NZACU CEO Derides Notion of Debt as Profitable

AUCKLAND, New Zealand – “Debt is profitable. How much marketing do you see coming from mainstream banks that encourage savings? Their advertising hammers home loans and financing options, not thrift. When you have profit driven shareholders to satisfy, the value of thrift falls by the wayside.” With these words Doug McLaren, CEO of the New Zealand Association of Credit Union (NZACU) positioned credit unions differently from the banks, loan sharks and payday lenders that have helped debt levels in New Zealand to grow by 14.9% in 2004 to NZ$15.5 billion (US$11.11 billion). McLaren believes that New Zealand’s government and businesses place too much emphasis “on protecting, encouraging and legislating in the interests of a profit driven culture” while neglecting the legislation that would make credit unions more competitive. One in 20 New Zealanders belong to a credit union in comparison to 1 in 2 in Ireland and 1 in 4 in Canada. The dangers of too much consumer debt were signaled in March of this year when Spicers’ Household Savings Indicators quarterly survey reported that consumers were: “piling on new debt faster than asset values are rising. In the last three months of 2004 alone, debt rose 3.7 percent.” For the same period household wealth grew 2.4%, part of which was attributed to the increasing value of houses. Figures for the first quarter of 2005 show debt increasing at a 3.9% while wealth increased by 3.3%. Spicers, founded in 1987, provides financial advice to New Zealanders and releases financial indicators quarterly. The cost of debt is rising as well, according to a March article in the New Zealand Herald which said: “debt servicing costs take a bigger bite out of incomes than at anytime in the past 15 years and are higher than in Australia or Britain”. McLaren feels that credit unions’ emphasis on budgeting, savings and thrift are core values that can help the situation and the people who are debt ridden. McLaren does not want the poor to take on more debt. He feels that the entire financial sector stresses borrowing over micro-saving. He wants credit unions to stress savings and has offered concrete steps to help families do that. His first recommendation is that high interest loans be paid off so that money can be used for savings. Realistically, he said, it is necessary to have short and long term goals, be it the purchase of a new car or retirement. Families need to estimate the cost as well as the time it will take to reach that goal. “Most people may find that their savings are not enough to accomplish their goals. At this point they can ask themselves where they can `cut back’ i.e. stop using the credit card, to increase their savings,” McLaren said. For too long “too many New Zealand are finding that financial worries are controlling their lives and seriously inhibiting their quality of life.” Change is needed. McLaren said, “The important thing is to begin.” -