Survey shows young people struggle with budgeting, saving
Whether it is compound interest compared to the icing on a cake or debt likened to a stone in your school backpack, parents can help their kids grasp financial concepts by relating them back to everyday life, a researcher says.
A new survey, the Westpac Massey Fin-Ed Centre 2015 Student Financial Health Check, has found young New Zealanders lack budgeting, saving and investing skills.
The survey of nearly 300 16- to 19-year-olds was developed in conjunction with high school teachers to test the competence levels of students across a range of personal finance areas.
The average score for questions relating to budgeting and financial management was only 37 out of 100. The next lowest average score, at 45, was for saving and investing.
"These are two very crucial areas for young people to come to grips with if they are going to put themselves onto a path of financial wellbeing," said Westpac Massey Fin-Ed Centre director Pushpa Wood.
"If they don't know how to budget well, they will not have money to save. And if they don't understand how best to grow their savings, then that will have a long-term impact over their lifetimes."
She said parents should start having regular conversations about money with their kids. "The key is for parents to make sure they make money a normal topic of conversation, rather than a topic of pain and agony. They should be talking about 'let's plan how we spend the money we have', being positive rather than negative."
If a child wanted to buy an expensive toy, instead of saying no outright, parents could offer to budget and plan how the child could afford it in future.
"Turning the conversation into a positive learning experience for them. If you want children to be savvy with money you need to start with equipping them with the tools."
She said a concept such as compound interest sounded difficult but parents could make it simple to understand by comparing it to icing on a cake. "The cake is the capital and the icing is the interest," she said.
Debt could be likened to a stone being carried around in a backpack. "Compound interest when you are borrowing is like adding more weight. it's making it as simple and as palatable as possible."
Young people needed to be told early on that they could not have everything they wanted as soon as they wanted it, she said.
Wood said the results were concerning because efforts had been made for 10 years to improve New Zealanders' financial skills. "Maybe we need to start looking at a joined-up approach rather than schools teaching one thing and then the parents [teaching something else]. But in my opinion it needs to start at home, then schools strengthen it."
Westpac NZ acting head of investments and insurance Nigel Jackson said the results underlined Westpac's belief that financial education should be a compulsory subject in New Zealand schools.
"Every student should have a basic understanding of financial management by the time they leave school," he said. "It's never too early to get in the habit of setting long-term financial goals and strong budget management through the student years can make a real difference after graduation.
"While we'd expect students to be less focused on saving and investing, simply having a KiwiSaver account for after graduation could play an important role in long-term financial security."
The survey respondents scored best in the areas of identifying and managing risk and understanding their rights and responsibilities.
"It's great that kids seem to understand their rights and that they are able to identify risks," Wood said. "It seems that this age group is much less likely to fall victim to a scammer than our senior citizens."