4 Factors contributing to New Zealand's national saving performance
4.1 Introduction
We have seen that a key problem for New Zealand is low saving and low wealth accumulation. This section looks at the underlying factors that help explain these features. An important question is whether government policy together with any other factors have been responsible for this limited wealth accumulation even if individuals are saving enough for their own purposes. The pay-as-you-go (PAYGO) nature of NZ Superannuation plays a key role here.
Two high-level insights should be kept in mind. First, how much wealth is accumulated by an individual and by society as a whole depends not only on the average saving rate, but whether people save early in life (and accumulate assets before spending) or save late in life (and pay down debt after spending). Secondly, there is no automatic link between debt levels and saving and wealth because debt can be used for many different purposes. Borrowing to consume clearly reduces saving and wealth, but borrowing to invest in a productive asset does not. Purchasing existing assets at inflated prices is investment of a sort but is not generally productive for the economy as a whole. Moreover rapid rises in the prices of existing property assets are unlikely to resume in the near or medium-term future.
