Should we borrow for our daughter’s wedding?

Weddings can be very expensive, with costs amounting to more than $30,000 common in New Zealand.  That can be a significant financial burden for parents and some are tempted to borrow against their house to pay for the big day.  If that is what you are considering, there are some big questions to think about.

Do your homework to avoid the possible pain and stress of two mortgage payments. Analyse your income and employment situation, and put your pencil to the numbers to determine how much wedding you can afford without debt. Talk this over with your daughter and her fiance.

Does the wedding need to cost $30,000?

When our daughter graduated from university, her education fund was changed to the house deposit/wedding fund.  When she got engaged that was a helpful trade-off for her and her fiance to think about.  There was pressure to have a big wedding, but they both wanted to buy a house in the future.  That got them thinking about how they could have a special wedding without making it more difficult to buy a house.

Some of the areas you can look at to save money are:

1. Do your research on options for purchasing clothing for the wedding party. What can you borrow?  Is a good second hand dress or suit available online?  A friend of our daughter’s had recently purchased a cheap new dress online and was very happy with it.  The cost was just $80 compared with the $3,000 someone we knew paid for a similar dress made locally.
2. Ask friends to help you crowdsource flowers or consider whether you need flowers? Are there alternatives to flowers?
3. Photographs and video costs for the wedding can be very expensive. Are friends available to help out?
4. Venues can be very expensive to hire and may require you to use their catering for the reception. They are usually more attractive settings than your own church facilities, but how important is that.  What is the long-term cost of using an expensive venue?
5. Are friends willing to volunteer to do the catering or help the caterer to minimise your costs.
6. Alcohol can be a significant cost. If you choose to have it, you have to decide a limit to how much you are willing to pay.  When do the guests at the wedding need to pay if they want to consume more?
7. Are there other items, such as the wedding cake and bridal vehicles, which family and friends can help with as a practical wedding gift?

When Jesus told a crowd (Luke 14:25-33) to consider the cost of discipleship.  He gave an illustration: “For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it?” This diligence and analysis is necessary for every big decision we face in life.

Frugal weddings are nothing to be ashamed of.  Years ago, a survey suggested that weddings featuring low costs but a high number of guests produced longer lasting marriages than high cost weddings with fewer guests.  That might reflect the level of wider friends and family support before and after the wedding, since many people like to know how they can help out.

Be encouraged and patient. I am not sure how long you have before the big day, but disciplined spending and saving now can help you avoid borrowing. My hope is that this information will help you show the maximum amount of love and support to your daughter and future son-in-law, with the minimal amount of financial stress.

Peter Crawford

Considering a Reverse Mortgage?

What is a Reverse Mortgage?

A reverse mortgage allows people aged 60 years and over to borrow against the value of their home. The amount of money you can borrow depends how old you are and whether you still have a mortgage on your house. The two providers of reverse mortgages in New Zealand (Heartland Bank and SBS Bank) will lend up to 15-20% of the value of your home if you are 60 or over.  If you are 80 or over you can borrow up to 35-40% of the value of your home.

Average house prices in New Zealand increased by nearly $300,000 between December 2019 and December 2021, so is this a good time to start borrowing against your home? The answer is probably no, but there are many aspects you need to consider before making a decision.

What is the cost?

There are a number of costs incurred at the beginning of a reverse equity loan, which take away some of the value of your house before you get any money. Heartland Bank lists valuation fees of $600 – $855 and an initial application fee of $920. Additional fees apply when you set up monthly payments to you and each time you make one-off withdrawals against your house.

The interest rate the bank charges against your loan is higher than the rate normally applied to mortgages. In February 2022 Heartland Bank was charging an interest rate of 6.1%, while Kiwibank was offering mortgages at a variable interest rate of 4.25%. Variable interest rate loans means the bank can change your interest rate at any time. Both banks offering reverse mortgages do not offer the option of fixing your interest rate. That level of difference in interest rates between mortgage and reverse equity loans has been consistent since reverse equity loans became available.

Interest rates are currently very low and the Reserve Bank has indicated it is likely to increase the Official Cash Rate (OCR) progressively over the next two years. That will result in increases in interest rates for mortgages and reverse equity loans, which means the size of the loan against the value of your house will get larger more quickly.

Are there any risks?

There has been strong growth in house prices in New Zealand over the past 30 years, but there have been periods where house prices have fallen, most recently during the 2009 Global Financial Crisis. There is no guarantee that house prices will not fall again.

