Spotify v KiwiSaver

The battle for your financial wellbeing

For those who have read my articles over the years (many thanks), you will know that I have a love of music. While I can’t play an instrument, sing a note in the right key, let alone remember the lyrics, it’s something that has always made my life better and I don’t think I could live without it.

I grew up buying albums (vinyl) at an early age. I had to save up my pocket money, and then my wages, to buy a record. I could only afford generally one album a fortnight, so I spent a heap of time going through the record store bins, watching Ready to Roll, Radio with Pictures with Karyn Hay, and talking to mates to make sure I bought something I would play over my lifetime.

After buying an album, say New Gold Dream by Simple Minds, I would play it over and over, while reading the liner notes end-to-end. I’d also study the lyrics, if they were enclosed, to understand what the songs were saying and discover tracks you never heard on the radio or TV.

‘‘Streaming’’ is a word that first came into our consciousness in the 90s but now is part of nearly everyone’s day-to-day life. It has opened the door to music, movies, and anything you want to have access to, 24 hours a day, seven days a week, 365 days of the year.

For what seems to be a small amount, on a monthly basis, you can have access to nearly everything you ever wanted.

Spotify ended my days of purchasing CDs, which in turn had ended my days of collecting vinyl. Why own when you can pay to have access to everything? It was like visiting a massive supermarket of music, where I could walk down the aisles with my fingers, to pick and play, and create playlists as I went depending on my mood and interest at the time.

Over time (years), I’ve come to have a love/hate relationship with Spotify. With all that choice I find myself listening to bits of songs and if I can’t hear something I like in 20 seconds or so I skip to the next track, ultimately playing nothing, and wasting my time. I end up playing the music I already own, with just the convenience factor to convince me that I should keep paying for my Spotify account.

Other than the cost, what has that got to do with your finances? Well, think about your KiwiSaver as a subscription and streaming service that could provide far more significant joy over the long-term, by helping you save for your first house or for your retirement.

Essentially you are paying yourself forward on a regular basis via your salary or wages and, if your KiwiSaver provider does a good job and invests in the right assets suitable to your risk profile and personal circumstances, you will enjoy a far greater time in retirement.

So I thought I would play around with some numbers to show the impact of cutting back on one or two of your streaming services and putting the money in your own KiwiSaver investment streaming service instead.

Let’s start with a 25-year-old who has Spotify Premium Duo. That is $19 a month you are paying, or $228 a year, or $9120 paid until you retire at age 65.

If you were to switch that streaming service to KiwiSaver and add $1 a month more you would not only have saved $9600 over 40 years, but also received an additional $4800 from the member tax credit the government will give you free.

Add an overall positive return of 5% over 40 years and, going by the Sorted website, your total savings will be $28,739. This is caused by the power of time and compounding interest.

What would happen if you also got rid of Netflix, Neon or Disney Plus and added an additional $50 savings a month?

In total, you would have $96,600 saved over the 40-year period. No, this doesn’t include inflation, but it does give you a rough idea of what

saving a little, rather than spending a little, over time can make to your retirement outcome.

I know people who have streaming services like Spotify, Tidal, Apple Music, Apple TV, Netflix, Neon, Disney Plus, Sky Go, Amazon Prime, to name a few.

I’m not saying stop all your streaming services but if you were to drop one and invest the money then, depending on your age and stage, the impact will most likely be quite profound.

I’ve come to realise that the setand-forget model to access music, with 90% of songs and artists that I will never play, doesn’t add up as much as it used to. It seems other users of streaming services are starting to wake up to this, as the impact of inflation makes consumers look at where their discretionary dollars are being spent and what to cut back on.

By way of example, Spotify’s share price has been falling this year. This is, in part, due to user growth numbers not meeting targeted expectations and also because of the current economic environment.

Funnily, I am back to buying vinyl; choosing what I really like, and playing it again and again, without any further cost. I also get the benefit of hearing music as it was intended, compared to the inferior sound most streaming services provide. And for convenience, many albums come with a digital copy too. Perhaps this is why buying vinyl is coming back into vogue, with the US seeing a 22% increase in sales for the first half of this year.

All I know is that if Spotify falls over tomorrow, I will still be able to play the music I love, whenever I like, at no further cost to me as many times as I like. I’ll also be able to pass on my collection to my children, and their children, so they too can enjoy what I have collected over the past 40 years without having to pay for it again.

Think about your KiwiSaver as a subscription and streaming service that could provide far more significant joy over the long term, writes David Boyle.