesn't in the contemporary labour over-supply. In fact higher minimum wages will add to the unemployment queues. I suspect Labour would increase benefits to people like him, but really no substantive change, to this guy's life, since he is saving for the future. 

ACT Party policy impact

Now, one might expect the ACT Party to be the 'economic rationalists'. I would expect however their position to have the most beneficial impact on joblessness, which would ensure a great many youths would get a job, i.e. they would lower/scrap minimum wage, they would cut regulation. The problem I have with ACT, is that whilst they hold the upper leg, they fail to consider: 

1. The impact of market distortion - stripping away some distortions creates other distortions

2. The legacy of market distortion - stripping away distortions creates other distortions

My policy suggestion

The value of this guy is not zero. The value of the taxpayer is not negative $168 per week. These people are important, if only to themselves. These people have hopes and aspirations. These people have real grievances; and most of them arise systematically, and as some horrid legacy of government intervention, often stretching back 100s of years. It will not be cured overnight, it will probably take a generation....but we are not solving the problem. These people are useful. You cannot rely on the market to solve the problem if you distort the market; if you market says they are worth 'zero' or 'negative' value, when by any objective standard, we know there are valuable things which they could be doing, but don't because centralised governments can't get around to organising solutions. Why is John Key so busy? Well, he's focused on changing the term of parliament. You have got to be joking? The problem is not his job term; the problem is the decision-making process which means he is ineffectual for the first and last years; not to mention the fact that it's an unaccountable, majoritive, extortion-based system. What does his priorities tell you? It's all vanity. He wants the job because it serves his vanity. He cannot honestly say he is doing a good job, so he blames the system (which is bad), but he has no solution. 

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Now, I have a resolution for this problem, but it's another topic. I am concerned with this guy. The 'unemployable' worker who is useful. Offer people 'conditional support'. You can't help them get jobs in the current market if the market values them at zero, so:

1. Create opportunities for them to work 'staying alive', i.e. Growing food to live. NZ is currently importing foods from abroad, supermarkets are adopting huge mark-ups for these vegetables, and so people can grow here for own stake, or for sale, and live on the proceeds. 

2. People with sufficient resources like this guy can do it themselves. They have the time if they are spared the burden of 'useless job searching'. They will never get a job in market economy that is distorted. Pay them to produce food, i.e. If they have $70K plus, they can self-sponsor. If they don't, have a government sponsored scheme using contractors who tender for these programs. These people might need basic services upfront; but they will act if they are able because its meaningful work. People coming out of prison could go straight into these programs. Once taught some of these people could use their savings to build their own 'food production' scheme.

The world is currently reliant on foreign food increasingly because of low-cost emerging market labour. What is not appreciated is that, when in 20-30 years time, those country's surplus labour is fully absorbed by global markets, then their labour rates will match ours, and food production will make more sense locally. These are valuable skills we are loosing. These people could be the foundation for a budding industry; but more importantly - they are useful! And their utility to themselves and others is being wasted.

Want to rebuild NZ? Start with people left behind. Reduce the cost of looking after them; then you'd be surprised at how well the economy can run without useless government programs, without useless govt regulation. You'd be surprised how many problems like mental illness, joblessness will disappear!

My financial planning advice for this homeless guy

This guy has $70K of cash and a benefit. My advice to him is to buy a house in a depopulating place like Wanganui. The nice thing about this solution is that you have an asset, a place to retain possessions (which if you are poor, might include things other people don't want). The bad news is that you have an expense - your rates. Given the waste of money on rates, you should question the value of government. Most of you clearly don't. $1800 per year in NZ; I pay just $300 per annum in Japan for a 18-year old house. This guy could be eating salmon & rice bento box in Japan at Hokka Hokka Tai for Y420 ($NZ5.50). Back to expensive, over-serviced NZ. I would suggest he pays $65K for a house - yes they exist. If he contracted with a tenant, he might be able to secure one ahead of time. Here is how I would do it. Probably settlement takes time, so whilst being on the street for 3 months, I would try to meet someone in a similar position. It might be easier in Auckland city. I would say to them: "Look mate...we could be dead on the streets if we stay here. I have money saved for a house. If you pay me $60/week, I can give you a home, or $80 with minimal services, leaving his friend with $100/week for other costs. That gets him and a friend off the street, gives them spare money, and if gives them land to grow vegetables. The house might not appreciate, but it gives him more cashflow than the bank. Now he is discouraged from doing that because the government will say he has rental income, so his benefit will be reduced. For this reason, he will probably not declare that income, and will instead receive cash.

Perhaps the government could save money by offering financial advice because according to this guy's plan, he is living on the streets to get cash, placing his life/health in jeopardy, and his prospects for an early death from diabetes are enhanced. Good job gov!

