# Goodbody's forecast on how we will spend our SSIA money



## Brendan Burgess (27 Aug 2004)

Goodbody Stockbrokers released a report today.

```
[b]Investment: 63%[/b]
Investment property         4,140 €m
Equities                    2,466

Savings                       925
Holiday Home                  190
Repay mortgage                 93

[b]Consumption: 37%[/b]
Holidays                    1,655
Home Improvement            1,329
Cars                        1,138
Other                       1,412 ( must include some investment)
Education                     632

based on a tnsMRBI survey in October 2003 [i]We believe 

that in a desire to appear responsible, respondents may 

overstate their intention to invest and...to understate their 

intention to ...spend "frivolously" on holidays and cars[/i]

[b]Net withdrawal from the equity market[/b]
SSIA money invested in equities:      €3.5b
Proceeds to be invested in equities:  €2.5b
Net withdrawal:                         €1b. 

[b]ownership of SSIAs dominated by low income earners[/b]
According to Revenue Commissioners figures:
<€20,000 per annum:    45% of accounts
20,000 to 50,000       42% 
> 50,0000              13% 

average age: 40

[i]Given the income distribution of account holders,
 it seems reasonable to assume that a high marginal 

propensity to consume will apply to the funds released[/i]

[b]Impact of this money on GNP growth forecasts[/b]
2006:  4.8% to 6.7%
2007:  4.7% to 6.2% 

No impact on inflation, apart from effect on buy to let prices

[b]Net cost of scheme to Government: €1.54 billion[/b]
Gross cost:               €2.7 b
Less additional receipts: €1.25b
due to marginal consumption and investment leads to higher

 excise duties, VAT receipts and stamp duties.
```


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## Brendan Burgess (27 Aug 2004)

I find it hard to believe that as much as 37% of the money will be consumed. How was this money accumulated in the first place? I don't know anyone who deferred buying a car or who deferred doing up their house to start an SSIA. Most people just shifted their money around from some other form of savings. I doubt if they are now going to go on a splurge with it. 

In particular, a lot of this money will go into paying down mortgages. 

I would also guess that the €3.5 billion invested in equity SSIAs are long term savings and will switch into other equity investments - either unit linked funds or PRSAs. 

I am astonished that 45% of SSIA holders have incomes of under €20,000. This makes no sense at all. Or is this because parents opened SSIAs in their children's names? But then, how is the average age 40? There is something wrong with this statistic. 

Brendan


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## sluice44 (27 Aug 2004)

Hey Brendan, don't you know that 'talking' to yourself is the first sign of madness!

Personally, I don't what I'll do with the money.  I'll either pay off some of the mortgage or roll it over into some savings plan.

Sluice


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## ajapale (27 Aug 2004)

*Leaving Cert Maths*



> I am astonished that 45% of SSIA holders have incomes of under €20,000. This makes no sense at all. Or is this because parents opened SSIAs in their children's names? But then, how is the average age 40? There is something wrong with this statistic.



I think there is enough information here to solve the equation (ie prove whether it is possible or not). If I crack it Ill get back to you.

I suspect the number of older people on reasonalbe pensions has the effect of increasing the average age but decreasing the average income. Very many old people diverted some of their life savings into the these attractive SSIA's.

ajapale
12&nbsp &nbsp &nbsp &nbsp 0.00
13&nbsp &nbsp &nbsp &nbsp 0.00
15&nbsp &nbsp &nbsp &nbsp 0.00
20&nbsp &nbsp &nbsp &nbsp 20,000.00
30&nbsp &nbsp &nbsp &nbsp 37,000.00
40&nbsp &nbsp &nbsp &nbsp 40,000.00
40&nbsp &nbsp &nbsp &nbsp 40,000.00
40&nbsp &nbsp &nbsp &nbsp 40,000.00
80&nbsp &nbsp &nbsp &nbsp 17,000.00
80&nbsp &nbsp &nbsp &nbsp 15,000.00
80&nbsp &nbsp &nbsp &nbsp 15,000.00
70&nbsp &nbsp &nbsp &nbsp 20,000.00
*43.33&nbsp &nbsp &nbsp &nbsp 20,333.33* average age 43 average income 20k


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## Brendan Burgess (27 Aug 2004)

*Re: Leaving Cert Maths*

Hi aj

Very interesting analysis. It further strenghtens my argument that the spending splurge will be limited. Older people are very careful with their money as they are usually worried about how long they will live and they worry about how much they will leave to their children. 

So Goodbody's _marginal propensity to consume of the lower paid_ will not be a factor. 

Generally speaking the people who took out SSIAs were sensible financially. When the SSIA matures, they will be five years older and, presumably, even more sensible. 

Brendan


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## rainyday (27 Aug 2004)

I dunno, Brendan. We've seen many, many posts on AAM from those who consider themselves to be sensible, mature, conservative, but who seem quite happy to throw large amounts of money into the latest speculative investment scheme, particularly foreign property. 

I can see a lot of the Govt 25% being frittered away on these madcap investments.


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## Bongo (27 Aug 2004)

*GNP and all that*

I am a great skeptic on macro economics, especially in the Irish context.  These SSIAs represent massive savings at present - is that having any dent whatsoever on GNP or inflation?  Similarly when the savings reverse in 2006/2007 will it matter one iota?

I agree with Brendan,  SSIAs did not affect people's economic behaviour at all.  They continued to mortgage up to the hilt and to buy cars.  Pensioners did not reduce their consumption, they simply diverted their savings.  On maturity, these personal financial balance sheet distortions will simply reverse with little impact on people's spending behaviour.


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## John (27 Aug 2004)

*House prices*

The release of this "wall of money" from the stock market will just add fuel to the flames of property prices. 

We're going to see a HUGE rise in house prices once this money hits the market.