The risk of a decline in house prices is higher now because of the extreme growth in house prices we have experienced over the past two years. There will also be an impact from the interest rate increases in 2022 and 2023 on households with high levels of debt, with some struggling to meet their interest payments.

It’s important to recognise that your ability to downsize to a better home might be limited if you accumulate too much debt against your home.

Options to consider instead of a reverse equity mortgage are:

1. Downsizing now to a smaller home, where the heating, insurance and rates costs will be lower.

2. If you have a large section, subdividing it is a possibility, but the initial costs are high.

3. If you have enough space, there are now options to add a new modern house for yourself on your section and have one of your children take over the main house. Many councils have changed their granny flat rules, with some allowing houses up to 80m² to be added without needing to subdivide.

4. Consider selling your house, or a part-share of it, to one of your children, so they can help you out with monthly or large one-off expenses. The cost of interest for them to buy your home is less than for a reverse equity loan.

This is a very brief overview of the pros and cons of taking out a reverse mortgage and the other options you could consider. It is important to consider the impact of the financial decisions you make now on the inheritance you leave for future generations.

If you have children, have a conversation with them about how to meet costs that you are struggling to afford, such as significant repairs to your home. If costs like insurance or rates are becoming too high, are there ways they might be able to help. It’s essential to get good independent financial advice and to talk to a lawyer about any of these options.

The Bible suggests we should pray, and seek wise counsel. ‘The Lord says, “I will guide you along the best pathway for your life. I will advise you and watch over you.” (NLT)

“Fools think their own way is right, but the wise listen to others.” (Proverbs 12:15 NLT)

Peter Crawford

Should I invest in Bitcoin or other cryptocurrencies?

What are cryptocurrencies?

Cryptocurrency is a type of money that’s digital and can be used to buy and sell things, usually online.  However, its potential to store and grow value in has resulted in interest from investors looking for other ways of earning income faster.

The New Zealand Financial Markets Authority website notes cryptocurrencies are not legal tender (money that must be accepted as payment) in most countries and do not exist physically as notes and coins. They are also not viewed as financial products so are not regulated in New Zealand. There are over thousands of different cryptocurrencies available on the internet, with Bitcoin one of the more well-known currencies.

When you buy cryptocurrency, it is held in a ‘digital wallet’. It can be used to buy goods or services from anyone willing to accept it. Cryptocurrency trading platforms enable you to buy and sell cryptocurrency and some allow you to convert it back into money (like New Zealand dollars) at any time, if someone is willing to buy it.

People buy or use cryptocurrencies to:

1. make a profit if the cryptocurrency increases in value,
2. make payments directly without going through the banking system,
3. benefit from lower (usually zero) transaction fees compared with traditional banks and other online payment processes when purchasing goods and services,
4. invest in a business or individual raising money through an Initial Coin Offer (ICO).

Understanding the risks

Banks charge fees when you are making payments overseas, so cryptocurrencies are seen as a cheaper option.  However, many overseas cryptocurrency exchanges are unregulated and operate exclusively online – with no connection to New Zealand.  This makes it hard to find out who is offering, exchanging, buying or selling it. It also makes it unlikely you’ll recover your money if things do go wrong with your overseas payment.

Using cryptocurrencies may make you a target for scammers or businesses selling high-risk investments.

Things to look out for

Cryptocurrency value can change quickly

There many cryptocurrencies available. If one becomes popular its value may increase quickly, but its value can also suddenly drop, sometimes permanently.

The risk increases if you invest in the futures market through contracts for differences where you make (or lose) money by predicting how the price of cryptocurrencies might change. These products are typically offered with leverage (the use of debt) – you may only pay a portion of the value of your trade upfront but if you lose, you have to repay the full amount borrowed, plus any amount you’ve lost. Even small movements in currency values can have a big impact on any gains or losses you make.

Your ‘coins’ may be stolen

All online transactions are at risk of cyber-crime. The cryptocurrency in your digital wallet can be stolen just like the money in your real wallet – with very little chance of it being returned. Cryptocurrency marketplaces and trading platforms can also be at risk of cyber-attack.

CERT NZ has some great information on ways you can keep your digital wallet more secure.

Cryptocurrencies aren’t widely accepted

Cryptocurrencies have less practical value than money which can be used to buy all goods and services.

Make sure any New Zealand platform you use:

1. is registered on the Financial Service Providers Register (FSPR),
2. is a member of a dispute resolution scheme, and
3. holds your New Zealand dollars in a trust account.

Know what you’re getting into, including how the currency is stored and transferred, and how to get your money back.