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Retirement age deferred to 67yo

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The NZ government has announced that the retirement age is being deferred from 65yo to 67yo. The reason of course is that the NZ work horse is not working hard enough, so he has to work longer in order to carry his costs. Is that the real lesson? I would care to differ in several respects.

1. The government is not very efficient. We have a lot of costs placed upon us by inefficient government. Government is incredibly centralised, which is great for economies of scale. The problem is that too much depends on slow government decision-making. There is also the problem of poor cost recovery, which makes capital investments unsustainable. The implication is that NZ has one of the worst funding provisions for capital infrastructure in the OECD. Note all the failures in the telecom sector. There is a great deal of inefficiency, particularly in local govt. Its all too common to see council workers standing around, or performing wasteful expenditure.

2. Youth is not well-prepared: The tough love evident in NZ is really a sign of poor values. NZ really remains caught in 'old world' 1970s values. There is too much indulgence, lack of pride, purpose, self-esteem, and self-awareness. There is really a need for some structure or self-discipline in a great many lives. There is a need in this country for the affluent and enlightened decision-makers to engage with the Maori and 'white trash' as we might euphemistically call them, in order to give them positive incentives to work hard, provide constructive support for their children, and to develop a sense of personal identity which differentiates them from others.

There are too many vacant minds in the country. Too many kids who are idle. There are too many people who hate their jobs, who are thus inclined to work 3 days and charge for five.

Living standards are supposed to improve....so why is the retirement age falling? The simple answer is we are living longer. But that is not the reason. The average life expectancy of people in Western countries is probably rising 1 year every 7 years. i.e. A rate of 1.3%. This compares with real growth in national income of just 1.2% per annum between 1975-2005. That is very low growth. Check out the history of economic growth here. Aside from slugging population growth, the problem is constrained national income. There is too little provision for capital spending and too much spending on recurrent items. This can be partially attributed to the welfare state which gives primacy to giving, as opposed to creating; however this reflects the deeper issue of values. There are some unhealth, reactionary, short-term, deluded egos in NZ who are simply keeping this economy down, and the NZ government is financing them. I would suggest the public sector is one and the same problem. This is the problem with middlemen. Politicians will flog the beast for every working hour it can get without reflecting on its own impact. So long as it preserves its moral relativism, we will be voting for National-Labour. It is a deluded or false dichotomy which serves no one. Get rid of democracy. Its poison!

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Australians retiring or moving to NZ

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I have been living in NZ now for a year. In the process of being here we have bought a home in a rural regional town with a complete range of services. I am 40yo, and have a Filipino partner with me, and we find the place rather idyllic. I am a writer, my partner does online product marketing. There is no question in my mind that if you are an income-earner, the best place to live is Australia; at least if you are earning money from the usual form of salaried employment. Those people earning foreign exchange (say USD abroad), then NZ makes a lot of sense because of the weak NZD, and the 4-year tax concession the NZ tax office gives to new immigrants with offshore income. I have written all about this in my NZ Property Guide. You can learn more by reading my property blogs, however the book offers a more comprehensive and detailed guide.

The biggest factors for retirees is finding the right climate. The big factors compared to Australia is the climate. The rainfall here is generally far greater than Australia so its mostly green, except where there is rain shadow effects. The biggest concern for some I think will be the hours of sunshine each year and the wind factor. If it is sunny it can still be miserably cold in NZ if it is windy. For this reason avoid places with too much wind unless you like being indoors. I also suggest buying a house with a sunroom for this reason. There are a lot of wind farms in NZ for a reason - and its not because they get huge tax concessions. In fact there are none. The wind here is reliably constant in places. So make sure you chose your retirement destination wisely.

It is not simply a place to retire. You can invest here of course. Just make sure you buy wisely and transfer money at the most opportune time. I am telling you this because you are about to get the best opportunity to buy property in NZ. People will rightly be concerned about the high prices for property in NZ. The fundamentals which have driven up property prices in Australia are the same for NZ. The difference is that NZ has less population growth and less growth in national income. For this reason, you need to target certain areas until property prices bottom. Another solution is to transfer money to NZ at the opportunity time. You can hedge your bets by buying certain stocks in NZ with favourable exchange rate exposure, e.g. Pike River Coal (PRC.ASX or PRC.NZX) exports premium metallurgical coal to Asia. It benefits from a weak NZD, so even if you move your money here, you can still hedge your bets by profiting from an increase in a non-NZD revenue stream. This stock happens to be at lows after start-up issues. see my discussion of this stock, but I suggest looking at other commodities related stocks in NZ.