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How saving can help end social inequality

I’m 53 years old, and have been investing money for 40 of those. Over four decades you earn a few stripes, and have some scars.

I’m also an armchair economist. Economics is, primarily, a study in collective human behaviour. Like a beehive, if you look through the apparent chaos, patterns emerge and recur. Like skirts, shirts and music, economic trends rinse and repeat.

My armchair economics takes the form of thinking really long-term, and ignoring the noise. I’ve stopped listening to market commentaries and caring about what interest rates did yesterday, or might do tomorrow.

Over decades of mistakes, I’ve learnt that aligning yourself with the long-term trend is the best way to invest your time and money. It’s hard to see trends sometimes, and often they get subsumed in the noise of the now, or currently fashionable ideas. But, when you find it, the trend is your friend. 

We’re in exactly that situation now. If you believed the press, the world is on the precipice of disaster, and this is the worst time to go into business. Trump, Putin, terrorism, perilously high stock markets, income gaps, gender gaps, AI … it all says the world is in a horrible place, and it’s a scary time to take risks. 

It’s always been this way. When I was a teenager it was communism, nuclear war, inflation, the world running out of every commodity (including oil) and global starvation due to population pressure. None of it has happened, none. The accepted wisdom said you would have been mad to start a business at that time. Bill Gates, Steve Jobs and Jeff Bezos started them anyway. 

The entrepreneurs of ’70s, ’80s and ’90s benefitted from trends that were ultimately far more powerful: democracy, technology and growing transparency. Like a rising tide, they were hard to see happening day to day, but they were happening.

One of those trends, boring but powerful, was people saving more. 

We know this, because we see it all around us. Those who save more usually do better. Add up the savings of all your citizens and, hey presto, your economy thrives. Look at Singapore, the Scandinavian nations, Germany, Japan, America and, just next door, Australia. Their long-term growth rates have been far higher than New Zealand’s. They’re all democracies, but not all democracies are rich. 

Saving is the result of a very primal fear, poverty. It’s why Third World countries, without social welfare safety nets, have savings rates far higher than we do. Much of their wealth gets wasted with corruption. But where savings get invested sensibly, in democratic and accountable societies, they can leapfrog nations that have spent and not saved.

Look at Singapore. 70 years ago it was a Third World swamp, and New Zealand looked down on it. After generations of saving and wise domestic investments, who’s on top now?

Will New Zealanders save more? Here’s why I’m very confident they will.

Let’s look at fear again, as it’s a very powerful motivator. Generations of Kiwis now believe that paying off the house and living on National Super won’t be enough. Even buying a house isn’t possible for some, so they will be paying rent forever. It all means we need our own savings, and plenty of them. 

The reality of not enough National Super and less home ownership sucks, but it will lead to us saving more. And, as good as we’re doing, it’s not enough. I’ve yet to see a single study that says KiwiSaver savings are high enough to give most Kiwis a comfortable retirement.

So, some government in the not-to-distant future is likely to make us save more. 

Governments like making us do things for our benefit, which is why they started KiwiSaver in the first place. Like seat belts and helmets, compulsory KiwiSaver (or something close to it), with higher contribution rates, isn’t that far away. That will keep the tide of savings and investment rising, and New Zealand will be richer for it.

There’s plenty of global precedent for compulsory KiwiSaver. Singapore insisted that its citizens kept saving at high rates, even when they became much richer. That kept up a huge pool of domestic savings to fund ever more expensive infrastructure and technology.

You can see it across the ditch too. 

For a country supposedly highly reliant on commodity prices, Australia has huge resilience to change. Why? Fundamentally, Australia is a capital-rich economy. It takes a lot to shut down a billion dollar mine permanently, and it got built in the first place on the back of investment from Australia’s $2 trillion superannuation pool. 

Thanks to KiwiSaver, New Zealand is entering this exclusive, prosperous club. We’re at the beginning of an era of prosperity like we’ve never seen, and the environment is especially ripe for setting up a business.

Think of KiwiSaver as a rising tide of capital, not a tidal wave. It’s happening slowly, almost imperceptibly, but it’s lifting a lot of boats already. That’s why, in spite of global uncertainty in markets and politics, a lot of businesses I speak with are actually having a better time than they expected. There will be ripples for sure, and markets will go up and down, but the overall trend is a powerful one.

The numbers are simply staggering. In its first ten years, KiwiSaver has grown close to $50 billion. In the next ten, it will be around $200 billion. That’s two hundred thousand million dollars, saved by Kiwis.

If history repeats itself, about 50 percent of this additional $150 billion over the next ten years will be in New Zealand. That’s $75 billion, which is approximately 1/3 of GDP. That means an additional three percent of GDP will be invested in domestic businesses and infrastructure, by New Zealanders, every year. 

New Zealand has very rarely, and perhaps never, seen new investment of this magnitude. We’ve been subject to tidal waves of capital in our history, first from the UK, then the US, then Japan, and now China. And, like tidal waves, they eventually recede, leaving damage in their wake.

But KiwiSaver money is different. It’s our savings, into our economy, and it’s here for a very long time. And these savings won’t go into residential housing, which has traditionally been the New Zealand way to save. The last thing we need is increased savings and prosperity inflating house prices even further. Much of it will find itself in the hands of Kiwi entrepreneurs, although it’s hard to predict exactly how. But this very powerful trend is certainly the friend of startups, as well as small and large businesses.

There will be speed wobbles for sure, and we won’t be immune to global challenges, but for the first time in my lifetime, New Zealanders are buying back New Zealand.  Long-term, successful businesses, and thriving economies, require three things: ideas, people and capital. New Zealand has plenty of ideas, as does the rest of the world. Our people are classic innovators and, perhaps more importantly, practical applicators of innovation. But we’ve always been a No. 8 wire economy, making do with little money. We romanticise Ernest Rutherford’s mentality of ‘We haven’t got money, so we have to think’, but most of the great progress in the world of innovation has needed ideas and money. That’s about to happen in New Zealand and, over time, it’s going to happen big time.

Our ideas are as good as ever, our people are smart and, most importantly, increasingly diverse and empowered. And, thanks to KiwiSaver, we’re getting the money to fuel long-term innovation. Witness this magazine, dedicated to innovation, progress and optimism. It would have been unthinkable 20 years ago. 

Sam Stubbs is the managing director of Simplicity KiwiSaver. 

The ‘Can We Fix It?’ series, which looks at how we’re using innovation and ingenuity to try and solve some of our thorniest problems, is brought to you by KiwibankKiwibank is passionate about the future of New Zealand, and about making Kiwis better off. They’re 100% Kiwi-owned, which means their profits stay right here in New Zealand.

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