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## ajapale (27 Aug 2004)

*Re: House prices*



> We're going to see a HUGE rise in house prices once this money hits the market.



Hi John,

I disagree because I think that the effect has been factored in already. ie people are borrowing now with a view to paying down the mortgage when the SSIA's mature.

I predict little or no impact on the price of houses at maturity time.

ajapale


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## Bonjo (27 Aug 2004)

*I agree with ajapale*

Average SSIA €13K.  Average house price €300K.  Not relevant.  Now the price of weekends in Ashford Castle, they will double!


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## rainyday (27 Aug 2004)

*Re: I agree with ajapale*

Remember that the average SSIA'd couple will be coming into the market with around 30k (subject to performance of equity markets), which just happens to be enough for a deposit on a 3-bed buy-to-let property.


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## Mr Realistic (30 Aug 2004)

*Yea Right*

A 3-bed semi property investment, 

Yea right, not anywhere that you'll be renting it out at a decent market rent, on an ongoing basis fella.

Get real Rainyday !!!! 

.... a lot of this cash will end up invested abroad where people are not robbed by their Governments high taxes & their shopkeepers rip off prices (unless the Government offers something very very attractive for us to put the dosh into that is !)


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## macnas (30 Aug 2004)

*re*

It will be of much interest to see what the final total for say a max SSIA will be at the end of the term. Late SSIA's will be worth more?


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## Brendan Burgess (30 Aug 2004)

*Re: re*

Yesterday's paper ( Tribune or SBP) reported that Goodbody's have identified the Irish stocks which are going to benefit from this windfall. As the lower income groups will allegedly be the main recipients of the windfall, Paddy Power will do very well out of it. I hope I am not breaking our guidelines for discussing stocks - I am just pointing out that these stock recommendations are based on what I consider to be faulty analysis. We may also get a government reaction to this faulty analysis, such as an extension of the SSIA scheme or some incentive to transfer it into pensions.

Brendan


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## Sumatra (30 Aug 2004)

*Re: re*

" hope I am not breaking our guidelines " Bren thats like a judge saying 'I hope I'm not breaking the speed limit doing 50 in a 30 mile zone'. No one seems to have noticed so you'll be fine  

This SSIA / savings wealth is good providing its spent in certain ways and the Goodbody report is the first of many reports which no doubt will be used as a basis to educate people as to how it will or to give them ideas as to how it could be spent. Yes there will be some who will market goods which will help people keep up with the Jones'  by splashing out on material goods, but to the vast majority of people I believe they will look on it differently - its cash and people won't spend cash as easily as they do credit! 

In my opinion there are two considerations. 1. The SSIAs have created the habit of saving each month. It has thought people to 'save differently' and the benefits of this new discipline cannot or should not be lost on maturity and 2. The scheme provides the availability of a lump sum at maturity. The Govt should take the batton and run a little further with the scheme. Why not give a further incentive to those who wish to reinvest and save for their future.  

The Govt should be investigating alternative ways of spending these recourses that could have more lasting gains for the population as a whole only then can we sit back and say the scheme was a success.


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## ajapale (30 Aug 2004)

*faulty analysis*



> faulty analysis



Brendan,

If you have sight of the original document perhaps you could check the assumptions. In my opinion it is rare (but not unknown) for reputable econonomists to conduct faulty analysis. For more probable is that they have framed their assumptions in order to reach a particular conclusion.

I wonder what are the Goodbodies motives? Have they done this out of the goodness of their heart. Or is this simply an excercize to "bounce" the government into some sort of equity based continuation of the scheme?

ajapale


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## Bongo (30 Aug 2004)

*Spending the SSIA money*

Was I dreaming or did I read somewhere that Michael Smith wants us to spend our SSIA money on army things - how would that work?

Aja, u are far 2 cynical, it doesn't matter one jot who are stockbrokers to Paddy Power.


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## Brendan Burgess (30 Aug 2004)

*Re: Spending the SSIA money*



> Given the income distribution of account holders, it seems reasonable to assume that a high marginal propensity to consume will apply to the funds released



I think this is the analysis:

45% of SSIA holders earn less than €20,000
Low earners have a higher propensity to consume rather than invest
Therefore there will be a spending spree. 

I would agree that low earners have a higher propensity to consume, in general. I don't know if pensioners have a higher propensity to consume. I doubt if pensioners go on spending sprees. If these low earners are mainly pensioners, then there will not be much of a spending spree. 

That's why I think this analysis by Goodbody's is faulty. They have stated the assumptions - I think they just didn't notice the peculiarity of such a high average age combined with such low earnings. Economists often disagree which means that their analysis is often probably faulty.

Brendan


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## ninsaga (30 Aug 2004)

*Re: Spending the SSIA money*

Must admit that when i saw this report - as show on the news, that I could not really relate to taking part in the massive spending spree that Goodbodys are predicting. I certainly have no plans to go mad & buy a 52" plasma TV (or whatever the fad will be then) with all the surround sound trimmings when the SSIA's mature. Current plan is to dent the mortgage & possibly reinvest some.

 I would expect that all of the institutions will be bringing out new investment products for which I would expect that they will successfully attract SSIA savers.....


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## magnate (12 Oct 2004)

*splurge*

Hope I'm not being sacreligious when I say I'm planning some "frivolous spending" when my SSIA matures

My plan is to go on a holiday to Italy and buy the '70s alfa spider I've always wanted!!

(I'm one of these young not so high earner types I guess)

Any left over will go into the mortgage - to make more of a pock-mark than a dent I'd imagine

What's the point of prudent saving if you never enjoy it?
(of course: I agree you should always have something for the rainy day)


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## Sunshine (12 Oct 2004)

*Remder onto Caeser*

Imaging if _rainyday_ ever got all the money that is saved for him.


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