Opinion & Analysis
OPINION: In 2005, I joined a committee in Wellington to design a survey that would measure the financial literacy of Kiwis.
Along with the usual stuff of being sure to measure the right things and so ask the right questions, one of the things that I was keen on was that the survey would provide a comparison between New Zealand and other countries and, more importantly, that we would be able to track changes to financial literacy levels over time.
Since then, there have been three financial literacy surveys reported: 2005, 2009 and this year, as the latest just out.
The good news is that New Zealand comes out quite well internationally. This is difficult to measure and compare but, as far we can see, New Zealand ranks towards the top in many areas.
The bad news, however, is that financial literacy in New Zealand has not improved over the past four years.
Although overall New Zealand does quite well in financial literacy, as in so many things there is a great disparity between top performers and the bottom: We have a long tail of people who know very little about finance. Readers of this column probably know quite a lot about money, but there is a large group who do not.
I can't help think that financial literacy for the bottom group at least, is really a problem of just plain ordinary literacy - and numeracy. That is, those who can't read well or do sums, can't be expected to know much about money. Within the survey there is a clear correlation between educational attainment and knowledge of money.
It seems to me that if you could improve the population's ability to read, write and do some maths, you would improve financial literacy and, no doubt, a bunch of other things as well.
Understanding finance at a basic level is not really all that hard and it is tempting to call for it to be taught in schools. However, with a full curriculum and in many cases reluctant learners, we would be better to put the resource into fundamental literacy and numeracy. After all, someone who cannot read well, cannot be expected to bone up on the latest capped mortgage offering or read the 250-page Mighty River Power prospectus.
Those who are not in paid employment are also highly represented in the low knowledge group. Like low educational attainment, this is understandable - if you have little income and live hand to mouth, you will not care much about capped mortgages or Mighty River Power either.
The survey shows there is a big difference between knowledge and doing something with that knowledge. For example, the latest survey shows that 91 per cent of people agree that their financial future is their own problem. However, only 54 per cent spend much time thinking about it and a small 31 per cent have worked out how much they need for retirement.
There is a disconnect between what we should do and actually doing it. Financial knowledge is valuable only if you have the attitude and habits to use it.
A surprising finding from the survey for me, is that as a nation we like shares even less than we did four years ago: In 2009, 22 per cent of us owned shares and now only 16 per cent are shareholders (a drop of 27 per cent). This is weird because although the GFC with its major fall in share values will have been in people's minds, shares have been the stellar investment performer over the past four years.
Since early 2009, the NZX50 index has gone from 2500 to about 4500 today. That is a gain of 80 per cent. No asset class has produced returns as good as that and yet we have sold out and/or stayed out of shares. Strange.
With that sort of return, you would think that a financially literate population would have been in boots and all. We know that we should buy in gloom, but that is not what we have done: Instead when things were gloomy in the four years following 2009, we have sold up and defaulted to low-returning term deposits at exactly the time when we should be piling into shares.
The good news from this survey is that many readers of this article will know what they need to know about money. Yet, the bad news (and the thing that holds them back) is that not so many are actually doing what they know.
Martin Hawes is an authorised financial adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com. This article is of a general nature and is not personalised financial advice.
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