Store your login details securely. If you forget them or enter your details incorrectly, you may not be able to access your money permanently.

Understand how to access a payment record. You may need to prove you’ve made a payment – to get a refund for example.

What does the Bible say about investing? 

 “Don’t wear yourself out trying to get rich.  Be wise enough when to quit.  In the blink of an eye wealth disappears, for it will sprout wings and fly away like and eagle.” (Proverbs 23:4-5 NLT)

 “Teach those who are rich in this world not to be proud and not to trust in their money, which is so unreliable.  Their trust should be in God, who richly gives us all we need for our enjoyment.  Tell them to use their money to do good.  They should be rich in good works and generous to those in need, always being ready to share with others.  By doing this they will be storing up their treasure as a good foundation for the future so that they may experience true life.” (1 Timothy 6:17-19 NLT)

There are better, more stable opportunities for investing. If you think you want to own a cryptocurrency, start small, and be prepared to lose it all.

Acknowledgement – a significant portion of the content of this article was sourced from the New Zealand Financial Markets Authority website.  For further information on cryptocurrencies and warnings issued by the FMA go to www.fma.govt.nz.

Peter Crawford

Does God require fathers to be the breadwinners?

This question raises a common confusion: the distinction between leader and provider, and how God instructs men on both. The image that we are given in scripture for God the Father is of the highest and best leader of all.  That provides us with a template for understanding what is expected of men and what is not.

In the Bible, God lays out a chain of leadership, which does not subjugate, but rather organises how people work together. At the foundation of the structure is sacrificial love by the leader, who is held to the highest standard.

When it comes to organizing households, 1 Corinthians 11:3 puts it like this, “But there is one thing I want you to know: The head of every man is Christ, the head of woman is man, and the head of Christ is God.” In this outline, we see God detailing who is accountable for whom in relationship. God, out of love for the world, sent His Son to die for us. He made a plan to care for all of us. He asks the most of Himself. The husband is told to lay his life down for his wife and family as well, following God’s example. Accountability does not equal tyranny, but rather describes a sacrificial relationship.

Consider that wives are told to love and respect their husbands, while husbands are ordered to be like Christ. “For husbands, this means to love your wives, just as Christ loved the church. He gave up his life for her,” notes Ephesians 5:25. Husbands and fathers are called to sacrifice their own desires for the good of their family. This requirement ranks far above money. It involves time, planning, preparation and self-discipline for the goals and good of our loved ones. But does that responsibility also include the requirement to be the main income earner?

The short answer is no. The Bible does not indicate that a good husband and father brings home all or the highest share of the income, but he is required to work to the best of his abilities. A husband is required by God to care for the good of all in the family. 1 Timothy 5:8 says, “But those who won’t care for their relatives, especially those in their own household, have denied the true faith. Such people are worse than unbelievers.”

This verse indicates that a husband and father is expected to provide for his family, to know their needs and to plan how to care for them.

Some women do work — even in the Bible. In Proverbs 31 for example, we read about the industrious woman, who cares for her household and contributes to the income through her businesses. God chose Deborah to rule as a judge over Israel in the Old Testament.  We know of married couples like Aquila and Priscilla who worked together as tentmakers. Glimpses of couples working together are woven throughout the scriptures without any condemnation of the family where the wife may have earned more.

But God does require something from those in leadership and holds men accountable for their management of their homes and families. A husband and wife together may decide that both need to work, and may organise their resources to achieve goals for their children and loved ones. It is the husband and father who will be held accountable for keeping the family on track.

Options to think about

Sometimes, when a couple has small children, it may make sense for the person with the lowest income to take on the responsibility of caring for the children while the other works full-time. Some men do well in the role of stay-at-home parent, while others struggle.  It depends on what works best for you as a couple. Working for Families tax credits and the Accommodation Supplement for families who are renting or have a mortgage, mean they might be better off financially on one income, because they don’t need to pay for child care.

Some men have been able to go into unpaid ministry work because their wife is able to financially support them both and their children. This doesn’t mean that the men have given up on their responsibilities to provide for the family, but rather that they have come to an agreement with their wives on where God wants them both to be working.

A great first step to setting priorities for your family is make sure that what you believe about God’s principles for finances aligns with how you actually behave with your finances. The MoneyLife Indicator assessment on www.crown.org will help you identify areas of strength and weakness and provides an Action Plan for making changes. So, make it fun and plan a date night with your spouse to discuss your individual results, the impact on your family and what steps you want to take together!