OPINION | Stronger financial returns are only one side of the adequate retirement income equation. Consumption patterns sit on the forgotten side of the ledger. Encouraging members to embrace charitable giving during the accumulation phase could leave them better prepared for retirement.
The superannuation industry was born to prepare people for their retirement. I wonder whether this is more than just managing our members’ money to give them financial returns.
As per the recommendation of the 2014 Financial System Inquiry, the government plans to legislate the objective of super as “to provide income in retirement to substitute [for] or supplement the age pension”.
Many in our industry have argued that this should be changed to “to supplement or substitute [for] the Age Pension to provide an adequate income in retirement”.
Whilst I agree with the change, I think we have focused too heavily on the income generation side of the equation and not addressed the other side – our members’ consumption patterns.
We all know the world continues to evolve at a rapid pace. Futurist Richard Swenson argues that the 20th century was a time of historical disruption, rather than historical transition, where all main consumption indices (housing, healthcare, education, etc) moved from linear growth to exponential growth. And this was before the phenomenon of social media.
The result is we are spending more than our grandparents could have conceived of. To give you a random example, the meat consumption of a German doubled from 30kg a year in 1914 to 60kg a year by 2014. It is nice that our European friends are enjoying more meat (hopefully including some Australian lamb), but it demonstrates how our consumption has exploded dramatically.
Our members’ retirement lifestyle will look different from their elders. The days of a member retiring with a nice lump sum that can be used to pay off the house, buy a car, do some travel and spend money on the grandkids are quickly disappearing. Rising rates of consumer debt suggest that our members will have education debts, travel debts, a car loan and, for the fortunate ones, a mortgage in one of the major capital cities.
Meanwhile, their lifestyle expectations will be higher.
This is not to say that consumption is a bad thing, in and of itself. The 2015 Nobel Laureate in economics, Angus Deaton, argues passionately that we should be encouraging people in poorer countries to consume more. However, I am wondering whether, in our society, we need to encourage people to consume less. We need to prepare people for their post-work season by educating them in a more holistic way.
At Christian Super, we see our role as not only to provide for our members’ retirement incomes, but also to educate them on their consumption patterns so they can have an adequate income (relative to their consumption) in retirement.
Charity and savings, before spending
Recently, I’ve been toying with money management techniques that centre on the principle of ‘Give, Save and Spend the Rest’.
The first step is to give away a predetermined percentage of income to benefit others, whether that be to churches, charities or community organisations. In some sense, it doesn’t matter where members give, it will protect them from falling into the trap of developing consumption patterns that no amount of savings or financial market growth can sustain.
The second step is to save more. Whilst it is ideal for members to put this savings into the superannuation system, what’s most important is creating a mechanism that reduces consumption while providing for the future.
Finally, after giving and saving, then comes spending. It could be argued that simply saving more, rather than giving, will result in greater sums available for retirement. However, an unexpected benefit of giving is that it creates an abundance mindset – you have enough for your own needs and are free to be generous.
A miserly approach will never lead to contentment; no matter how much money you have, it will never feel adequate.
I know that the Give, Save and Spend the Rest member education strategy is counterintuitive and will require massive behavioural changes. But to me, it is a more holistic way of preparing our members to have an adequate income in retirement.
Peter Murphy is the chief executive of Christian Super. This article first appeared in the April print edition of Investment Magazine. To subscribe and have the magazine delivered CLICK HERE. To sign-up for our free regular email newsletters CLICK HERE.