Thursday, March 01, 2007

Compulsory Savings

Recently Winston Peters has been espousing his much loved ideas on compulsory savings. There is some merit to his ideas as it is important that New Zealanders try to save healthy chunks of their income rather than just using it irresponsibly. A lot of New Zealanders have no idea of the concept of savings. Many people like to spend their full quota of income, perceiving it as somehow wasted if it's sitting accruing interest in the bank. New clothes must be bought, or expensive restaurants dined at, or the latest gadget bought for their 9 year old boy.

It's disappointing that many people don't know the meaning of savings. My family is in a comfortable financial position because they worked hard, and scrimped and saved a vast majority of their earnings. If 10 pounds was left over at the end of the week it wouldn't just be spent on luxury items, it would be added to the savings. We have family friends who earn a lot but spend it all, and hence can't afford it when an unexpected bill comes along. This is a nonsense. Savings must be encouraged. People, especially lower earners, should be encouraged to spend only on what is necessary, in the long-run it will be good for them.
But regardless of the excesses of many people, compulsory savings shouldn't be the way to go. There are lots of pressures on household finances as it is that many may not afford it. Plus it is everyone's personal choice as to how much they save. In a sense though, if it were compulsory, there could be an opportunity for relieving government spending in the area of superannuation, giving a top-up to their compulsory scheme. Again, whether this is a good thing or not is easily debatable.
We haven't heard much from Winston on this since the 1997 referendum when the voting public were strongly against it. Savings is an important part of life but we shouldn't legislate for it.

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